Now that Donald Trump and JD Vance have won the recent elections, one of the campaign promises to have generated the most buzz is the potential increase of the child tax credit, which Vance promised to raise to $5,000. The newly elected Vice President defended this proposal as one that eases the financial burden for families. But with the election over, the big question is whether he can get this measure enacted and just what impact it will have on the federal budget.
Since the beginning of his campaign, JD Vance has said he planned to triple the child tax credit from the current $2,000 to $5,000 per child. According to Vance, this substantial increase would help low- and middle-income, but also high-income families. He suggested also dropping an income cap that now subtracts from the credit if you earn more than $200,000 per year, or $400,000 for a couple.
JD Vance’s proposal: a $5,000 child tax credit
Vance sees a family support system that isn’t based on income, and he believes that all families should get the same level of financial support. That fits in with his ‘pro family’ philosophy, he tells me, which is supposed to benefit all American families with children. But although the proposal has promise, it faces huge questions of cost and feasibility.
How much would this measure cost?
An economic impact analysis, provided by the Committee for a Responsible Federal Budget, estimates that Vance’s proposal would increase between $2 trillion and $3 trillion to the national debt in the next decade. The result of the enormous federal expenditure necessary for such a huge Child Tax credit increase.
Furthermore, Vance has not indicated whether his proposal would be fully refundable, meaning whether the amount will be completely refundable should families not owe enough taxes to offset the credit. It’s an important point because a fully refundable credit would be exceedingly expensive. The economists who question the actual feasibility of the measure have praised the lack of clarity on this aspect.
The proposal’s effects on the federal budget are difficult to calculate without a detailed plan, says Marc Goldwein, policy director of the Committee for a Responsible Federal Budget. A lack of comprehensive evidence makes it risky for federal sustainability to implement a $5,000 credit that may become a long-term fiscal risk.
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Can JD Vance fulfill his promise?
Once JD Vance has a political perch that allows him to foist his proposal, there are lots of things that could get in its way. The measure would have to be supported in Congress, and it might run into hurdles about the federal deficit. They also note that Vance did not back a recent bill in the Senate designed to boost the tax credit for low-income families.
If Vance is truly serious about supporting working families, he would have voted for that earlier bill, said one of the main advocates of the failed credit expansion, Senator Ron Wyden. And his pro-family rhetoric does not even convince Wyden, who has expressed skepticism about whether Vance can actually follow through on his promises now that he’s in power.
Economic relief for families, but would it effectively encourage birth rates?
Vance has also emphasized that his proposal, while providing that financial support, was also a way to encourage higher birth rates in the United States. But several economists warn that while financial incentives might help pay for a number of the costs, very little changes the decision-making to have more children.
But in reality, the full cost of raising a child until they reach age 18 in the U.S. runs closer to $240,000, so $5,000 a year is a help but not the whole story. The limitation of the measure’s role in birth rates makes its impact here rather slight.
Countries that have attempted to encourage birth rates with payments have seen temporary results but the effects wear thin over time. For example, Australia had introduced a ‘baby bonus’ nearly two decades ago and saw an initial small bump in births before the birth rate fell again, showing that incentives are, by definition, temporary.
Genuine family support or a populist measure?
The ambitious promise of a $5,000 child tax credit, proposed by JD Vance, might seem too good to be true to some, but it is something tangible for families in this time of economic uncertainty. But for some, it’s just another populist twist that could easily fizzle out into an empty promise or a money-draining burden without plenty of financial support.
This tax credit will be a fiscal challenge for the Trump-Vance administration to carefully weigh before implementation. If Vance can punch through to make good on his promise, then for the next several months we’ll have to see whether his $5,000 child tax credit will be flushed down the toilet as an unfulfilled campaign pledge.
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FAQs
Q. What is JD Vance’s proposal for the Child Tax Credit?
A. JD Vance nixed the idea of spending $1 trillion on a child tax credit paid to every adult in America, backing instead the idea of raising it from $2,000 to $5,000 per child. The increase is driven to help low and middle-income families and he doesn’t want the present income ceiling, which cuts the credit usually for those who earn more than $200,000 or the couple till $400,000 a year.
Q. How much would JD Vance’s proposed Child Tax Credit cost?
A. An economic impact analysis finds that a huge expansion of the Child Tax Credit could cost as much as $3 trillion in additional national debt over the next decade, principally because it would create a large federal expense.
Q. Is there skepticism about the feasibility of the $5,000 Child Tax Credit?
A. Yes, there is skepticism regarding the feasibility of the $5,000 Child Tax Credit. Critics point out the lack of clarity on whether the credit would be fully refundable and highlight concerns about the potential long-term fiscal risks it may pose to the federal budget, especially without a detailed implementation plan.