Child Tax Credit Stimulus

One very good aspect of the stimulus proposal currently in the House of Representatives is the way it expands eligibility for the Child Tax Credit. As CAP helpfully explains here the CTC is currently “partially refundable” and has eligibility thresholds such that it gives very little relief—or sometimes none at all—to the poorest families. The draft bill would change all that:

The bill now being considered by the House would—for the next two years—eliminate the earnings threshold, so that low-earning families could qualify for at least a small credit, based on 15 percent of all earnings. For example, a family with earnings of $5000 could qualify for a $750 credit, and a full-time minimum wage earner with two children would qualify for a $1000 credit for each child. The Urban-Brookings Tax Policy Center estimates that these changes would result in 3.7 million children newly benefiting from the credit. The Center on Budget and Policy Priorities estimates that in addition, approximately 9.6 million additional children would be in families receiving larger credits due to the change.

This is good stimulus, because it targets the funds at people with a high marginal propensity to consume. It’s also good stimulus in that it’s temporary. This is a change to the tax code that would be good to see made on a permanent basis, but a stimulus bill isn’t really the place to do something like that. Since for conservatives every day is a good day for a tax cut, the right is pushing a lot of permanent tax cuts, mostly for businesses or for the rich, as their alternative stimulus. But that kind of permanent debt-financed measure creates a drag on long-term economic growth. The appropriate way to do tax-side stimulus is with temporary measures aimed at the poor.