6 Things You Should Know About the New Child Tax Credit

By Yuval Rosenberg

6 Things You Should Know About the New Child Tax Credit

The Internal Revenue Service on Thursday sent out the first
monthly Child Tax Credit payments, delivering roughly $15 billion
to about 35 million families representing about 60 million
children, with the vast majority arriving via direct deposit.

The fully refundable payments provide up to $300 a month for
each child under age 6 and up to $250 a month for each child ages 6
through 17. Upper-income families
aren’t eligible, with the credit phasing down for
individuals earning more than $75,000 and couples making more than
$150,000.

Provided as part of the Covid rescue package Democrats passed in
March, the payments are set to continue through the end of the
year, though Democrats are looking to extend them as part of their
budget blueprint. The six months’ worth of payments represent only
half of the full credit, with the second half to be claimed when
families file taxes next year.

President Joe Biden has proposed continuing the payments
through 2025 as part of his American Families Plan, but the
congressional budget package reportedly could cover fewer years,
even as Democrats press to make the payments permanent. The
payments are expected to cost about $120 billion a year.

Here are six things you should know about the
policy.

Direct deposits work, both in terms of policy and
politics: “It offers a psychology
lesson that could inform public policy,” Claire
Cain Miller
says at The New York Times’s The Upshot. “Sending
people money on a regular basis — no paperwork to file, no strings
attached — achieves
policy goals, and perhaps political ones, too. It’s a
powerful way to make people aware of exactly what the government is
doing for them.”

Biden hailed the payments as a “historic” and “transformative”
achievement in a speech Thursday. More than 10 million American
children live in poverty and the administration says that the
payments could the child poverty rate in half, based on
estimates from Columbia University researchers and
other analysts. "This has the potential to reduce child poverty in
the same way that the Social Security reduced poverty for the
elderly," Biden said.

And this money is likely to be spent on kids: Cain Miller
adds that “money labeled for children — the deposit that arrived in
parents’ bank accounts Thursday was called CHILD CTC — is more
likely to be spent on children, research shows. The previous child
tax credit was one of many payments and credits folded into a final
tax number each April, so it was easy for taxpayers to lose track
of a credit meant for children.”

But it’s too soon to celebrate this as a success: There
are “two big reasons to refrain from celebrating too much,”

writes New York Times editorial board member
Binyamin Appelbaum.

The first is that the program isn’t yet permanent. “Until that
happens, the benefits of the aid are likely to be attenuated
because families won’t have confidence the money will keep coming,”
Appelbaum says.

The second is that the program faces a host of administrative
challenges in reaching people who need the money most. The
administration says that more than 4 million children live in
households that are eligible but aren’t on the IRS mailing list,
Appelbaum writes, and signing up for the payments is more difficult
than it should be: “The I.R.S. paid a private company, Intuit, to
help create a website to do so that requires an email address,
doesn’t work well on mobile phones and is not available in Spanish,
among other issues. (The choice of Intuit should have been a red
flag: The company is
in the business of making it difficult for people
to file income taxes.)”

The government should be doing more to publicize the program,
too, he says.

And the reduction in child poverty may be smaller than
advertised: Estimates that the child poverty rate could be cut
in half could prove to be too high, given the
challenges of reaching some low-income
families.

“The hard news is this population of parents let three stimulus
payments sit on the ground. This is a hard population to reach; in
the worst of times, you’ve offered thousands of dollars, and they
have not signed up,” Gene Sperling, a White House official
overseeing implementation of the American Rescue Plan, told

The Washington Post. “That is why we must stay at
it and work smarter and harder to get more people signed up.”

Sperling told the Post that a reduction in child poverty of 35%
to 40% would still be about three times as large as the biggest
single-year drops in the past.

Some say the program could have been designed better:
“Some critics say these problems could have been avoided with a
better policy design,” the Post’s Jeff Stein notes. “Democrats
insisted on excluding wealthy Americans from the benefit, arguing
that rich families did not need the help. That decision also made
the provision more administratively cumbersome, according to some
critics, because it meant the IRS — which has data on individual
incomes — had to administer the program.”

Others have said that the IRS shouldn’t have been tasked with
administering the program in the first place, and that the Social
Security Administration would have been a
better choice. (A child benefit plan put forth by
Sen. Mitt Romney (R-UT) would have relied on Social Security.)

Some families will be in for a tax surprise: “The IRS is
making the payments based on income shown on 2020 or sometimes 2019
returns. So families whose income has risen or who have had other
changes could have to pay back some or all of the prepayments on
their 2021 tax returns,” The Wall Street Journal’s Laura Saunders

says. “Even filers who are eligible for the
prepayments could see far smaller refunds or larger tax bills next
year, because they are getting half their child credits up front.”
About 1 million filers have already opted out of the prepayments,
Saunders reports, citing an administration official.

As Covid Cases Rise, CDC Director Warns of 'Pandemic of the
Unvaccinated'

With the delta variant of the Covid-19 virus driving an uptick
in new cases across the U.S., health officials are warning about
the dangers of delaying or avoiding vaccination.

“This is becoming a pandemic of the unvaccinated,” Centers for
Disease Control and Prevention Director Rochelle Walensky said
Friday at a White House press briefing. “We are seeing outbreaks of
cases in parts of the country that have low vaccination coverage,
because unvaccinated people are at risk.”

The CDC reported more than 33,000 new cases on Thursday, and the
seven-day average of 26,300 is 70% higher than the average in the
previous seven-day period. Hospitalizations are up 36%, while
deaths are up 26%.

Those hospitalizations and deaths are occurring almost entirely
among unvaccinated people. “The good news is if you are fully
vaccinated you are protected against severe COVID, hospitalization
and death, and are even protected against the known variants,
including the delta variant, circulating in this country,” Walensky
said.

Four states account for nearly half of new cases: States
with high vaccination rates, such as Vermont and Massachusetts,
where rates exceed 70%, are faring pretty well. But states where
vaccination rates are lower, such as Arkansas, Missouri, Florida
and Nevada, where rates are closer to 50%, are seeing significant
increases in cases.

White House COVID-19 coordinator Jeff Zients emphasized the
uneven geography of the latest surge. “Just four states accounted
for more than 40 percent of all cases in the past week, with 1 in 5
of all cases occurring in Florida alone," Zients told reporters.
Florida is currently reporting new cases at four times the national
average.

Still a major risk: The latest surge in cases means that
Covid remains the country’s leading health threat. “Even with half
the U.S. vaccinated, Covid-19 continues to kill people faster than
guns, car crashes and influenza combined, according to a review of
mortality data,” Bloomberg’s Tom Randall
wrote Friday.

And the problem is not just in the U.S. Earlier this week,
World Health Organization Director-General Tedros Adhanom
Ghebreyesus provided a reminder that the pandemic is global. “The
delta variant is ripping around the world at a scorching pace,
driving a spike in cases and deaths,” he said. “The pandemic is not
over — anywhere.”

As IRS Audits Decline, Companies Claim More Questionable Tax
Breaks: Report

More than a decade ago, the IRS used to audit virtually all tax
returns from large corporations, paying special attention to
“unrecognized” or “uncertain” tax benefits that companies are
allowed to claim based on untested interpretations of the tax code.
Those tax breaks might be accepted by the IRS, but some are
rejected, with the company then required to pay the tax along with
interest. After years of budget cuts, however, the IRS is
performing far fewer audits and many of those untested tax benefits
are going unexamined, resulting in a windfall for some big
firms.

“This pattern — audits down, tax breaks up — shows how the IRS
is increasingly outmatched,” The Washington Post’s Douglas
MacMillan and Kevin Schaul say. “Gray areas in the tax code give
businesses latitude when calculating their tax breaks, and it’s up
to authorities to check them. But U.S. corporations, bolstered by
armies of accountants and lawyers, may be rolling the dice on
controversial interpretations of tax laws knowing the IRS is less
equipped to pose a challenge.”

One example provided by MacMillan and Kevin Schaul involves
Broadcom, a tech giant that paid no income taxes for the last two
years despite reporting $5.7 billion in profit. Tax officials say
the company claimed some uncertain tax breaks, but the IRS never
performed an audit to determine the legitimacy of those claims.
The company recently recorded a $95 million gain based on the
fact that time had run out for the IRS to do an
investigation.


For more details, see The Washington Post
story.

News

Views and Analysis