Government Spending

Expanding the Child Tax Credit Will Do Very Little To Help the Poor. Here's Why.

No country gets out of poverty through redistribution of income.

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Marketing is everything in politics. It explains why a tax credit that benefits 90 percent of American families with kids—some of them with income higher than $400,000—is marketed as an anti-poverty measure. But in politics, that marketing is often an illusion that hides the hard consequences of a preferred policy.

With the latest COVID-19 relief package, Congress expanded the child tax credit, increasing the maximum amount a taxpayer could claim from $2,000 per child to $3,000 for those aged 6 to 17 and to $3,600 under age 6. The expanded part of the credit begins to decrease as income rises above $75,000 for individuals, $112,500 for heads of household, and $150,000 for married couples. The $2,000 credit starts phasing out when income reaches $200,000 for individuals and $400,000 for married couples.

The credit is bigger, fully refundable, and includes no work requirement. It means that parents who don't make enough money to pay the income tax will receive cash from the government in the full amount of the credit regardless of their income. For instance, if you make no income and have two kids between ages 6 and 17 in addition to one toddler, you would get $9,600 a year. Before the change, only $1,400 of the $2,000 credit was refundable. So, in the scenario described above, that payment would have been at most $4,200. However, the family would have to report a limited amount of income to be eligible.

Starting in July, this cash will be distributed in monthly payments of up to $250 a month per child between ages 6 and 17 and up to $300 per child under age 6, based on their ages at the end of 2021. As of now, the changes will expire at the end of December, unless Congress renews it. But to do so, it needs some good reasons. There aren't any. In fact, there are many reasons not to.

The first one is that, as mentioned above, it's hard to believe that the credit expansion is a historic poverty-fighting effort as Democrats contend, considering that most families with kids will get it, including many higher-income households. And while the lowest-income beneficiaries will enjoy the payments, this is unlikely to make a positive long-term difference.

For starters, the lack of federal money to fight poverty isn't the issue with child poverty. As Robert Rector of the Heritage Foundation noted recently, "before the COVID-19 recession, the U.S. spent nearly $500 billion on means-tested cash, food, housing, and medical care for poor and low-income families with children. This is seven times the amount needed to eliminate all child poverty in the U.S., according to Census figures."

One reason for that anomaly is that most of these benefits aren't counted as income in official government poverty reports. But the most profound reason is that no country gets out of poverty through redistribution of income. To make a noticeable improvement on the poverty front, people need to improve their ability to earn and move up the income ladder. Unfortunately, built into this tax credit expansion (with no requirement to work or look for work) is a disincentive to work that could put the brakes on this process—as we saw before in the bipartisan welfare reforms of 1996.

Back then, we also had welfare payments with no work requirement. The result was that nearly 9 in 10 families on welfare were workless, unwed births rose significantly, and most of these families were stuck in long-term poverty, creating a trend in intergenerational child poverty. That cycle was broken with the 1996 reforms requiring welfare recipients to work or prepare for work. The great news is that this led to a historic reduction of child poverty.

If this current program is expanded, we're at risk of repeating the mistakes of the past by increasing the number of single-parent families in which no one is employed and reversing the gains the nation has made since the welfare reforms of the 1990s—all at great cost to taxpayers.

Before Congress starts distributing more cash and centralizing more power in the hands of the federal government, legislators should clean up the regulatory mess they have created, which has resulted in a more rigid work environment for families, an increase in the cost of child care, and a reduction in economic growth.

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  2. You are so late to the party. It only hurts when I laugh.

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  3. “If this current program is expanded, we’re at risk of repeating the mistakes of the past by increasing the number of single-parent families in which no one is employed”

    The goal of this is to create a large group of people dependent on electing progressives, not to eliminate/all eve poverty. This is straight up bribery.

    1. Reality eventually catches up, like it did in 1996. Unfortunately voters and politicians have short memories.

  4. Fact truth ……..
    The goal of this is to create a large group of people dependent on electing progressives,
    https://wapexclusive.com ,not to eliminate/all eve poverty. This is straight up bribery.

  5. The redistribution isn’t to get folks out of poverty. It is to buy votes and put more folks there.

  6. Imagine what would happen if we ever win the “war on poverty”. Huge segments of the government would no longer be “necessary”. Gasp! We can’t have that!

  7. First you are correct that programs like this are far and away too generous to high income people. We need to focus on helping people who are most in need of these program. The problem here is that helping the poor is hard to sell, thus necessitating the inclusion of people who don’t really need the help. Same problem in Covid19 relief bill. We need to say we are going to help the poorest and just do that.

    I do think programs like this can be really helpful to the working poor. People who are working from paycheck to paycheck. This money could provide a buffer to allow them to advance. There are a lot of way a little extra money can give a person a big leg up on life.

    I do support work requirement but I understand those come with cost to the public. The cheapest way to handle the poor is just give them a small amount and tell them to go away. It is much harder to get someone working. Teaching a person to fish is a great idea but remember you have to get them the fishing equipment and then take the time to teach them the techniques. The benefit is far greater but it does cost up front.

    1. It would be helpful to “the working poor” not to have children until they can afford to have children. By subsidizing this behavior, you are getting more children in poverty, not fewer.

      1. Yes, and this is why we need fully-paid abortion services. One inexpensive procedure prevents a lifetime of dependency on government and taxpayers.

    2. Yeah, who wants to be bothered. Just throw money at ’em thru a government program.

    3. Helping the poor is not hard to sell at all. It’s one of the easiest things in the world. Politicians include people who don’t need the help for all sorts of reasons but thinking that the rest of us don’t care about the poor is not one of them.

      I respectfully disagree about the benefit of these programs for the working poor. Yes, a little buffer is a huge leg up toward helping people advance. But several studies (based on programs in Africa among other locations) show that increasing the availability of microloans works far better than grants or gifts. That is, the expectation that the money will be paid back is a huge indicator of the success of the program.

  8. legislators should clean up the regulatory mess they have created

    Veronique, you made a funny!

  9. Not help poor people? This will just encourage more of them. Sounds like help to me.

  10. Somewhere on the capitalism-communalism spectrum is a system that still uses money, but disconnected from market value and only circulated among government and people as a form of political favor.

    1. You mean like the USSR?

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  12. “before the COVID-19 recession, the U.S. spent nearly $500 billion on means-tested cash, food, housing, and medical care for poor and low-income families with children. This is seven times the amount needed to eliminate all child poverty in the U.S., according to Census figures.”

    If this doesn’t help people get it, I don’t know what will. You could be the biggest bleeding heart on the planet who wants to help everyone, but this forces you to concede that redistribution is just special interest politics to win votes. We could literally suspend all government programs and just give people their money back.

    Outside of the ‘skin in the game’ argument, is there really any reason to tax lower income Americans? Outside of the unemployment issues that would arise from eliminating the administrative state, I don’t see why we can’t dismantle the state, use existing tax revenues from those who can afford it to cover the basics + debt servicing, and leave the rest to private individuals. I get that it’s a bit chaotic since there won’t be a guarantee and it will take time to rebuild private infrastructure, but if not now, when? It won’t magically get better until we start the process.

  13. We need to stop subsidizing and otherwise encouraging people who cannot afford them from having kids.
    I chose not to have kids, yet I am expected to pay for other people’s kids?!

  14. While I certainly agree with the futility of trying to end poverty with the distribution of money (largely because we have known forever that poverty in a welfare state is something other than lack of money) I do have to disagree with one thing, at least. The contention that “the U.S. spent nearly $500 billion on means-tested cash, food, housing, and medical care for poor and low-income families with children” is quite accurate. But it sort of contradicts the contention of the lower title referring to “redistribution of income”. The $500B is about 75% of the average deficit in the decade before Covid. If such spending were actually done through redistribution, there might be some real political resistance; but it isn’t. It essentially distributes a portion of overall increases in national GDP that would exist otherwise, while at the same time diverting monetary expansion into social spending (at least to start) that may or may not simply be destroyed by inflationary pressures if done too much. It serves to make those in the social spending industry one explicitly supported and protected by the government. There are very few individuals who can see themselves as being hurt while there are many, from all levels who can see the great advantages.

    BTW, it always seems that the left has a blind eye to the damage they wreak upon those in or near poverty when they give them a temporary benefit. Those who point out that such people are demonstrably least capable of dealing with such a temporary increase in income (which for most people increases the person’s financial obligations accordingly) are usually demonized as blaming the victim or playing to stereotypes of the poor. Too bad.

  15. Moral lesson #1 of the new socialist ‘woke’ generation.

    1 ) Reap what others sow until no one wants to sow anything anymore.
    2) We’d like to technically stamp the title Earned Income Credit on it.

    So if no-one is sowing anymore what’s there going to be to reap?
    Oh; I know…. We can all reap constant complaining and crying.

  16. I do think programs like this can be really helpful to the working poor. People who are working from paycheck to paycheck. This money could provide a buffer to allow them to advance. There are a lot of way a little extra money can give a person a big leg up on life.

    I do support work requirement but I understand those come with cost to the public. The cheapest way to handle the poor is just give them a small amount and tell them to go away. It is much harder to get someone working. Teaching a person to fish is a great idea but remember you have to get them the fishing equipment and then take
    https://wapexclusive.com ,the time to teach them the techniques. The benefit is far greater but it does cost up front.

  17. Anyone raising kids right now on one income like we are greatly appreciate this extra money. This helps “pay” the mother who arguably has the most important job in the country. Why anyone is against paying families to help raise kids is beyond me.

    1. Please pay my MOM first!!! EVERYONE owes us because we are a special royal family and you-all are but peasants in comparison. My mom deserves special pay to buy her nightly party-life while ignoring her many kids and getting cracked out for multiple partners. I don’t understand why anyone could possibly be against paying our royal family for existing at your expense!! We are so ‘special’…… /s

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