A cursory examination of otherwise similar liberal welfare regimes reveals that the U.S. is unique when it comes to child tax credits (CTC). Canada’s child tax benefit, United Kingdom’s child tax credit, Australia’s family tax benefit, and New Zealand’s family tax credit all provide fully refundable (meaning you receive the full amount regardless of tax liability) tax credits to families with children. While a recent Congressional budget deal made the U.S. child tax credit permanently partially refundable, it was originally nonrefundable when introduced in 1997. Whereas other countries provide the maximum CTC benefit to the poorest families, the poorest families in the U.S. receive nothing from even a partially refundable CTC. How do we explain this example of American exceptionalism?
The important part of the story begins in the 1970s when worries about stagflation occupied everyone’s minds. The public became increasingly concerned with a “pocketbook squeeze” on the middle class. It was clear that families were under intense economic pressures from the erosion of child-related benefits. Whether the public and policymakers traced this to the tax system or the benefit system was determined by existing policy legacies. In countries with family allowances, such as Canada and the U.K., these pressures were traced to inflation-induced erosion of these benefits. The absence of family allowances in the U.S. led policymakers there to instead trace these pressures to inflation-induced erosion of tax benefits such as the dependent exemption and the earned income tax credit (EITC).
These distinct policy legacies shaped whom it was that policymakers saw as the salient target population and the rationale for assisting them in the process of diagnosing the problem and crafting solutions. Other countries with family allowances saw the solution as increasing child benefits for all families with children. The U.S., lacking this policy legacy, pursued the narrower goal of providing tax relief to families with children. Much of the research on the growing salience of taxpayers traces it to Proposition 13 or the 1981 tax cuts but my research suggests resistance to indexing the federal income tax, a prime example of policy drift, is partly responsible for the U.S.’s anti-tax backlash. With tax benefits as their only option, policymakers responded by increasing the EITC and nearly doubling the dependent exemption in 1986. In doing so, they reinforced the logic of “tax relief for taxpayers” as the dominant strategy for helping families.
This become clear in the 1990s when child poverty developed into an important political issue in the U.S., U.K., and Canada. Policymakers in all three countries initially pushed for fully refundable child tax credits as the best way to help poor and working class families. In Canada, the Progressive Conservative government introduced the refundable Child Tax Benefit in 1992. In the U.K., the Labour government introduced the refundable Child Tax Credit in 2003.
In the U.S., Senator Jay Rockefeller introduced the National Commission on Children’s proposal for a refundable $1,000 child tax credit in Congress. One might expect conservative pro-family groups to get behind the proposal as they did in Canada. Instead, anti-tax advocates within the conservative coalition quickly coopted the issue, making it about tax relief. Characterizing the refundable CTC as “welfare”, the Family Research Council and the Christian Coalition both came out against it. The former worked with the Heritage Foundation to craft an alternative CTC only refundable against income and payroll tax liabilities.
Once they bought into the narrow goal of family tax relief, pro-family advocates found themselves at the whim of anti-tax policymakers. When Representative Bill Archer, the Chair of the Ways and Means Committee, decided that even a partially refundable CTC constituted “welfare” and moved to make it total nonrefundable, there was little that pro-family groups could do it stop him. Despite starting with the goal of tackling child poverty, the popular $500 nonrefundable CTC subsequently introduced as part of the Taxpayer Relief Act of 1997 excluded many poor and working class families altogether.
To attribute this outcome, as those on the left often do, to hypocritical religious right groups or heartless conservatives misses several crucial points that come to light when we compare this episode to the one in Canada. There, it was a conservative government who introduced the refundable child tax benefit as the result of intense pressure from Canada’s religious right. The key difference lay in the policy legacies discussed above. Because of their familiarity with family allowances, Canadians, including conservatives, had an understanding of child benefits distinct from income support for the destitute (“welfare”) and tax relief for taxpayers. Americans, lacking this legacy, were only able to understand cash benefits for children as either welfare or tax relief. Because a refundable CTC would have provided benefits to those who may not have paid any taxes, it could only be interpreted as welfare in the pejorative sense. The fact that the target population – children – was widely seen as deserving did not matter if the manner in which the benefits were provided violated the prevailing logic of appropriateness.
This is the primary structural obstacle that American anti-poverty activists have to come to grips with if they want to see any real reforms aimed at helping families most in need. What would a viable reform strategy look like? Just as the Canadian case helps us understand the obstacles reformers face in the U.S., it also gives us a glimpse into possible strategies for overcoming these obstacles to reforming the CTC and making it refundable.