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Biden Low-Income Tax Proposal Follows Path to Becoming Permanent

Jan. 18, 2021, 9:46 AM

President-elect Joe Biden’s proposals to widely expand tax breaks for low-income people have a side benefit: A high probability they will be made permanent by the time they are scheduled to expire.

Biden’s tax proposals are designed to be temporary, but they expire at the same time as lawmakers in the House turn their attention to their re-election campaigns. And the optics of increasing taxes on the poor won’t look good, especially after recently cementing temporary cuts for many industries in the Republicans’ 2017 tax law.

“The politics of this is even better for Democrats, because they’d love to fight for next year or two, to make these extensions permanent. And honestly, some on the right might even be open to that,” said Samuel Hammond, the director of poverty and welfare policy at the Niskanen Center, a Washington based think-tank.

The $1.9 trillion Biden plan, if it can get enough support with a narrow Democratic majority in the Senate, would raise the Child Tax Credit to $3,000 per child and make it fully refundable for one year. The proposed credit for a child under six is $3,600. Families with 17-year-olds would also be eligible for the credit.
The plan also calls for expanding the Earned Income Tax Credit for one year by raising the maximum credit amount for workers without children to $1,500, from $530, while raising the cap for those eligible for the credit to an income of $21,000, from $16,000.

History to Repeat Itself?

Historically, any expansion to the Child Tax Credit or Earned Income Tax Credit that started temporary has eventually been made permanent—further proof that Biden’s proposals will likely stick, Hammond said.

“It’s been a one-way ratchet—I really see no reason why this won’t be the same,” he said.

The Earned Income Tax Credit was initially introduced in 1975 as a temporary measure until it was renewed and made permanent after three years because of its “instant popularity,” Joshua McCabe, assistant dean of social sciences at Endicott College, said.

And the Child Tax Credit began as a $400 credit in 1997. The credit slowly increased to $1,000 during the George W. Bush administration, at which point it also became partially refundable.

“If history is any indication—and I think it is—any temporary proposal Biden is able to enact now will almost surely be made permanent as its expiration date approaches,” McCabe said.

‘Enormous’ Benefits

What’s more—Biden’s entire proposal is poised to potentially cut child poverty in half, according to a preliminary analysis by the Center on Poverty and Social Policy at Columbia University.

The study, released Jan. 14, includes the tax cuts, as well as an extension of food stamp benefits through the end of 2021, direct $1,400 checks, and extension of current unemployment insurance expansions through Sept. 30.

Just the tax cuts alone would reduce child poverty by 40%, said Seth Hanlon, a senior fellow at the Center for American Progress, a think tank.

“That can be done for roughly half the cost of the 2017 tax bill—but unlike that bill, the primary beneficiaries would be families who are struggling,” Hanlon said. “And the long-term impact on children’s well-being, health, achievement, and future earnings would be enormous.”

Long Time Coming

Elaine Maag, principal research associate at the Urban-Brookings Tax Policy Center, said it’s been a long time coming for Democratic lawmakers, and now, while the pandemic continues to ravage jobs and the economy, is the perfect time to pursue reforms.

Democrats, including House Ways and Means Chairman Richard Neal (Mass.), Rep. Suzan DelBene (Wash.), and Sen. Michael Bennet (Colo.), have been pushing for the expansion even before the crisis.

“Right now, we know families with children are hurting,” Maag said. “If there’s a way to address that, now is a good time to do it.”

To contact the reporters on this story: David Hood at dhood@bloomberglaw.com; Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Sony Kassam at skassam1@bloombergtax.com

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