Democratic presidential candidate Joe Biden speaks in Tampa, Florida on September 15, 2020 during a roundtable discussion with Tampa-area veterans and military families.
Jim Watson | AFP | Getty Images
Joe Biden’s anti-poverty plan to expand the child tax credit suggests that his potential presidency would likely mean a White House more focused on progressive economic policies than those seen during the Obama and Clinton years.
Aimed at reducing childhood poverty rates, Biden’s proposed expansion would be dramatic and open the allowance to families who would otherwise fail to qualify. It would increase a family’s annual, per-child credit to $3,000 from $2,000 and would be awarded in installments each month instead of the current springtime lump sum. Children under age 6 would be credited $3,600.
“You saw in 2009, the Obama-Biden administration did an expansion of the child tax credit then, and it was an important expansion,” said Seth Hanlon, special assistant for economic policy to then-President Barack Obama. “But it was more incremental, whereas this is more transformative.”
The prospective tax credit overhaul, included in a broader Biden campaign tax plan released on Sept. 17, comes as millions of Americans struggle to find employment or keep their small businesses afloat due to the Covid-19 pandemic. Though jobless figures slowly improved throughout the summer, economists say it could take years for the unemployment rate to drop from its current 8.4% back to pre-coronavirus levels, especially as jobless claims continue to exceed expectations into the fall.
The economic hardship has not been evenly distributed. Low-income workers have suffered some of the worst employment losses that threaten to exacerbate poverty for those already most at risk.
Between January and July, employment rates among U.S. workers in the bottom wage quartile (those who make less than $27,000) decreased by 16.1% compared with more modest declines of 5.3% for middle-wage workers ($27,000 – $60,000) and 1.6% for high-wage workers (greater than $60,000), according to tracktherecovery.org.
To be sure, President Donald Trump’s Tax Cuts and Jobs Act did accomplish something similar in bumping the child tax credit from $1,000 to $2,000 and reducing the income threshold for claiming it to $2,500. The law is perhaps best known on Wall Street for reducing the corporate tax rate from 35% to 21% and capping the state and local tax deduction at $10,000.
Neither the Biden nor Trump campaigns responded to CNBC’s request for comment by the time this article published.
Progressive proponents of Biden’s plan say its most exciting change is extension of the credit to families making less than $2,500 per year. Under current law, households must earn at least $2,500 per year to qualify for the credit since those making less don’t have tax liability.
That would mean an American parent without taxable income — including those who lost their job as a result of the pandemic — would nonetheless qualify for the credit.
Sen. Michael Bennet speaks in the second Democratic presidential primary debate, hosted by NBC News, June 27, 2019.
Saul Loeb | AFP | Getty Images
Biden’s big-ticket plan is based on a bill called the American Family Act, a piece of legislation introduced by Sens. Michael Bennet, D-Colo., and Sherrod Brown, D-Ohio, in 2017 as a counter to Trump’s tax overhaul.
The American Family Act has support from virtually every Democrat in the Senate including Biden’s running mate, Sen. Kamala Harris. Progressive leaders Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., also support the bill, almost guaranteeing its odds of passage if Democrats manage to take control of the Senate in the 2020 elections.
Hanlon said Biden’s plan doesn’t make the tax credit changes permanent, but he and other Democrats would favor doing so.
The AFA’s fact sheet says the credit would be expanded “as long as economic conditions require it,” said Hanlon, who now works for the left-leaning Center for American Progress. But “notwithstanding the pandemic, which of course makes it more urgent, it certainly should be a permanent priority.”
“It’s really a game changer for low-income families,” he added.
Research conducted by the Columbia University Center on Poverty and Social Policy and touted by the bill’s drafters finds that that AFA would reduce the number of children in poverty by 4 million (from 14.8% to 9.5%) and the number of kids in deep poverty by 1.6 million (from 4.6% to 2.4%).
Debt and growth
Longtime Biden advisor Jared Bernstein, for example, touted the AFA in March 2019 for including more families and expanding the credit to 27 million kids who do not get the full credit.
“Underinvesting in kids is not just a cost borne by their families. It is a cost borne by all of us,” Bernstein wrote in a Washington Post op-ed last year. “Children who grow up in poverty face stressors with lasting negative effects, for themselves and for the rest of us (e.g., less educational attainment, reduced earnings, worse health outcomes).”
“The AFA’s extra credit for young children is thus a particularly attractive attribute, as providing such resources has been shown to improve adult outcomes of poor children,” he added.
Bernstein and other Democratic economists have for years pushed back on a long-held belief that programs that reduce income or wealth inequality come at a cost of shrinking the overall economic “pie” while also ballooning the national debt.
Politicians in both parties appear less concerned about the level of national debt than they did even a few years ago.
Senate Majority Leader Mitch McConnell, who has weighed in against stimulus packages in the past, himself backed a trillion-dollar stimulus plan in July amid an effort to help the U.S. economy through the pandemic. Trump signed his hallmark tax cuts at the end of 2017, when the economy was humming with the unemployment rate at 4.1% and GDP growth at an annualized rate of 3.9%.
Even so, it remains unlikely the Senate GOP would back Biden’s economic proposals. Nevertheless, Democrats argue that programs designed to assist the lower and middle classes are actually a positive for the U.S. economy over time.
Heather Boushey, who is reportedly advising the Biden campaign and is CEO of the Washington Center for Equitable Growth, makes similar arguments.
“Some argue that focusing on inequality is misplaced, and that the most important goal is to grow the pie and just to focus on growth. To be very clear, the empirical evidence from the economics profession shows that this is wrong,” Boushey told the House Budget Committee last September.
“Our inequality-filled economy now grows slower than it did when we were less unequal. Over the past few decades we have grown at an annual pace of about 1.3%, compared to a larger 1.7% in the 1960s and 1970s,” she added at the time. “There is a large and growing body of research that shows that we cannot create strong or broadly shared economic gains through a policy agenda that presumes that growth follows from allowing those at the top to reap the bulk of the gains.”