The West Virginia Democrat has refused to back the party’s ambitious spending plans unless Democrats cut costs and deny various benefits to people who make what he deems too much money or none at all.
Households earning up to $150,000 per year have been receiving $300 each for children under six years old and $250 each month for those with older minor children. Democrats would like to extend the monthly payments beyond December’s expiration in a larger bill to expand child care and education benefits.
The child payments are probably Democrats’ most prized policy achievement, but because the Democratic caucus has just a slim 50-seat Senate majority, it can’t pass anything without Manchin on board.
Manchin has said every aspect of the bill should have “work requirements,” to deny benefits to the unemployed, and “means testing,” to cut off people with high incomes. He hasn’t been specific about where he’d draw the line, but since last year he has repeatedly mentioned $50,000 per year as the income beneath which someone counts as “working poor.”
“Basically 90 million taxpayers file taxes of $50,000 or less,” Manchin said Monday in response to a HuffPost question about where he’d like to target benefits. “The mean household income for America is $68,000. If you’re gonna target, target to people that need it the most, the working.”
Manchin wouldn’t say whether he’s pushing Democratic leaders to embrace a $50,000 income threshold for the child tax credit.
“We’re talking about all that,” Manchin said.
Democrats increased the child tax credit as part of the American Rescue Plan earlier in the year. It is now available for parents regardless of federal income taxes paid. The IRS was also instructed to advance refunds to the parents on a monthly schedule.
Parents will see a decrease in child poverty thanks to the guaranteed income. Democrats also believe that it will soon be as popular and as politically influential as Social Security retirement payments. That’s why they set it up for households with incomes approaching $150,000 to receive full payments ― so the policy would have a middle-class base of support.
Manchin thinks sending checks to the unemployed and people with high incomes will create an “entitlement mentality,” which is a Washington way of saying the money will make people lazy. The last debate about coronavirus relief check was held in September. Manchin advocated shrinking checksFor individuals making over $50,000 or couples earning greater than $100,000.
Although changing the child credit rules could help save some money, there are risks. People with higher incomes than the lower limit could feel cheated if they receive smaller monthly payments next year. For another, some parents might feel like they have to opt out of the program just because they’re afraid the money will be clawed back at tax time if their overall income ends up exceeding the threshold.
“You really could undermine credit delivery on a monthly basis,” said Elaine Maag, a research associate at the Urban-Brookings Tax Policy Center.
Democrats can reduce the numbers of families that unexpectedly surpass the lower income thresholds. House Democrats last month drafted an extension to the expanded credit. This would allow taxpayers to base their credit amount upon their lowest income for any three previous years rather than their most recent tax return.
The other problem is President Joe Biden’s pledge that no family with a household income below $400,000 will be subject to a tax increase from the bill. Taking away credits ― even if they were delivered as advance monthly payments ― certainly increases a family’s overall tax bill.
The credit extension through 2025 as Democrats plan would be more expensive than $400 billion. A conservative think-tank, the Tax Foundation estimates that the tax credit would be phased out for everyone earning over $60,000, which would decrease the overall cost by $116 million. The Manchin proposal for stimulus checks in January was to phase out the benefits at $60,000 for both two-earner families. However, this is much more strict than Manchin’s.
In other words, drastically tighter eligibility rules might make the program more “targeted” but wouldn’t save tons of money because most of the payments are already going to lower-income households.
“Ultimately, it’s hard to meaningfully reduce the costs by lowering the phaseouts because the costs of the expansion really come in at the lower end due to full refundability,” Tax Foundation economist Erica York said in an email.
As Sen. Michael Bennet (D-Colo.) put it, “Unfortunately, there’s just not a lot of money there.”
It’s possible Democrats could satisfy Manchin with other changes to the bill, leaving the child tax credit unscathed.
In the spring, Manchin couldn’t get Democrats to impose lower income limits for full pandemic relief checks, but party leaders did agree to a lower cutoff on partial payments, reducing the amounts to households making above $150,000.
Imposing a “work requirement,” or denying checks to households with very low earnings or none at all, would probably save more money, but is likely a non-starter with Democrats, since their favorite thing about the policy is that it reduces child poverty by giving parents money.
“I don’t see why anybody would want to do that,” Bennet said. “That wipes out the anti-poverty.”