Our world faces many intractable conflicts today, but expansion of the Child Tax Credit (CTC) is not among them. Prominent policymakers in both political parties share the CTC’s core goal of providing financial support to working families. They share the assessment that lower-income families are falling behind economically and are most in need of support. They share the belief that the CTC should become more generous, while also remaining squarely tied to work.
For years, Republicans led on establishing and expanding the CTC, until 2021, when Democrats converted it temporarily into a welfare program of unconditional cash payments. That disfigurement, under the guise of pandemic relief, was never popular. President Joe Biden only ever spoke in terms of “working families” from the bully pulpit, even while the White House insisted behind the scenes that permanent unconditional cash welfare was the non-negotiable starting point for further CTC negotiations. Unsurprisingly, what was indefensible in public failed privately too, negotiations collapsed, and the CTC reverted to its pre-COVID form.
Meanwhile, conservatives were busy developing better ways to expand support for working families. Senators Marco Rubio and Mike Lee proposed dramatically raising the CTC’s value. Senator Josh Hawley proposed a Parent Tax Credit that would not only raise the level of support, but also make it accessible to families that had income but not enough tax liability to enjoy the CTC’s full value. Senators Mitt Romney, Steve Daines, and Richard Burr proposed a Family Security Act that envisioned a Social Security–like system of monthly payments to families contingent on having earned income the prior year.
Flourishing families were taking place of pride as the most important of ends, and elected leaders were recognizing that public policy would be an important means.
This focus reflected the broader shift underway in conservatism, which acknowledged and sought to address the harm done to workers, their families and communities, and the nation by an economic model that treated people as disposable inputs and profit and consumption as the only goals. Flourishing families were taking place of pride as the most important of ends, and elected leaders were recognizing that public policy would be an important means. In the wake of the Dobbs decision, the effort took on even greater importance.
Unlike the Biden welfare expansion, proposals for a broadened family benefit still tied to work were widely popular. The Romney/Daines/Burr Family Security Act, in particular, received glowing praise from across the right-of-center, with the Faith and Freedom Coalition calling it “one of the most important efforts to support the family in nearly thirty years” while the American Enterprise Institute’s Yuval Levin and Scott Winship wrote in National Review that the proposal “advances the two core goals shared by all on the right who have been engaged in this debate: support for Americans looking to build families and support for Americans looking to rise out of poverty.” Asked his thoughts on the proposition that the tax code should raise more money if it needs to on the corporate tax rate and send that to families with children, Kevin Roberts, president of the Heritage Foundation, declared, “philosophically, we’re there.”
Conservatives had successfully pushed back against the progressive goal of sending checks disconnected from work and stood poised to advance their own vision and vindicate their claim to represent working-class families.
Now, Congressman Jason Smith, chairman of the House Committee on Ways and Means, has successfully brokered a deal (“Smith/Wyden”) that would not only expand the CTC in the direction of these conservative proposals, but also extend incentives for investment in the business tax code, all without increasing the deficit. On Friday, Chairman Smith passed the bill out of his committee by a resounding vote of 40 to 3. Next week it is expected on the House floor. In the Senate, Majority Leader Chuck Schumer has signaled his support. And yet, rather than claim victory, push this across the finish line, and celebrate a genuine legislative achievement that advances their priorities, conservatives are staying quiet.
The loudest voices in the right-of-center square are the legacy institutions in opposition, reading long-expired talking points out of dusty playbooks. Here are the provisions at issue:
First, “the Lookback.” Under Smith/Wyden, a household can use either its current or prior year’s income to establish its eligibility for the CTC. Calculating eligibility based on prior year’s income was also a feature of both the Hawley and Romney/Daines/Burr proposals, allowing for predictable monthly payments to families and affording flexibility for parents to temporarily leave the workforce around the birth of a child. But those proposals used only the prior year’s income. Smith/Wyden, by allowing a choice of either year, creates the hypothetical scenario in which a household could bounce in and out of the workforce in alternating years and still receive the CTC every year.
A paper published last week by the American Enterprise Institute (AEI) attempts to inflate this scenario into a dealbreaker, using the bizarre example of a single parent with two children who earns $40,000 and receives a $4,000 credit in 2023, but then chooses to quit and forego the $40,000 in earnings in 2024 because the $4,000 will be available regardless. Does such a family exist, among America’s 100+ million households? Maybe. Are there “702,000 consistently working parents [who] would stop working every other year due to the elimination of the CTC’s annual income requirement,” as the AEI paper claims? Be serious. Writing separately from his colleagues, AEI economist Kyle Pomerleau contradicted their assessment, observing, “The exact impact of the lookback provision on work incentives depends on a few factors, but should not have a large impact in the aggregate either way.” A few days later, he argued in particular that the provision would have positive effects on encouraging people to enter the workforce in the first place, and to work the year before a child is born.
It’s unfortunate that a small segment of the American right-of-center, like the former high school quarterback who hasn’t done much since, can’t stop talking about the welfare reform of 1996. Every policy fight is that policy fight. The problem is always that people are not working enough; the primary measuring stick for every policy is whether it will get people working more.
Conservatives should support policy that gets the most resources to the working families most in need, that makes joining the labor force and earning income generally more attractive, and that also affords a parent greater flexibility to take time off after giving birth, or to spend fewer hours in the labor market and more hours at home with a young child. If any of those outcomes strike you as a problem, you may be the problem.
But it is not 1995 anymore. Back then, a truly perverse safety net paid parents cash not to work at all and withdrew the cash if they did. That is a recipe for trapping people in poverty and creating a permanent underclass; that is a program to be fought against. Conversely, if a policy provides benefits only to families that do work and provides the same or higher benefits to families that work more, the welfare reform playbook is inapt. Conservatives should oppose a move back toward the pre-1996 model. But they should support policy that gets the most resources to the working families most in need, that makes joining the labor force and earning income generally more attractive, and that also affords a parent greater flexibility to take time off after giving birth, or to spend fewer hours in the labor market and more hours at home with a young child. If any of those outcomes strike you as a problem, you may be the problem.
Second, “the Phase-In.” Until 2017, the CTC was “non-refundable,” meaning that families could only receive the credit against taxes they owed. A low-income family with little income tax liability thus saw little benefit from the credit. In the Tax Cuts and Jobs Act of 2017 (TCJA), Senators Rubio and Lee fought to raise the credit’s value and create a “refundable” portion that a family could receive regardless of its income tax liability. This refundable portion was capped at approximately 15% of a family’s income, intended to approximate the payroll taxes that a worker and employer would have paid on that income.
Under Smith/Wyden, that cap would be calculated as 15% per child, allowing a family with a low income and multiple children to claim a larger refundable credit, in excess of all taxes the family might have paid. Getting the credit’s full value to families with low incomes and multiple children was a central objective of both the Hawley Parent Tax Credit and the Romney/Daines/Burr Family Security Act, and Smith/Wyden moves the ball meaningfully in that direction.
Unfortunately, some critics are taking the position that the CTC should only refund taxes paid and never provide a family with any further support. In this view, a family with two children and annual income of $100,000 should receive a larger CTC than a family with four children and annual income of $30,000, because the family with the six-figure income pays higher taxes.
A program that pays no benefit to a household without income, and increases the benefit as income rises, does not “discourage work” in this way—to the contrary, it encourages work. Once again, 1990s welfare reformers are repeating old arguments blindly against anything that smacks of helping families make ends meet.
One argument in defense of this position is that a faster CTC phase-in, which allows lower-income working families to receive the full value, “discourages work.” This is, simply put, wrong—not in the sense that it is an area of disagreement, but rather in the sense that it has no analytical basis. The traditional problem of a program discouraging work is that it provides a benefit to households with no or low income and then reduces that benefit as a household’s income rises. A program that pays no benefit to a household without income, and increases the benefit as income rises, does not “discourage work” in this way—to the contrary, it encourages work. Once again, 1990s welfare reformers are repeating old arguments blindly against anything that smacks of helping families make ends meet. They misunderstand.
Even AEI’s promulgators of the “one year working, one year off” fable don’t buy this complaint. “There are provisions in the CTC proposal, such as inflation indexing and raising the cap on refundability, that would reduce poverty without reducing work,” wrote Scott Winship, director of the Institute’s Center on Opportunity and Social Mobility.
The real issue here is philosophical. When conservatives speak about the need to tie benefits to work, and the importance of work generally, they have in mind the vital principle of reciprocity and the commonsense observation that a household’s connection to the labor force and effort to support itself are indispensable elements of human flourishing and building a decent life. That is, people who expect help from the public should also be working to help themselves. Public policy should reward efforts to contribute productively and discourage the abandonment of that obligation. And those who earn low incomes working toward supporting themselves surely deserve at least the same family benefit as those who are paid well. Thus, while the conversion of the CTC to unconditional checks for all was unacceptable, Smith/Wyden represents progress.
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The deal is by no means perfect. My own sympathies lie with the Romney/Daines/Burr model, which mirrors closely the “Family Income Supplemental Credit” (or “Fisc”) that we have proposed at American Compass. But the deal is also, by necessity, temporary. The right questions to ask are (1) is it an improvement on the status quo, and (2) does it lay the right groundwork, in both principle and practice, for the sort of permanent reform that conservatives should pursue. Yes and yes.
Conservatives thus face a crucial, to steal a phrase, time for choosing. The increasing rhetorical focus on the interests of working-class families has been salutary, but it will mean little—politically or substantively—if everyone returns to 2014-era talking points at the first sign of action.
Conservatives thus face a crucial, to steal a phrase, time for choosing. The increasing rhetorical focus on the interests of working-class families has been salutary, but it will mean little—politically or substantively—if everyone returns to 2014-era talking points at the first sign of action. A brief just published by Mike Pence’s Advancing American Freedom is illustrative: The Good: Cuts Taxes. The Bad: Coopts the Child Tax Credit … into yet another welfare program.
Already, through sheer lack of focus, the Republican Party has retreated needlessly from the high ground that it held on the issue. Somehow, although the Democratic Party’s preferred CTC formula went down in flames and something more closely resembling innovative conservative proposals is now moving forward, the deal is being presented as Republicans pursuing business tax cuts for which they are willing to concede to Democrats the latter’s desire to help families. If the GOP proceeds to hem and haw and grumble its way to passage, or blocks the bill altogether, that perception will be cemented as reality, for good reason.
It’s not too late for conservatives to reclaim ownership on the issue, to come together in determined support to win the argument on the bill, even to propose a couple of amendments that put the other side to a choice. Change the lookback so that households can use only their prior year’s income, moving closer to the Hawley and Romney/Daines/Burr proposals. Pair that with a provision to make payments monthly, a much easier task if eligibility is determined from income for a year already complete. Add a marriage bonus.
This should not be hard. The bill expands support to working families with multiple children through a policy mechanism that conservatives already support. It extends favorable tax treatment of high-value business investment. It is paid for. It provides the opportunity to trumpet the reaffirmation of a national principle that a family benefit should be tied to work, not sent unconditionally as progressives had attempted for a year and some still demand. It provides the starting point for a permanent policy that could further address priorities and concerns and would be ripe for passage when conservatives expect to hold a stronger hand in Washington. “Keeping our powder dry” is not an excuse to sit quietly—this is what the dry powder is for.