Expiring Child Tax Credit Could Plunge 600,000 Kids into Poverty

Among the many good things in the American Recovery and Reinvestment Act (the economic stimulus package) is a change in the Child Tax Credit that puts money in the pockets of low-wage parents.

The Child Tax Credit is partially refundable. This means that filers can get a check from the IRS even if they owe no federal income tax. But they have to earn a minimum amount to qualify, and the tax credit phases in from this minimum.

Under the 2001 Bush tax credits, the minimum was set at $10,000. Above this amount, parents received 15 cents for every dollar earned, up to a maximum of $1,000 per child. The threshold was adjusted for inflation. So by 2007, families had to earn nearly $12,000 to qualify. Congress reduced the threshold to $8,500 in 2008, but only for that year.

The Recovery Act dropped the threshold to $3,000, but only temporarily. Like many provisions in the Recovery Act, the expanded Child Tax Credit will expire at the end of the year unless Congress extends it when it acts on other expiring "middle class" tax cuts.

Without the extension, many families will get no credit at all. The Center on Budget and Policy Priorities summarizes the potential results.

• A family with two children and $12,000 in earnings would get no credit.
• If the family had earnings of $18,000, its refund would be cut almost in half.
• Credits for about 18.1 million children would be reduced or eliminated.

Based on Census Bureau data, the CBPP estimates that 600,000 children would fall into poverty. An additional four million already-poor children would fall into deep poverty, i.e., 50 percent or less of the federal poverty line. For a family of four, this means an annual income of no more than $11,025.

President Obama's proposed Fiscal Year 2011 budget would make the Recovery Act level of the Child Tax Credit permanent. This should be a no-brainer. After all, like the better-known Earned Income Tax Credit, it promotes work, reduces pressures on the safety net and puts money into our economy, since low-income workers need to spend most of what they get.

Senate Majority Leader Harry Reid is reportedly set to introduce a second jobs bill, including "a package of popular tax-credit extensions." The Child Tax Credit could be among them.

Tell your Congressional representatives to preserve the current Child Tax Credit.

Photo credit: Vince Alongi