For a multitude of reasons.
But before getting into details, let’s discuss what the CTC is, and what it has done for the US population.
Child Tax Credit (CTC) is a program that focuses on combatting child poverty. So far, the program has seen massive success, dropping child poverty to under 10% in all states (except three).
CTC benefits are also easy to claim. Any family earning less than $400,000/year can enter the program, which is almost all US families. But that’s where the debate starts…
There have been discussions about cutting the program down. Senator Joe Manchin is a well-known defiant of the program, consistently claiming that he’d support it if the entry barrier was much stricter.
Is The Program Healthy for US Taxpayers?
This is the primary issue behind the CTC. Since it virtually supports the majority of US families, it brings increased taxation (or) hidden taxes into the US economy.
Even worse, excess availability of the program may cripple the credit’s payment features and its political support.
However, multiple ways to tackle that issue do exist. They include:
- Maintaining the current CTC, but raising tax rates for high income homes only. This fits well with President Biden’s policy of not raising taxes for low earning families.
- Raising eligibility standards. This was already in effect before 2017. However, eligibility and benefits were increased the following year, supported by the Tax Cuts and Jobs Act passed the prior year.
The benefits don’t stop there. Benefits were increased again for the US population through the 2021 ARP. Very-low income families were also allowed maximum benefit from the program.
With that, the ARP’s system expired past December, with the program’s crediting now operating by 2018’s rules.
Is Reducing Eligibility the answer?
This may be so, though it does risk the loss of political support over time, and for a couple of reasons, including:
- Better alternatives. A tax hike for “all” high income households is simply better. For example, an eligibility reduction means that high income homes (with children) support lower income homes. But, with a tax payer hike, even childless high income homes support the CTC, especially with how critical it is for society’s welfare.
- Reduced eligibility can reduce advanced credit effectiveness. This applies especially if credit expires faster at lower income homes, making it a less secure source of benefits.
- Lowering eligibility makes the program seem more like a welfare system. This is less likely to gain acceptance, where near-universal credit systems tend be more accepted.
- Credit has different impacts depending on the states they’re issued in. For example, $50,000 in West Virginia is much more impactful than $50,000 in California. The latter may see their benefits disappear faster if phasing out is applied to low income homes.
With that, even middle-income homes benefit well from the program. For example, Latino/Hispanic and Black families earning $75,000 demonstrated a greater chance of using CTC to pay off debt than for consumerism.
While offering CTC benefits to very high-earning families is unnecessary, the way to tackle that problem should be more detailed.
Phaseouts and low eligibility requirements do not help, especially with how different each state is from another economically.