Why Sen. Joe Manchin wants to change the rules on who gets a child tax credit

The West Virginia Democrat wants an income limit and employment requirement for recipients before he will vote for the benefit in Biden’s proposal

An income cap and a work requirement are rules Sen. Joe Manchin, D-W.Va., says he will hold out for if his party wants his support for the child tax credit extension contained in the president’s $3.5 trillion budget reconciliation package.

Manchin wants to see at least one parent in a household work in order to receive the child tax credit. And he wants household income for the credit to cap around $60,000 — changes that would make the package less expensive and would secure his support, said Manchin.

Without his support, the package won’t pass, as Democrats have a razor-thin margin in the Senate — which means his colleagues are in the unusual position of negotiating directly with one of their own to secure passage of proposed legislation, rather than wrangling with members of the opposing party.

Axios reported that “in addition to the pared-back (child tax credit), Manchin is open to Biden’s $450 billion plan to subsidize day care and offer free universal preschool.” The article noted that Manchin is “less interested” in a proposal that includes $400 billion to care for elderly and disabled individuals.

Because of the earned income requirement prior to the pandemic, the Treasury Department said 26 million children were in households that did not qualify for the full child tax credit. But The Hill reported that the department’s numbers show “97% of families receiving the child tax credit have wages or self-employment income and many of the remainder involve grandparents raising their grandchildren or people with serious disabilities.” 

According to CNN, “in particular, parents with disabilities, parents of children with disabilities, people raising their grandchildren, gig workers, students with children and others could be left out.”

Pandemic changes

The child tax credit got a makeover as part of relief efforts to help families weather the fallout from the pandemic. The credit was boosted to $250 a month per child for families with children ages 6 through 17, and $300 a month for children through age 5. A requirement that households earn wages of at least $2,500 to qualify for any of the credit was dropped.

Single filers can get the full tax credit with incomes up to $75,000. For married couples, phaseout begins at $150,000 and for head-of-household filers, it’s $112,500. The Biden proposal doesn’t change those income levels.

Those opposed to work requirements say the level for phaseout makes it unlikely people who receive the credit would quit jobs they already have.

Since July, half the credit has been paid in monthly installments unless families opted out. The rest can be claimed at tax time. The big change, though is that the credit is now fully refundable, which means the requirement one must earn wages was dropped and families that met the income cap could claim the child tax credit even if they don’t pay income tax.

The Biden administration hoped to extend the changes through 2025, but provisions are now part of the Democrat vs. Democrat debate involving Manchin and Arizona Sen. Kyrsten Sinema, who also wants the cost of the budget reconciliation package cut.

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The just-released American Family Survey asked about support of the child tax credit. The nationally representative study, conducted by YouGov for the Deseret News and BYU’s Center for the Study of Elections and Democracy, found 29% were opposed, while half favored the measure.

When that survey was fielded, the monthly payments were expected but hadn’t been distributed. Across all demographic groups, respondents liked a monthly payment better than a lump sum. But they generally also wanted means testing to make sure a tax credit reaches only those who really need it. They favored funding it by taxing the wealthy.

Points of contention

Arguments for and against work requirements to receive the child tax credit go something like this:

  • Proponents say not having a work requirement provides an incentive for people to eschew labor and simply collect the benefit. Manchin has said folks should work or further their education.
  • Critics say the requirement complicates delivery of a needed benefit and unfairly penalizes single parents, most often mothers. Worse, they say, it leaves children in poverty without access to the aid.

Experts have lined up behind the different pro and con arguments.

In an editorial in The New York Times, Oren Cass, executive director of American Compass, argued in March that “reciprocity (is) at the heart of a durable social compact.” That reciprocity refers to doing work in exchange for aid. Cass notes that people only receive Social Security if they contributed to it through work, and “policymakers should conceive of a new family benefit the same way in both rationale and structure. Monthly cash payments should go only to working households. The existing safety net remains the more appropriate support for the nonworking poor,” he said.

“To be clear, America should provide basic necessities to those who cannot provide for themselves. . . . But the safety net’s assistance should not replicate the income associated with engaging productively in society.”

Angela Rachidi, an American Enterprise Institute scholar, recently told the Deseret News that spending more on child care would do more to help struggling families than either adjusting the child tax credit or creating a separate child allowance. She called expanding the child tax credit ”a poor and ineffective substitute for targeted child care assistance, even though it is often sold as a better alternative.”

A direct subsidy of child care is better because it “increases employment and supports child development because parents can afford higher quality care. The (child tax credit) does not support employment and does not cover child care costs,” she said.

Meanwhile, Columbia University’s Center of Poverty and Social Policy reported that the first two months of the monthly child tax credit payments lifted an estimated 2.5 million children out of poverty and decreased food insecurity in households with minor children nationwide.

According to CNN, the Columbia University research also said that the initial monthly payments didn’t impact how many people work.

“No matter what sample you’re looking at, no matter what model you run, you don't find any meaningful effects on employment or labor force participation,” co-author Zachary Parolin, a senior research fellow at Columbia’s center, told CNN.

That finding was echoed by the American Enterprise Institute. Its survey found 9 of 10 child tax credit recipients said the monthly payments hadn’t changed the employment pattern of anyone in their household. The other 10% was evenly divided between those who said they worked more and those who said they worked less.

But institute fellow Bruce Meyer, an economist at the University of Chicago, said the impact just hasn’t been realized yet. He cautioned that the enhanced child tax credit will encourage 1.5 million workers to stop working within a couple of years — a large share of them people earning very low wages.

“Replacing it with a benefit that doesn't depend on whether or not you work reduces the incentive to work,” Meyer told CNN.

Shawn Fremstad, senior fellow at The Center for Economic Policy Research, agrees with those who say the credit already has a work requirement, since raising kids is work. “The credit, he notes, is a “form of public support and recognition of the valuable essential work that parents do when they raise children,”.

Fremstad wants to know if both parents in married-parent households will be required to work or if it’s OK for a married mom to stay home with the kids, but not a single mom. Adding a work requirement for just one parent, he said, is “deeply unfair to solo mothers and their children.”

While he doesn’t support an earnings test, Fremstad said it would at least be “consistent with the logic of conservative arguments.” If an earnings test is adopted, he added, it should apply to all unemployed mothers, not just those who are single.

Manchin has promised to work with Sen. Bernie Sanders, I-Vt., and Senate Majority Leader Charles Schumer, D-N.Y., to agree on a social spending package by week’s end, The Hill said.