Should Democrats compromise on the Child Tax Credit?

The expanded Child Tax Credit wasn’t supposed to be a one-and-done program. Weeks after he took office, Joe Biden’s American Rescue Plan funded an American child allowance for one year — but the program’s advocates all expected it to be extended beyond 2021. Monthly checks to families lifted 3 million children out of poverty, and the program looked poised to become Biden’s signature stamp on the welfare state — assuming Congress extended it.

But December 2021 came and went, the last checks went out, and the expanded CTC became a thing of the past, with no congressional deal to extend it. The program was collateral damage in the larger failure of President Biden’s Build Back Better agenda. And as Rachel Cohen reports at Vox, the CTC specifically is caught in a stand-off between its most ardent advocates and key Senator Joe Manchin.

Manchin has been, at most, a reluctant supporter of the CTC. He seemingly supported the program for a single year as temporary COVID relief and deference to Biden’s first legislative initiative. But throughout the past year, he’s voiced deep skepticism about the CTC. Manchin appears deeply concerned about the prospect of drug-using jobless parents getting taxpayer money. He’s staked out three conditions for the type of CTC extension he’d entertain:

• The program must be fully paid for without artificial sunsets or other budgetary gimmicks.
• He’s floated a $75,000 income limit for families receiving the CTC. (That’s substantially lower than the 2021 CTC, where families could get the full CTC if they earned up to $112,500 for single parents or $150,000 for dual-earners.)
• He wants “firm work requirements” on families claiming the CTC.

It’s the last of these Manchin redlines that may pose the biggest stumbling block. As Cohen notes, work requirements are “hotly opposed by many Democrats who recognized this would once again exclude some of the poorest households from claiming the credit’s full value.” For many Democrats, imposing work requirements were a nonstarter.

At least some are now starting to think this was a strategic error. As one CTC advocate told Cohen: “Rather than figure out how to do a work requirement that was tiny enough that you could get the most amount of families covered, they’ve instead insisted on doing pressure tactics that we’ve seen do not work with Manchin.” As Cohen put it, “Allowing Manchin to tell his largely conservative constituents that he was restoring a work requirement, for example, could give Democrats room to then craft the tiniest work requirement possible.”

It may be time for CTC advocates to revisit the decision to reject work requirements for the CTC out of hand. Any viable path to fifty votes in this Senate — whether through Manchin, or through Mitt Romney and other Republicans — certainly looks like it will run through work requirements. So it’s probably worth seriously thinking through whether there’s a work requirement that Manchin and liberals can both live with.

What would that kind of work requirement for families receiving child benefits look like? For starters, Bureau of Labor Statistics reports show that in most years, at least one parent is employed in around 90 percent of households. On one hand, that means that the vast majority of American children would be eligible for a CTC even with work requirements attached. On the other, it also implies that the poorest children will be the ones cut out by work requirements.

Here’s a framework for thinking about how to craft a “soft” work requirement: minimize the administrative burdens on the 90 percent working households, and include as many of the 10 percent “non-working” households in the definition of “work” as possible.

Minimizing the burden on the 90 percent

Advocates should first focus on making sure that families with at least one working parent aren’t inadvertently cut off from the CTC by the annoying red tape of a work requirement. For example:

• Make CTC payments automatic for any household that had a W-2 or otherwise reported income on their prior year’s taxes. Because the IRS administers the Child Tax Credit, it should be able to accomplish this — just as the IRS was able to auto-deposit COVID stimulus checks for anyone who had recently filed taxes.
• Make it extremely simple to prove employment status. Avoid complicated IRS forms at all costs. Parents should be able to quickly upload a photo of a W-2, paystub, or letter of employment. Code for America has already developed a user-friendly mobile portal for CTC enrollment that could be adapted to show proof of employment.

Inclusive work requirements for the 10 percent

Meanwhile, advocates should aim to make the requirement’s definition of “work” as expansive as possible to include as much non-labor market work as Joe Manchin will tolerate:

• As the Niskanen Center’s Samuel Hammond suggests, families with young children under age 6 should be exempt from work requirements.
• “Work” should include community activities beyond just labor-market employment — like searching for work, job training, attending school, or performing community service. (This mirrors the standard that the Trump administration adopted when it greenlit work requirements for state Medicaid programs — in violation of the Medicaid statute.)
• There should be broad exemptions from work requirements — including for caregivers, pregnant women, students, and people with disabilities preventing them from working.
• Again, parents should be able to easily submit evidence of eligibility via app — by uploading a letter, documentary evidence, or through a simple digital attestation.
• Insist on substantial funding for community-based navigators to support enrollment and assist families with complying with work requirements.

It also might be worth advocates pushing for the IRS to track costs associated with work requirements — administrative and enforcement costs incurred by the government, and compliance costs incurred by individuals — and the savings that result from it. If the savings do not dwarf the total costs, that could provide grist for future reformers to some day ax the work requirements altogether.

Manchin may not go for all of this. But it seems like there ought to be a deal in the details — a least-bad work requirement that CTC advocates can swallow, but one tough enough that Manchin can take home to conservative West Virginia.

I say this as someone who is philosophically opposed to work requirements, whether for child benefits or healthcare coverage. Work requirements for the CTC especially feel like punishing children for the supposed sins of their parents. Complying with work requirements is a burdensome administrative hassle — and an unnecessary one at that, given that there’s no evidence the CTC deterred parents from working last year. They make for a less effective and more annoying program.

When Manchin first floated work requirements for the CTC in September, I wrote that they “should be a line in the sand that the Biden administration and the Democratic Party refuses to cross.” “Let’s hope,” I wrote, “that Manchin’s work-requirements idea was just half-baked Sunday show spitballing.”

Well, it wasn’t. Like on many other parts of Build Back Better, Manchin hasn’t been moveable on the CTC, and has stuck by his demand for work requirements. That means it’s probably worth reconsidering the all-or-nothing strategy CTC proponents have taken. Time is running out, and it may be another decade or more before Democrats have unified control of government. The window for any deal with Manchin is closing by the day, with inflation leaving him ever more hostile to any new federal spending at all. CTC proponents are staring down the prospect of either helping several million kids on Joe Manchin’s terms — or else helping none.

No doubt, work requirements are an unfashionable relic of a different Democratic Party. But that’s the Democratic tradition that Joe Manchin belongs to. You go to the bargaining table with the Congress you have, not the one you want.

It’s all very reminiscent of the passage of the Affordable Care Act. When the Obama administration began disappearing the public option — which was opposed by Connecticut Senator Joe Lieberman, who was the pivotal vote in that Senate — House progressives threatened to tank the whole endeavor. Sixty House Democrats sent a letter to the White House warning that a bill without a public option wouldn’t win their votes, and that a final bill “MUST contain a public option.”

Ultimately, President Obama and Speaker Pelosi put pragmatism over purity, and rallied the troops around health reform without a public option. And even though the Affordable Care Act fell far short of progressive dreams, it is still remembered as Obama’s biggest legislative achievement.

CTC advocates should heed that lesson today. “Defeat sharpens the mind,” the anonymous CTC supporter told Cohen. On the brink of defeat now, advocates must decide: Do we prefer a decade of child benefits with work requirements we help shape? Or do we prefer a decade with nothing at all? In a perfect Congress, a permanent and pure universal child allowance would sail right through to passage. In the real Congress, we must eke out as much good policy as a conservative Democrat from a Trump +39 state will bear.