Joe Manchin has a point: Means-testing would make ‘social infrastructure’ bill affordable

Now that the physical infrastructure bill has passed, Democrats are working to shoehorn their social priorities into a shrinking budget target, pared down from an earlier $3.5 trillion to around $1.75 trillion. But instead of real cuts, it appears that they are aiming to simply reduce the number of years for which some programs are approved — to make them seem less expensive — without actually lowering their long-term cost. 

This is hardly an unprecedented budget gimmick. Former President Trump’s 2017 tax cuts are another recent example.

The idea is that, after enacted, public support will grow and Democrats (or the Republicans, should they win control next year) will extend the programs. But given the comments of Sen. Joe Manchin (D-W.Va.) and others, that feels like a “riverboat gamble,” as the late Sen. Howard Baker called the Reagan tax cuts. Wiser policy would be to make the programs affordable by targeting them to families really needing help. In other words, as Manchin and others have pointed out: Means-testing would make the social infrastructure bill more affordable. 

The Child Tax Credit (CTC) is a good example. As part of last March’s COVID legislation, the preexisting CTC was almost doubled, going from about $118 billion to about $223 billion in its first year. The expansion was only for one year, though, because its true, 10-year cost in new spending — about $1.4 trillion — was a political nonstarter.

The expanded CTC has been widely hailed as a fresh way to fight poverty. Often repeated is the estimate that it will cut child poverty by over 40 percent. But much of the CTC has nothing to do with helping poor or even low-income families; about 96 percent of households with children qualify. The full $3,600 credit for children under age 6, and $3,000 for children ages 6 to 17, goes to families with incomes as high as $75,000 (for single parents), $112,500 (for single parents filing as heads of household) and $150,000 (for married couples filing jointly), before being phased down to $2,000 for individuals with incomes up to $200,000 and married couples with incomes up to $400,000 (completely phasing out at $240,000 and $440,000, respectively.) These payments are tax free and there is no limit to the number of children that can be claimed.

Hence, a two-parent family with three children and $150,000 in earnings receives about $10,000 tax free. More than 12 million recipient families (30 percent of the total) have incomes between about $63,000 and $440,000. Sen. Elizabeth Warren (D-Mass.) has called this “means testing,” but that is a lawyerly stretch of the term. This is a cynical attempt to purchase middle-class support. In a creative twist, at least for 2021, about half this money will be paid directly into taxpayer bank accounts, not buried in their annual tax returns — making payments a monthly reminder of the Democrats’ largesse. 

In keeping with its “universalist” approach, the expanded CTC is now “fully refundable” — that is, payments also go to those with zero earnings and, hence, no tax liability. That’s about 5 million non-working parents, at a cost of about $22 billion a year. Only in Washington would payments to those who are not working and who do not owe taxes be called “refundable” payments. 

For these non-working families, the CTC is really a form of welfare. It effectively undoes Bill Clinton’s still popular 1996 reform of welfare — which helped fuel unprecedented increases in the labor force participation of low-skilled, single mothers. With no work requirement, some parents undoubtedly will stop working — estimates range from 150,000 to 1.5 million. Reliable data will not be available for some time.

Swing-district Democrats should be worried, especially after the recent election. Americans have a longstanding preference for giving aid only to the “deserving poor” and for rewarding work. Republicans have raised the specter of pre-welfare reform days, claiming that the credit subsidizes “idleness” among the poor, and will be a return to what Clinton called welfare: “a way of life.”

The CTC’s proponents claim that attitudes have shifted — citing polls that they claim indicate strong public support for the “child tax credit.” Most of these polls, however, do not make it clear that the CTC is an unconditional cash grant, like welfare. When its welfare-like quality is mentioned, support falls sharply. In an August 2021 YouGov/American Compass poll, only 28 percent of registered voters indicated that they supported making the expanded CTC permanent for non-working families.

Through means-testing, Democrats should step back from the expensive and counterproductive goal of a universal child credit, which many see as a precursor of a universal basic income. Even better would be to use its funds to pursue long-sought reforms to the Earned Income Tax Credit (EITC) — to remove the high marginal tax rates on rising earnings and marriage embedded in it and other safety-net programs.

For years, fixing the work and marriage disincentives in the EITC and other safety-net programs was stymied by the inability of advocates to find ways to pay for them. Now there is money on the table. Removing them might not be as dramatically sweeping as “a tax cut for all,” but it could be just the policy bridge needed to make a real improvement in the lives of struggling families — one that progressives and moderates could get behind.  

Douglas J. Besharov is a professor of public policy at the University of Maryland and directs its Welfare Reform Academy. He was the first director of the National Center on Child Abuse and Neglect.  

Douglas M. Call is a lecturer at the University of Maryland and the deputy director of the Welfare Reform Academy.