Will California parents get a larger tax break? Biden, Republicans both say yes

Here’s a rare example of where Republicans and Democrats in Washington largely agree: Middle and lower income parents should get a bigger federal tax break.

President Joe Biden is pushing a plan to those families to claim up to $3,600 per child on their income tax. Some Republicans like the idea of an even bigger credit. Current credit is $2,000 per qualifying child.

But the two sides also have some serious disagreements, notably on whether a parent should have to work, and how the government would fund all this.

The Biden proposal would mean savings for about 8 million California taxpayers with 6.5 million children, according to an analysis from the Institute on Taxation and Economic Policy, a liberal-leaning Washington tax research group.

It would mean an average savings of $4,230 this year for the bottom 20% of California income earners with children, or taxpayers making less than $29,200. For those with children and making $29,200 to $55,000, the next 20% of earners, the average break would be $2,810.

Amounts would diminish as incomes go up, since the credit becomes phased out for most couples with adjusted gross incomes of $150,000 and most single people making $112,000.

Parents in the middle and upper class range, with incomes of $55,000 to $165,900, would save $2,120 to $2,180 this year.

Biden’s break for parents

The Biden plan revives the expanded child tax credit of 2021, a COVID-inspired relief effort that permitted families with children ages 5 and under to claim up to a $3,600 annual credit. Those with children ages 6 to 17 could receive up to $3,000.

At one point in 2021, the credit was paid in monthly installments.

“The 2021 credit expansion was a tremendous success for working families, slashing poverty for millions and providing financial security for millions more,” said Joe Hughes, federal policy analyst at ITEP.

In particular, the expanded credit “significantly decreased the number of children experiencing poverty across several race and Hispanic origin groups,” the Census Bureau found, and nationally, child poverty rates were cut in half.

Efforts to continue the bigger benefit died last year for several reasons, including disagreement on how to pay for it. As a result, this year’s credit reverted to the $2,000 per child that had been in effect prior to 2021.

But there’s sentiment from both parties to find a way to boost the break.

GOP child tax credits

Sen. Mitt Romney, R-Utah, has led a group of GOP senators in promoting the “Family Security Act,” which would have provided credits of $4,200 per child under 5 and $3,000 for those age 6 to 17.

The breaks, he said, would help promote marriage, reduce child poverty and establish a “firm national commitment to all of America’s families.” Families could be eligible for the credit four months before a pregnant woman’s due date.

Romney said Tuesday discussions continue with colleagues about how to proceed. His plan “has a shot” this year, he said.

In the House, Rep. Jason Smith, R-Missouri, chairman of the tax-writing House Ways and Means Committee, said last month Congress should consider “a Child Tax Credit that promotes the benefits of work to families.”

The idea of tying the benefit to a work requirement, though, troubles a lot of Democrats and their supporters.

Data “do not support claims that the child tax credit has negative employment effects that offset its documented reductions in poverty and hardship,” a study of the 2021 credit changes by Columbia University’s Center on Poverty & Social Policy last year found.

Smith offered other data that showed that once the 2021 credit, which did not have work requirements, ended, significant numbers of people entered the labor force in the following two months.

The other, and probably more significant, hurdle for any expanded benefit involves cost.

One way Romney would pay for the changes would be by ending the tax deduction for state and local taxes. He argues that for lower and middle income families, losing the deduction, as well as implementing some other cuts, would benefit them since they could get the bigger child credit.

Such cuts are likely to be unpopular with Democrats in high-tax states such as California, who are already upset that the 2017 tax cut law limited how much constituents could deduct.

Without offsetting spending reductions, conservatives have concerns. Some credits are “worthy of support if offset elsewhere in the federal budget,” said Andrew Lautz, director of federal policy at the National Taxpayers Union..

There is the potential for finding the sort of common ground that has eluded the two parties constantly this year.

In the end, Lautz said, a smaller expansion benefiting lower income families, simply “may be more manageable from a budgetary perspective.”