Child tax credit revived under proposal in Congress

House and Senate negotiators on Tuesday reached an agreement on a proposal to restore some of the expanded child tax credit, which cut the nation’s child poverty rate by nearly half before its expiration at the end of 2021.

The deal between the chairs of the House and Senate committees handling tax policy also would restore expanded low-income housing tax credits, which help build affordable homes and expired in 2021 as well.

It’s not clear that the deal could pass both chambers, which have struggled to reach agreement on any major legislation, especially on spending for the fiscal year that began in October.

Still, the possibility of restoring the expanded child tax credit Congress passed during the pandemic is “music to my ears [when] families are having to count their pennies,” said Mayor Levar Stoney of Richmond, Virginia, in an interview last week.

“No family should have to deal with that,” he said. “No child should have to worry about where their next meal is coming from.”

The $78 billion proposal negotiated by Oregon Sen. Ron Wyden, Democratic chair of the finance committee, and Missouri Rep. Jason Smith, Republican chair of the House Ways and Means Committee, also includes extending a tax break for disaster victims in return for tax breaks Republicans sought for corporate spending for research and development.

Meanwhile, associations representing cities and counties are hoping lawmakers will also lift—or at least lower—a cap on a federal deduction for state and local taxes. Republicans had capped so-called SALT deductions at $10,000 as part of the Trump administration’s 2017 tax changes. 

Removing the SALT restriction is a high priority for local governments because it will put more money into people’s pockets, said Michael Gleeson, a legislative director for the National League of Cities, in an interview last week. The National Association of Counties has also said that the cap makes it more politically difficult for localities to be able to raise revenues.

Wyden, though, told Route Fifty last week that SALT has not been part of the Senate negotiations. Still, lawmakers in the House from high-tax states—including Republican Rep. Mike Lawler of New York and Democratic Rep. Josh Gottheimer of New Jersey—reportedly are pushing to raise the cap as part of any deal.

Child Tax Credit

Under Wyden and Smith’s proposal, the child tax credit would increase gradually from the current $1,600 until it reaches $2,000 in 2025. That is not as high as it was under the American Rescue Plan Act, or ARPA, which increased the credit families could receive to $3,600 for children under 6 years old and $3,000 for kids ages 6 to 17, among other changes.

The expanded increase meant “more money for groceries, more money for child care, more money for essentials,” Stoney said. But since it ended in 2021, some of those relying on the credit “went over the fiscal cliff.”

Indeed, according to a 2022 report by the Columbia University’s Center on Poverty and Social Policy the expansion cut the nation’s child poverty rate by nearly 46%. But in the month after the expansion ended, the number of children living in poverty grew by 3.7 million. The number of Black children living in poverty rose by 600,000, or 28%, and 40% more Latino children, or 1.25 million, fell into poverty.

The proposal would lift as many as 400,000 children above the poverty line and make an additional 3 million children less poor in its first year, according to an analysis by the left-leaning Center on Budget and Policy Priorities last week. The impact would increase as the tax break rises, the group said.

Democrats last year pushed for a similar deal but were unable to reach an agreement. But in a positive sign for this proposal, more on the right say they are open to restoring the credit.

While “the devil is in the details,” South Carolina Rep. Ralph Norman, a Republican and member of the Freedom Caucus, said in an interview last week he is open to restoring the expanded credit.

“Family household budgets are being stretched to the limit,” he said. “That's why credit card fees are going up. Late payments. Interest rates are going up. Inflation on gas. I’m always in favor of giving back to taxpayers.”

Low-Income Housing Tax Credits

Meanwhile, Jennifer Schwartz, director of tax and housing advocacy for the National Council of State Housing Agencies, or NCSHA, is hopeful the proposal will pass, restoring a 12.5% increase in low-income housing tax credits that Congress temporarily passed in 2018.

The way the program works is that states are given federal tax credits, which they can pass on to developers. The developers can then sell the credits to investors to raise money to build housing for lower-income people.

Schwartz noted that a previous bill to restore the housing credits got bipartisan support from 104 House Democrats and 104 Republicans, including members from both the progressive and Freedom caucuses. The measure also had support in the Senate from 15 Republicans, 14 Democrats and one independent, Maine’s Sen. Angus King.

“This is incredibly important to get done,” she said. “We have a huge housing crisis that has been getting worse because we've really been under producing for a very long time.”

In addition to increasing the amount of tax breaks through 2025, the deal would also reduce the amount of a project that must be paid for with municipal bonds. Federal law now requires that half of the cost of building certain kinds of projects be paid for with municipal bonds.

Given that states only finance a limited amount of bonds, the law limits the number of projects the state can fund, Schwartz said. Reducing the requirement to 30% would allow states to spread around their bonds to help fund more projects.

Sarah Saadian, senior vice president of public policy and field organizing for the National Low-Income Housing Coalition, was disappointed the package did not go further to help the poorest afford housing. The units built under the program house people whose incomes are about 50% to 60% of an area’s median income. But more needs to be done to provide housing for those who are poorer and spend more than half of their income on housing. At a time when homelessness is at an all-time high, the coalition had wanted more credits to be made available for developers willing to offer rents affordable to those earning less than 30% of the area’s median income.

However, state housing directors were happy more help could be coming. The Illinois General Assembly buffered the affordable housing crisis' impact on the state’s Housing Development Authority by using enough ARPA funds to continue building about 5,000 low-income housing units a year, according to Kristin Faust, the agency’s executive director. But that money goes away this year, she said, “at a time when there's never been a greater need for affordable housing.”

According to estimates, 750,000 people in Illinois are paying more than 30% of their income on rent. For 250,000 of them, the situation is even worse: They are spending half of their income on rent.

“It creates a significant impact on other important life choices, including food, health care, child care, transportation,” Faust said. “So we have a huge need.”

If Congress passes the increase, Illinois would be able to build an additional 56,000 units over the next decade.

Lisa Vatske, director of multifamily housing and community facilities at the Washington State Housing Finance Commission, said the loss of the additional credits reduced the number of houses being built by about 300. 

“It put us back,” she said. “We just haven't kept pace with being able to build supply in order to meet the demand of our population.”

But the changes being discussed would allow the state to build about 2,500 more units a year, said Vatske. “It would allow us to double the production.”