The expanded child tax credit failed in the Senate. Here's what it means for families Here's what it means for families
Senate Republicans on Thursday blocked legislation that would have expanded the child tax credit
Senate Republicans on Thursday blocked legislation that would have expanded the child tax credit, a key tax break for millions of families.
Despite strong bipartisan support for the House bill passed in January, the legislation met resistance from Senate Republicans. Thursday's procedural vote wasn't expected to clear the 60-vote hurdle needed to move forward. However, Senate Democrats forced the vote to show election-year positions.
"Today's a good opportunity for both sides to show we back up good talk with strong action," Senate Majority Leader Chuck Schumer, D-N.Y., said from the Senate floor before the vote.
Senator Mike Crapo, R-Idaho, the ranking member of the Senate Finance Committee, in a statement described Thursday's vote as a "blatant attempt to score political points." He said that Senate Republicans have concerns about the policy, but are willing to negotiate a "child tax credit solution that a majority of Republicans can support."
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Sens. Joe Manchin, I-W.Va., and Bernie Sanders, I-Vt., who caucus with Democrats, also voted against the measure.
If enacted, the bill would have improved access to the child tax credit and retroactively boosted the refundable portion for 2023, which could have triggered refund checks from the IRS.
Roughly 16 million children would have benefited during the first year of the proposed child tax credit expansion, according to an analysis from the Center on Budget and Policy Priorities.
Eligible families could have seen an average tax cut of $680 for 2023 taxes, based on estimates from the Urban-Brookings Tax Policy Center.
"It's a sad day for these 16 million kids," especially after the support from House Republicans, said Chuck Marr, vice president for federal tax policy for the Center on Budget and Policy Priorities.
But expanding the child tax credit is still a "top priority for Democrats," particularly as the 2025 tax cliff approaches, he said.
The American Rescue Plan of 2021 temporarily boosted the child tax credit to $3,000 from $2,000, with $600 extra for children under age 6, and families received up to half via monthly payments.
As a result, the child poverty rate dropped to a historic low of 5.2% in 2021, largely due to the expansion, according to a Columbia University analysis. Then in 2022, the rate more than doubled to 12.4% once pandemic relief expired, the U.S. Census Bureau found.
2025 child tax credit negotiations
Enacted by former President Donald Trump, the Tax Cuts and Jobs Act, or TCJA, of 2017 temporarily increased the maximum child tax credit to $2,000 from $1,000 per child under age 17 and boosted eligibility with higher income phaseout ranges.
The TCJA also capped the refundable portion of the credit, which has reduced the benefit for lower-income families without taxes due.
Without action from Congress, the child tax credit, among other individual tax provisions, will revert to 2017 levels after 2025.
"Next year, they'll have a bigger job to do because you have an underlying credit that's much more expensive to extend," said Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation.
Ahead of 2025, questions remain on whether Democrats and Republicans are willing to compromise on the child tax credit's refundability and work requirement, he said.
Regardless of the design, families would benefit from permanent updates, rather than temporary changes that must be renegotiated in Congress later, Watson said.
Of course, future child tax credit updates will hinge on who controls the White House and Congress, which is difficult to predict in a close election.
This story originally appeared on: CNBC - Author:Kate Dore, CFP®
