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Without Cash Payments, January Could Bring Families Back into Poverty

The child tax credit will almost certainly not be renewed in time for January. And the effect this will have on the rest of the economy is major.

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Because of extended negotiations — and an outright refusal by Senator Joe Manchin to vote for President Joe Biden’s Build Back Better Plan, the fate of the child tax credit is up in the air. The monthly cash payments, technically an advance on the child tax credit, have massively alleviated child poverty in the six short months they’ve been distributed. Understandable, because of this, experts and parents are worried about what next year will look like without the monthly cash. The last checks for the program, which has been in place since July, went out on December 15.

Statistics have shown clear benefits to families and what would happen if the program were removed. But beyond families, economists are also sounding the alarm saying without the child tax credit, the GDP will shrink significantly.

What’s Going On With the Child Tax Credit?

The Child Tax Credit, which is a part of Biden’s Build Back Better plan, hasn’t had the full support of everyone. The bill is more than just the Child Tax Credit; it’s also moving to fund climate initiatives, paid leave for families, and childcare costs. At $2 trillion, Democrats knew it would likely be a hard sell to those on the other side of the aisle, but one of the more vocal people opposed to the bill is Manchin – and he essentially killed it.

Manchin’s main talking point against the social package is the cost – and he’s worried about inflation. In an interview, Manchin said he pulled his support because he feels passing the package would increase the national debt and consumer prices. But economists say that’s an unfounded fear, and in reality, missing the Child Tax Credit payments could shrink the GDP.

Letting it Expire Could Shrink the GDP — And Put Parents, Kids Back into Poverty

Goldman Sachs economist Jan Hatzius said that allowing the credit to expire will slow GDP growth down one percent in the first quarter and combining that with the lack of new spending on the rest of the Build Better package we would see the lowest level since the height of the pandemic. The proposed spending wouldn’t make a noticeable difference in the economy – and the benefits of passing the plan will likely outweigh any small macro-effect.

Since the Child Tax Credit took effect in July, we saw considerable differences in people’s lives, particularly parents and kids who live in poverty. Since the monthly tax credit payments began, we saw child poverty shrink from 15 percent to 11 percent in six months. When the payments stop in 2022 without Manchin’s support, 10 million kids would be at risk of falling back below the poverty line, or even further down, according to an analysis from the Center on Budget and Policy Priorities.

Senator Manchin’s Demands, Explained

The Child Tax Credit renewal is up in the air, but Manchin recently hinted in an interview that should certain stipulations be added, he may be able to support the bill. What is he asking for? During an interview with MetroNews, Manchin called for a work requirement to be placed on anyone who receives the tax credit. Essentially, he wants it to be a requirement that parents who receive the credit also work. Experts have pushed back, saying that parenting is work and that excluding those who don’t work will limit help to people who need the financial support the most.

Another stipulation Manchin holds is that the credit needs to only go to those who need it. “Do you believe people making $200,000 and $400,000 should still get the child tax credit the same as someone making $50,000, $60,000, or $70,000 that really needs it?” Manchin said on MetroNews.

On the surface, he has a point, except families who are making $200,000 or above are already phased out of receiving the child tax credit. Holding these two stipulations hostage, essentially, in order to stall the bill passing, is just easy talking points because they sound good on paper without context.

According to HuffPost, Manchin has privately said his reasons for being against the bill aren’t about inflation. Manchin “has told his colleagues that he essentially doesn’t trust low-income people to spend government money wisely,” the publication reports. “Manchin has told several of his fellow Democrats that he thought parents would waste monthly child tax credit payments on drugs instead of providing for their children.” (Research has shown that families have spent the tax credit on bills and necessities.)

Where does this leave everything? The Child Tax Credit hasn’t been extended into 2022, so families have already received their last payment under this plan. For the Democrats to push it forward will likely take several weeks to work out a new compromise.