Goodbye ‘godsend’: Children’s tax credits expiring back home

CHARLESTON, Virginia – For the first time in half a year, families will go Friday without a monthly child tax credit – a program that was intended to be part of President Joe Biden’s legacy but has instead emerged as a bright spot on who deserves government support.

Retired Andy Roberts, of St. Albans, West Virginia, relied on checks to help raise his young grandchildren, who he and his wife adopted because his two original parents are recovering from drug addiction.

Roberts is now coming out at $550 a month. This money helped pay for Girl Scouts, ballet and acting lessons, and children’s shoes, which Roberts noted were more expensive than adult shoes. The tax exemption, he said, was “a blessing from God”.

“It will make you tighten your belt, if you have anything to tighten,” Roberts said of losing payments.

The monthly tax credits were part of Biden’s $1.9 trillion coronavirus relief package — and the president has proposed extending them for another full year as part of a separate measure focused on economic and social programs.

But Democratic Senator Joe Manchin of Roberts’ home state of West Virginia, objected to the credit extension out of concern that the money would discourage people from working and that any additional federal spending would fuel inflation that has already risen to nearly a 40-year high.

According to IRS data, 305,000 children in West Virginia benefited from the expanded credit last month.

Manchin’s opposition in the evenly divided Senate derailed Biden’s social spending package and caused the expanded tax credits that came out in the middle of each month to expire in January. This reduces the family’s income at the exact moment people wrestle with rising prices.

However, families only received half of the 2021 credit on a monthly basis, and the other half will be received once they file their taxes in the coming months. Credit will be cut off in 2022, with full payments made only to families with enough income to owe taxes, a policy option that will limit benefits to the poorest families. The credits for 2022 will only come once people file their taxes at the beginning of the following year.

West Virginia families interviewed by the Associated Press highlighted how their grocery and gasoline bills are rising, and said they would need to get less financial support than they did a few months ago.

“You have to learn to adapt,” said Roberts, who has worked as a car dealer for five decades. “You never dreamed that everything would suddenly explode. You go down and get a package of hamburgers and $7 to $8 a pound.”

By the Biden administration’s calculations, the expanded child tax credit and its monthly payments were a success for the policy that paid out $93 billion over six months. More than 36 million families received payments in December. The payments were $300 per month for each child aged five years or younger, and $250 per month for children ages six to 17.

The Treasury declined to answer questions about the expiration of the expanded children’s tax credit, which has become a politically sensitive issue as part of Biden’s nearly $2 trillion economic package that has stalled in the Senate.

Manchin supported some form of work requirement for people receiving payment, fearing that automatic government assistance would cause people to quit their jobs. However, his primary objection, in a written statement last month, has sidestepped the issue because he expressed concerns about inflation and that the one-year extension hides the true costs of a tax credit that could become permanent.

“My fellow Democrats in Washington are determined to dramatically reshape our society in a way that makes our country more vulnerable to the threats we face,” Manchin said. He added that he was concerned about inflation and the size of the national debt.

The Census Bureau surveyed beneficiaries’ spending patterns during September and October. Almost a third of the credit was used to pay school fees, while about 25% of families with young children spent it on child care. About 40% of beneficiaries said they mostly rely on the funds to pay off debt.

There are separate advantages in terms of improving outcomes for poor children, whose families previously could not get the full tax credit because their earnings were too low. An analysis by the Urban Institute estimated that the extension of credit as developed by the Biden administration would reduce child poverty by 40%.

The tax breaks did not cause an immediate mass exodus of the workforce, as some lawmakers had feared. The Bureau of Labor Statistics reported that the proportion of people with jobs increased from 58% in the month prior to the start of the monthly payments to 59.5% last month. This same trend has occurred in West Virginia, where the employment-to-population ratio has risen to a pre-pandemic level of 52.9%.

There is academic debate about whether credit can prevent employment in the long run, with most studies suggesting that the effect would be statistically small.

Academics who study tax exemption are torn about how a lasting program will affect the economy and a child’s well-being.

Catherine Michelmore, associate professor of public policy at the University of Michigan, and two other researchers have estimated that nearly 350,000 parents will be out of the workforce, a number not that significant in an economy of nearly 150 million jobs.

The long-term effects of the permanent tax credit will have a positive effect on the economy, Michelmore said, as children who grew up in higher-income families “tend to do better in school, and are more likely to graduate high school. It may be 15 years down the road but There will be more cost savings in the future.”

One of the main questions for policy makers is whether bureaucracies or parents are better at spending money on children. Manchin proposed a funded version of Biden’s 10-year economic proposal that would deconcentrate children’s tax credits and instead fund programs like universal kindergarten to avoid sending money directly to families.

“It’s an ethical question of do you trust families to make their own decisions,” Michelmore said.

Hairstylist Chelsea Woody is a single mom from Charleston, West Virginia, who works six days a week to make ends meet. Extended Child Tax Credit payments helped pay for her son’s daycare, as well as allow her to squander clothes for him.

“It really helps a lot. It’s an extra pillow, rather than worrying about how to pay bills or if anything comes out,” Woody said as she carried groceries into her car. It helps working families because we struggle more. I’m hardly at home with my baby because I work all the time.”

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Hussain reported from Washington and Boak from Baltimore.

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This story has been updated to correct Michelmore’s projections for future cost savings.

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