Don’t renew the child tax credit. Reform it

As Christmas approaches, not everyone is celebrating. American families — hit hard by inflation, wage stagnation and layoffs — must confront another challenge: an expired child tax credit.

The program, which provides cash handouts to parents and is vociferously backed by President Joe Biden, has been hailed as instrumental in reducing child poverty. But renewing the child tax credit has proved challenging. Now, with a few weeks remaining before a new Congress takes office, advocates of the child tax credit are pushing for a renewal in an end-of-year tax package.

The political pain point comes down to work. Republicans want parental toil in exchange for government cash. Democrats, not so much. Republicans say labor force participation is a reasonable ask. Democrats aren’t convinced, instead viewing the credit as more of an entitlement program, one that should be extended to all Americans, regardless of their employment status.

Sen. Marco Rubio is having none of it. “Sending $250/$350 per month/per child to everyone, with no work requirement, is welfare,” Rubio argues.

I sympathize with the senator and more broadly, the party of Lincoln. Americans may find meaning in work. We may value the act of contributing our labor toward a greater good. But we value cold, hard cash a lot more. For the masses, work is a means to an end, and that end is the almighty dollar. If the government just hands out cash willy nilly, why would otherwise hardworking parents toil at all?

It’s a powerful argument and one backed up by hard data. But contrary to the Republican mantra, the Child Tax Credit doesn’t reward work. It never has.

Numbers bear this out. In 2020, claiming $1 of child tax credit required an income of $2,506. Claiming $2,000 of credit (the maximum allowed under law) required upward of $24,000. This pattern — more benefits in exchange for higher earnings — has stayed consistent over time and sends one, unequivocal message: the child tax credit rewards income, not work.

Earning more, not working more, delivers more benefits. This distinction may seem moot. Intuition dictates that work and income are inextricably linked. But intuition isn’t always right. And where poor Americans are concerned, intuition is dead wrong.

The reason comes down to wages. Middle-class Americans can earn $24,000 (the income threshold required to claim the full child tax credit) after a few months’ work. Poor Americans, less so. At the federal minimum wage, a parent working 40 hours a week, 52 weeks a year, would only earn $15,080, far short of the $24,000 threshold needed to claim the full credit.

Put another way, higher wages mean working less to claim the full benefit. Lower wages entail working more. And if wages are low enough, you can work till you drop and still be out of luck.

In many ways, Washington’s wrangling over parental work requirements is misguided. The real question isn’t whether parents should work but rather how much should they work? What is a reasonable amount of toil in exchange for a check from Uncle Sam? Trading elbow grease for cash is reasonable. The global economy is based on these trades. But a government program touted as rewarding work that so consistently excludes people who do, is to put it mildly, absurd.

Questions should be asked about why millions of blue-collar parents cannot claim a benefit touted as benefiting, well, blue-collar parents. The work requirement should be called out for what it truly is: a political red herring that detracts from the real challenge millions of Americans face — wages so low that they exclude participation in government-run programs.

Fixing this inequity admittedly entails raising wages. But I realize winning that fight seems unlikely at best. Efforts to boost wages have been marred by labor conflict and political struggle. The federal minimum wage hasn’t budged for over a decade. Consequently, a more politically palatable way forward on the child tax credit is lowering the income required to levels that include — rather than exclude — hardworking American families.

This too won’t be easy. Some Republicans will resist these efforts citing concerns over reduced labor force participation. After all, if a benefit is easier to claim, why work as much? Some Democrats will argue that any income requirement excludes Americans unable to work. Neither side is wrong. But two truths can coexist.

Public policy is an imperfect compromise, and compromise should be seen for what it really is. Not a dirty word, but the bedrock of American democracy.