Tucked into President Joe Biden’s $1.9 trillion American Rescue Plan are two provisions that, if made permanent, could bring more adults and parents into the workforce, cut the child poverty rate in half, and fulfill the promise that full-time work in America earns a good life. As an added bonus, there are elements that appeal broadly across the political spectrum.
The first piece is a modernization of a decades-old working wage tax dividend called the earned income tax credit, or EITC. Originally signed into law during the Ford Administration and first expanded under President Ronald Reagan, the EITC has been an essential tool to lift pay for working-wage families. The current tax credit now provides an extra $5,700 in income for a working parent with two children earning the equivalent of a $10 per hour full-time job. But until now, the tax credit has been exceptionally stingy for childless adults and the elderly. President Biden’s plan changes that. It boosts the tax credit, nearly tripling the amount adults without children can receive to about $1,500 while also expanding eligibility to low wage workers over 65 and receiving Social Security.
Child tax credits
The second provision is a more generous and fully refundable child tax credit. Biden almost doubles the size of the child tax credit, increasing the maximum credit to $3,600 per year for each kid under the age of six ($3,000 for children ages 6 to 17). And for the first time ever, the poorest families with little or no income would receive the full benefit. Finally, the 39% of children in families too poor to receive the full child tax credit will no longer get left behind.
These proposed changes will have a seismic impact across America, but they are poised to make an even bigger difference to families who need help the most: families of color often with low earnings. Take, for example, the child tax credit. Most families with children would benefit, but families of color, who are more likely to have dependent children, will benefit more relative to their current income. Families in the bottom fifth of income, typically making less than $21,000 in a year, would see a boost in income by more than one-third. Plus, the benefits would be delivered monthly, helping put food on the table and pay rent at a time when jobs are scarce and food insecurity is on the rise. This plan is expected to go a long way to combating child poverty, cutting the rate in half.
Importantly, it also helps people get and stay in the workforce.
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Working parents were struggling with child care before the pandemic—now it’s a crisis. The coronavirus wrought widespread damage in the child care industry, increasing already sky-high prices. A child tax credit expansion provides resources to address that problem, helping parents afford child care while they re-enter or stay in the workforce. Working parents, especially mothers, have been sidelined in the aftermath of the pandemic, exited the workforce in droves, and need support to re-enter the labor force once the health crisis abates.
Make these temporary changes permanent
The changes in the earned income tax credit and child tax credit contained in the American Rescue Plan are a great step forward, but they are temporary. They last one year and then disappear. Let’s make each permanent.
Democratic Representatives Rosa DeLauro, Suzan DelBene, and Ritchie Torres are leading this charge in the House, and Democratic Senators Michael Bennet and Sherrod Brown call for it in the Senate with regard to the Child Tax Credit. We also need to pair it with a massive and permanent expansion of the Earned Income Tax Credit, extending coverage to essential workers during emergencies, older workers, younger workers and the long-term unemployed.
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As we look toward a post-COVID world, we need policies that prioritize families and support stable work.
The proposed upgrade for the EITC and the child tax credit form a dynamic duo that will permanently make the dignity of work lead to the dignity of a good life.
Jillian McGrath is a policy advisor at Third Way, a center-left think tank.