As part of the next reconciliation bill, Democrats plan to extend the monthly child tax credit (CTC) benefit that was temporarily enacted in the American Rescue Plan Act (ARPA) earlier this year. When extending the benefit, they will also have an opportunity to fix certain problems with the existing design of the program. The biggest such problem is that the benefits have not, in practice, been extended to children who live in non-filing tax units. These children are overwhelmingly very poor and getting the benefit to them was one of the major selling points of the legislation.
Over the past few months, I have been sharing my ideas on how to help get the benefit to non-filers, primarily by talking to relevant members of congress and their staff. But I haven’t yet posted the ideas on this site. So I figured I should go ahead and do that now.
First, children should be enrolled in the new CTC at birth in the hospital as part of filling out their Social Security paperwork. The form currently used to enroll kids in Social Security, SS-5, could easily be amended to facilitate this.
Second, allow parents to enroll in the CTC at Social Security offices and state welfare offices (e.g. the offices that administer TANF and SNAP). Right now, parents who are not automatically enrolled via their tax return have to navigate a complicated website. Almost no non-filers have managed to do this. Providing in-person help at existing benefit offices would probably reach more people.
Third, fund navigators whose job is to locate children who are not enrolled and then help them enroll. Such navigator programs have existed for Obamacare and SNAP in the past. It appears that this idea is gaining more traction than the first two, perhaps because it’s much easier to set aside some grant money for this. But this is probably less effective than the first two measures and should not be exclusively relied upon to fix the participation problems.
Fourth, create a unified child tax credit website that does not suck. Right now, there is one website, hosted on freefilefillableforms.com, for non-filers to sign up for the CTC and another website, hosted on irs.gov, for people to manage their CTC benefit by indicating their number of children, income, or marital status has changed. There should be one website for all CTC-related interactions. It should be accessible to screen readers, available in Spanish, well-designed, and so on.
Fifth, replace the CTC phaseout with a surtax. Right now, the $3,000/$3,6000 CTC benefit begins phasing out at a 5 percent rate at $112.5k of income for single (really HoH) filers and $150k of income for married filers. In practice, this means that the government looks at the income you reported last year and then applies this phaseout formula to determine how much of the full CTC it will pay you during the year. This approach creates underpayment and overpayment problems, as discussed many times here at 3P, but it also could cause eligible people who are already receiving the benefit to have that benefit cut off due to not filing taxes in the subsequent year.
To fix this problem, the government should provide the entire benefit to all children throughout the year and then use a surtax that roughly approximates the phaseout on the backend. The best way to do this would be to figure out how much money is being raised (or saved) by the current phaseout. Then, from there, you just determine what surtax rate — if it were applied on all income over $112,500 for single/HoH filers and $150,000 for married filers — would be necessary to raise the same amount of money. This surtax rate would be lower than the 5 percent phaseout rate because it would apply to a much larger base of income and it would be more progressive because it would be applied to all of the income of the super-rich beyond $112.5k/$150k, not just some of it. More importantly for our purposes here, this approach would eliminate the need for people to file taxes every year in order to remain eligible, and so it would help keep participation in the program as high as possible.
These ideas will not solve all the problems with the program, but it would go a long way towards fixing the non-filer participation problems and if Democrats are serious about reaching the poorest of the poor, they should implement these ideas in the next reconciliation bill.