Anti-poverty advocates are abuzz at the Biden administration’s recent announcement that it will include a proposal to turn our current partially refunded child tax credit (CTC) into a fully refundable child tax credit as part of the next relief package. Details are still forthcoming but most expect it to follow the broad contours of Senators Brown and Bennet’s American Family Act

Despite a broad consensus that such a proposal would have a dramatic effect on child poverty, a small number of critics are asserting the proposed CTC’s design is fundamentally flawed, even going so far as to confidently claim it would be a train wreck. Fortunately for potential beneficiaries of the proposal, these criticisms rest upon unsuitable comparisons and exaggerations that have little resemblance to the history of CTCs around the world and little relevance for the Biden proposal.

Two Criticisms: Structure and Administration

The critics claim the Biden CTC’s shortcomings stem from two distinct issues. The first is the proposed structure of the credit. The credit is not quite universal, gradually phasing out for high-income families. This has the effect of creating benefit clawbacks for families earning more than $130,000 for single parents and $180,000 for married couples.

The second is the administration of the benefit as a tax credit. This would require beneficiaries to estimate their annual income for the coming year to determine their monthly benefit amount. Any differences between predicted and actual income would need to be reconciled during tax time at the end of the year.

Citing the U.S.’s experience with the short-lived Advanced EITC program, critics contend the need to estimate one’s annual income ahead of time combined with claw backs above the phaseout threshold will create similar administrative headaches for beneficiaries of the Biden CTC. The shortcomings of the advance EITC program are unquestioned. Unfortunately, that experience tells us nothing about how an advance CTC program would operate because they have fundamentally different designs.

A Refundable CTC Would Work Differently

The problems with advancing the EITC stems from its combination of high phase-in rates (up to 45 percent), small plateaus (across income ranges of less than $10,000), and high phase-out rates (up to 21 percent). Moreover, it is families with incomes under $51,000 – whose incomes tend to be more volatile – who are expected to navigate these complex parameters.

Biden’s proposed CTC avoids all these issues by creating a large plateau for the vast majority of beneficiaries. As a fully refundable tax credit with phaseout thresholds starting at $130,000 for singles and $180,000 for married couples, any inaccurate estimate under those income thresholds wouldn’t affect advanced credit amount. If you estimated your income would be $15,000 and it ended up being $30,000, you would still receive $250 monthly per child. If you estimated your income would be $50,000 and it ended up being $0, you would still receive $250 monthly per child. No year-end reconciliation is required.

What about those above the initial phaseout thresholds? They would be required to engage in year-end reconciliation, but it would be relatively simple. The phaseout rates are 5 percent so big adjustments would only happen in the case of big, unexpected increases income for high-income earners. Small adjustments are already routine for high-income earners. For example, the author must make annual adjustments for the small honorariums he traditionally receives as an academic for writing or speaking engagements.

Matt Bruenig cites legislative language from the March 2019 version of the American Family Act to argue that the actual legislation does something very different than what is described above. That may be the case for the March 2019 version of the American Family Act, which is almost two years old at this point, but is unlikely to tell us anything about the next iteration of the proposal for which details have not been released yet. Since that bill was filed, policymakers and the IRS gained new experience administering fully refundable tax credits with phaseouts beginning after high-income thresholds in the form of relief checks (It is also worth noting that policymakers were limited in their ability to disburse relief checks through the Social Security Administration because it lacked the infrastructure that Bruenig seems to assume it has as the “obvious alternative”). It is very likely that policymakers will use this experience to improve the disbursement of monthly CTC payments in the next bill. In any case, we cannot dismiss it as a “trainwreck” until we see the details.

Ignoring Lessons from Abroad

The most baffling part of the debate over whether we can administer family allowances as refundable tax credits is the total absence of any discussion of other countries’ experiences. Many are quick to point out that the U.S. is the only rich democracy without a family allowance while simultaneously overlooking the fact that administering family allowances as refundable tax credits with some amount of income-testing at the top is very common across rich democracies, especially among Anglo welfare regimes like the U.S.

The idea of integrating family allowance payments into the tax system dates back to 1978 in Canada and has been studied at length by anti-poverty advocates like Ken Battle and the Caledon Institute (who we might usefully think of as the Canadian equivalents to Bob Greenstein and the Center for Budget and Policy Priorities). Evidence from Canada, which mostly closely resembles the U.S. in terms of tax and social policy, strongly suggests that administration as a refundable tax credit is a totally reasonable option for the U.S.

We are at a critical juncture in the evolution of benefits for American children. Biden’s proposal has the potential to tackle child poverty in a serious manner. It would be a mistake to get sidetracked by baseless claims about the relative merits of administration of those benefits as refundable tax credits.  

Joshua McCabe is an assistant professor of sociology and the assistant dean for social sciences at Endicott College. He is also a Niskanen Center senior fellow, an expert on tax and social policy, and author of The Fiscalization of Social Policy: How Taxpayers Trumped Children in the Fight Against Child Poverty (Oxford University Press).