Harris’s Child Tax Credit Proposal Could Backfire, Perpetuating Poverty

A centerpiece of Vice President Harris’s newly released economic plan is a revamped Child Tax Credit, which would send families $6,000 for each newborn and up to $3,600 for older children, up from the existing $2,000 per child credit. Her proposal follows Vice Presidential candidate J.D. Vance’s recent call to increase the credit to $5,000 for all children.While the increased dollar amounts have attracted most of the attention, a key motivation for these proposals is to ensure working families with low incomes receive the maximum credit. Working families who pay little or no income tax currently receive only a partial credit, a practice that Senator Wyden, Democrat of Oregon, calls “economic discrimination.” In the same vein, Mr. Vance laments the current credit’s “massive cutoff” for low-income families, while Ms. Harris hones in on sending the “most hard-pressed working families” more assistance.There’s just one problem. Considering government aid as a whole, low-income families are treated far more favorably than middle-class families, receiving tens of thousands of dollars more a year.Let’s take a mom and dad with three children. One parent works full time making $10 an hour, while the other parent stays home with the children. If they received no government assistance, this family would scrape by on only $20,000 a year, which would make it almost impossible for a family of five to make ends meet.Yet in reality the family receives tens of thousands of dollars in government aid. They receive $2,600 from the existing Child Tax Credit — albeit $3,400 short of the maximum credit provided to middle-income families. Only that shortfall is more than made up by the $7,400 they receive from the Earned Income Tax Credit. They also receive more than $12,000 in food stamps. The family that makes $20,000 on their own actually brings in more than $42,000 once accounting for guaranteed government aid from these three programs alone. It may still be hard to make ends meet, but their resources are more than doubled by the government support.That’s not all, though. The family will generally qualify for free health insurance through Medicaid, which for the average family costs the government around $20,000 every year. Some families will receive housing vouchers or other rental housing assistance worth more than $10,000. Some will receive further aid through cash welfare, energy assistance, and other nutrition programs. Total government assistance could bring the family’s income to more than $75,000 from $20,000.That hardly seems unfair.The facts haven’t prevented calls to spend even more on these same families. The Harris plan would send up to an additional $10,000 to young families. The Vance proposal would send more than $12,000, meaning the total package of government aid would more than quadruple a family’s earnings, turning their $20,000 in earnings into close to $90,000 for some families when accounting for the full suite of aid.How about the middle class families who are thought to be treated more favorably under the status quo? Let’s take a family with two parents and three children that makes $80,000 a year. It is true that they receive the full $6,000 Child Tax Credit, but that just offsets the nearly $6,000 they pay in federal income tax.In contrast, the low-income family receives a $2,400 check despite paying no federal income tax in the first place. The middle class family also gets nothing from the Earned Income Tax Credit, nothing from food stamps, and nothing from most of the other programs available to the lower income family. They may receive a tax credit that helps offset the cost of health insurance, but it won’t be free.Let’s be clear. There’s nothing wrong with government aid programs helping out families struggling with low incomes. Only let’s not pretend it’s an economic injustice that one piece of the tax code modestly favors middle-class families by offsetting their taxes, when our other tax and transfer policies send tens of thousands of dollars more to low-income families.Instead, we should focus on helping low-income families earn more on their own so they don’t need as much assistance. Our current programs discourage upward mobility by phasing out aid as incomes rise. That discourages taking steps to move up the job ladder, but even more perniciously, it penalizes single parents for marrying a working spouse. Reducing marriage penalties and building skills should be the first order of business when it comes to helping low-income families.Politicians focused on the perceived unfairness of the Child Tax Credit are missing the big picture. We already provide a lot of resources to low-income families. What we need now is to help them move up through strong families and improved skills.

Harris’s Child Tax Credit Proposal Could Backfire, Perpetuating Poverty

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