Topline
With an estimated 65 million Americans currently receiving monthly tax credit payments of up to $300 per child, Goldman Sachs is warning the economy could rebound more slowly than previously expected if lawmakers don’t reauthorize the payments past their year-end expiration—an unlikely feat given opposition from Sen. Joe Manchin (D-W.Va.), who’s cited the monthly payments as a key reason he won’t support President Joe Biden’s Build Back Better plan.
Key Facts
In a Sunday evening note to clients, Goldman Sachs economist Jan Hatzius said Democrats’ sweeping Build Back Better proposal—which proposes nearly $1.8 trillion in spending targeting clean energy, education and middle-class tax credits—”no longer looks like the base case” after Manchin announced he would not support the legislation given concerns over rising inflation.
He expects it will pass in piecemeal legislation targeting some of the issues, but Hatzius says “the most important” question about the near-term economic outlook is the fate of the expanded child tax credit, which is set to expire on December 31 for the families of some 65 million children who have been receiving the monthly payments since July.
It would likely take “several weeks” to negotiate a new compromise, extending past the year-end deadline and losing urgency as additional negotiations for other measures simultaneously take place, the economist wrote. Goldman estimates the credit’s expiration, combined with the lack of new spending in the rest of the package, will push expected GDP growth down from 3% to 2% in the first quarter—the lowest level since the height of pandemic uncertainty in the second quarter of 2020.
Last week, Hatzius said the Treasury Dept. “looks unlikely” to make the January and February payments on time even if Congress extends the credit in the new year, and while the White House is reportedly considering retroactive payments, growing opposition from Manchin has since made that less likely.
In a radio interview on Monday, Manchin cited the tax credit payments as one of his key points of contention with Biden’s plan, suggesting only working Americans should receive the credit and that the money should be received as part of tax refunds, as opposed to separate monthly payments.
Chief Critic
“I want social reforms to the point that [there is] responsibility and accountability,” Manchin told MetroNews on Monday while suggesting only the children of employed Americans should be eligible for the expanded child tax credit.
Crucial Quote
“The year-end deadline to extend the CTC was the most important forcing event, and it is less clear what, if anything, will serve as a new deadline for action,” Hatzius writes.
Key Background
In an effort to combat Covid-induced poverty, Biden’s American Rescue Plan expanded the child tax credit from $2,000 per child last year to $3,600 for each child under the age of 6 in 2021, and to $3,000 from $2,000 for children ages 6 to 17. Though taxpayers typically wait until filing season to claim the credit, the IRS in July started sending out half the 2021 credit in monthly payments to get money to families sooner during the ongoing pandemic. Individuals earning up to $75,000 a year, heads of household up to $112,500 a year, and joint filers up to $150,000 a year were eligible for the full credit. Build Back Better proposes spending $200 billion to extend the credit through the end of 2022, giving eligible families $250 in monthly payments for each child age 17 and under, along with an extra $50 per month for kids under the age of 6.
Contra
Though Goldman forecasts reduced GDP growth spurred by the loss of the tax credit expansion, a study by University of Chicago researchers found the proposal would have negative economic consequences. In a study released this month, Kevin Corinth and Bruce D. Meyer estimated Build Back Better’s expansion of the child tax credit would reduce employment by approximately 1.5 million workers, thereby “diminish[ing] the effect on child poverty and eliminat[ing] its effect on deep child poverty altogether.”
Further Reading
Manchin Says He Won’t Support Build Back Better—White House Calls It ‘Inexplicable Reversal’ (Forbes)
White House Considering Double Child Tax Credits In February To Make Up For Missed January Payment (Forbes)