A fully refundable child tax credit could do more harm than good, experts say. Here's what they mean.

A fully refundable child tax credit could do more harm than good, experts say. Here's what they mean.
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  • President Joe Biden's proposal to establish a fully refundable tax credit has received mixed responses from experts and lawmakers.
  • Critics of the plan argue that fully refundable tax credits will not effectively address child poverty in the country and will create administrative confusion.
  • However, the credits have already received broad support, with Democrats working to draft legislation to give families up to $300 a month.

An expansion of child tax credits is included in President Joe Biden's stimulus proposal. Critics are arguing that the move will do little to alleviate child poverty in the US.

The expansion of child tax credits gives families with children under the age of six $3,600 per year, and $3,000 per year for every child between the ages of six and 17. The credits would also be fully refundable, meaning that people could receive the complete payment regardless of what they owe in taxes, and Democrats are drafting legislation to issue the credits as $300 monthly payments, Insider previously reported.

The idea of making the credits monthly and fully refundable has been debated by experts, with views split on whether it would help working class families. Here are the main issues experts have raised:

A fully refundable credit could require two tax returns per year

Matt Bruenig of the People's Policy Project -a left-leaning think tank - wrote in an analysis that the credits are a "comically complicated and bad policy design that would require an enormous amount of new administration to pull off."


With the monthly refundable tax credits, rather than waiting to file taxes at the end of the year, Americans would get the advance every month. This causes concern, Bruenig said, because people would have to estimate what their tax liability will be at the beginning of the year and file a real amount at the end of the year. This would be difficult to navigate and allow for misrepresentations of tax liability, leading people to potentially receive more benefits than they are eligible for.

The child tax credits would not lead to a significant reduction in child poverty

The Center on Poverty and Social Policy at Columbia University projected that Biden's plan will cut child poverty rates nearly in half. However, Angela Rachidi, Rowe scholar in poverty studies at the American Enterprise Institute, said in an analysis for the Institute for Family Studies that Biden's benefit "would bring most of these families only a few hundred dollars above the poverty line and would do little to help them find a long-term path out of poverty."

While Biden's plan could raise millions of children above the poverty line, it may not be worth the trade-offs, Rachidi said, which include:

  • Lowering labor force participation by giving non-working parents fully refundable tax credits;
  • Worsening marriage penalties for low-income families by extending the credits to nonworking families;
  • And increasing reliance on the government, reducing economic growth in the country.

"Instead, policymakers should look to reduce taxes for working families, decrease effective marginal tax rates for low-income workers, and eliminate marriage penalties in the tax code," Rachidi said.


The Early Income Tax Credit's elimination suggests a similar trend for child tax credits

The Early Income Tax Credit made it possible to receive an advanced monthly refund, and according to the U.S. Government and Accountability Office, only 3% of eligible people signed up for the EITC when it was active. Former President Barack Obama eliminated the program in 2011, and Bruenig suggests that the same thing is likely to happen with Biden's tax credits, citing administrative confusion.

Still, many lawmakers and experts back the idea, which has received bipartisan support in Congress. Joshua McCabe, a Niskansen Center senior fellow, wrote that issues with Biden's plan are "greatly exaggerated," and Biden's credits would avoid the mistakes of the EITC.

"Biden's proposal has the potential to tackle child poverty in a serious manner," McCabe said. "It would be a mistake to get sidetracked by baseless claims about the relative merits of administration of those benefits as refundable tax credits."