Dreaming Dreams of a Child Tax Credit Automatic Stabilizer

Congress should set the CTC to auto-morph into a child allowance during recessions and emergencies.

As we enter the lame-duck session of Congress, the tragically fallen enhanced Child Tax Credit is back on the agenda. Both Matt Yglesias and Vox’s Rachel Cohen have pieces dissecting the state of congressional negotiations around restoring some version of the pandemic-era enhanced CTC. Their analysis and reporting converge on similar priorities for Democratic lawmakers: fighting for maximum refundability (meaning for as many poor families to receive as much of the credit as politics will bear), and maybe exempting families with young children from any earnings threshold for eligibility.

From an anti-poverty perspective, those seem like the right fights to prioritize. But I’d also like to see some attempt to preserve the income-smoothing elements of the American Rescue Plan’s enhanced CTC through an automatic stabilizer mechanism — not for today, but for a darker tomorrow.

To briefly recap the recent evolution of the Child Tax Credit:

• The CTC in 2021: Under President Biden’s pandemic relief bill, the CTC was transformed into something like a child allowance: its dollar value was boosted up to $3,600 per child per year, it was made available to all middle- and low-income families (i.e., fully refundable), and it was paid out monthly in $300 direct check installments. This enhanced CTC made historic gains against child poverty.
• The CTC now: The enhanced CTC only lasted for one year. Congress failed to reauthorize it, largely because Joe Manchin opposed making generous cash payments to parents without work requirements. As such, the CTC reverted back to its pre-2021 state: $2,000 per child, paid out annually, with a phase-in rate that means that a family with two children isn’t eligible for the full credit until they’ve reached $50,000 in annual earnings. The poorest families — those earning less than $2,500 — get nothing.

As Yglesias notes, President Biden reluctantly came around to the enhanced CTC late in the game during the 2020 campaign, and only when framed as a pandemic relief measure. Manchin likewise tolerated the enhanced CTC solely as a one-off solid for a new Democratic president fighting a global pandemic.

Because of the political origins of the enhanced CTC, the general public accurately viewed the program as temporary pandemic relief — a “stimmy for families” bound up with the other rounds of economic impact payments from 2020–2021. They seemed to enjoy and appreciate the enhanced CTC while it lasted, but didn’t make much of a fuss when it went away — a signal that policymakers saw the need for further pandemic relief ebbing.

With a broader bipartisan tax deal now in the cards before January, CTC advocates are hoping to shoehorn improvements to the program that fall somewhere between what we have now and what we had in 2021. But even the CTC’s staunchest advocates concede that a monthly child allowance is not on the table.

That is the reality of the political math in Congress. But it’s also a shame. It has long been clear that it’s much better for families to receive the child benefit at regular intervals instead of just once a year. It gives them a steady income boost that they can factor into their budgets, it helps them afford things as needs arise, and it saves some portion of the tax credit’s value from being wasted paying down avoidable debt.

The ideal CTC would resemble a child allowance paid out monthly, as it was in 2021. But if that policy isn’t currently politically viable outside of emergency conditions, then the next-best version of the CTC would at least preserve the option for periodic payments if and when such conditions arise again. For example, Congress could set half or all of the CTC to automatically accelerate in the form of monthly payments if the economy exceeds some unemployment level trigger (say 5.5 or 6 percent) or in the event of another public health emergency. Alternatively, Congress could give the Secretary of Treasury discretion to accelerate the CTC if we encounter those conditions.

This wouldn’t increase the cost of the CTC (beyond some modest administrative costs). And a future Congress could always come in and layer on extra funding to increase the stimulative effect of a monthly CTC. But just because Congress did CTC-as-Family-Pandemic-Assistance once in 2021 doesn’t mean they’ll do it again as a matter of course for future exigencies. The enhanced CTC only happened because Democrats won a federal trifecta in the midst of a pandemic. If the Federal Reserve overshoots us into a deeper recession than anticipated over the next year, it’s hard to imagine a Republican House coming to Joe Biden’s aid by enacting relief for families. Given the bleak outlook for Democrats’ chances in the Senate over the coming years, it would be smart to bake in the CTC as an automatic stabilizer now.

There may not be political appetite for this approach. And no doubt, an automatic stabilizer function for the CTC is less important than maximizing the number of poor families it reaches. But it would be nice if the monthly CTC, the stimmy for families, doesn’t just die on the vine, and to know that it will be there for children the next time national misfortune strikes.