EDITORIAL: Don’t warp child tax credit into a new welfare program

In the 1990s, there was bipartisan agreement about the importance of work. It seems those days are long gone.

At issue is the child tax credit, which is on the brink of turning into a de facto welfare program. In March, Democrats dramatically expanded it and started making monthly payments to families. For 2021, the credit for children under six is $3,600. For older kids, it’s $3,000. In a significant change from the prior child tax credit: Parents no longer have to earn income to qualify for it. The benefit phases out for higher-income earners.

Instead of applying these funds during next year’s tax season, the IRS began depositing funds in parents’ bank account in July. Parents now receive $250 or $300 per child every month, as advance “payments” on the expanded tax credit. These measures were part of the Democrats’ coronavirus relief boondoggle.

The reform was supposed to be a temporary boost. But “temporary” applies to no government programs. In their $3.5 trillion spending bill, Democrats want to extend the enhanced tax credit until 2025. If that happens, it is unlikely to sunset in the foreseeable future.

The size and scope of the child tax credit have changed dramatically since Congress created it as part of the Taxpayer Relief Act of 1997. That bill passed with overwhelming bipartisan support. Republicans controlled Congress and President Bill Clinton was a Democrat. The credit started as a $500-per-child nonrefundable credit. Nonrefundable meant it could lower a family’s tax bill, but it wouldn’t turn into a government giveaway.

Very quickly, Congress began to increase the credit, pushing to $1,000 in 2001 and making some of it refundable based on an earned income formula. The refundable portion equaled “10 percent of a taxpayer’s earned income in excess of $10,000,” according to a Congressional Research Service report.

This tied the credit to work, the main income source for most families. Families earning more than $10,000 received a de facto — albeit modest — wage hike courtesy of the federal government.

Predictably, Congress later lowered the income floor required to receive the credit. In 2009, the eligibility threshold dropped to $3,000. In 2017, Republicans in Congress expanded the credit to $2,000 per child, including a refundable portion of $1,400.

By gutting income requirements, congressional Democrats have unmoored this benefit from work. It’s a welfare benefit with snazzier marketing and distributed by the IRS.

This is a major mistake, because work is a positive good for individuals, families and society. The importance of work was at the center of the bipartisan welfare reform then-president Bill Clinton signed in 1996.

“A long time ago I concluded that the current welfare system undermines the basic values of work, responsibility and family, trapping generation after generation in dependency and hurting the very people it was designed to help,” Mr. Clinton said in 1996.

Almost immediately, the bill produced results. “Within a few years, dependence had plummeted by 60 percent,” Heritage Foundation scholars Robert Rector and Jamie Hall wrote. Employment among low-skill single parents increased and child poverty dropped.

Helping someone hold a job does more than simply sending out a check. As Mr. Clinton noted, having a job “gives structure, meaning and dignity” to people. It has a much better track record of raising people out of poverty than showering them with government checks.

The trillions spent on the War on Poverty should be evidence enough. In the 1970s, researchers conducted a series of large-scale random assignment experiments in several major cities. Some families and individuals received welfare benefits and some didn’t. “For each $1 in extra benefits given, earning fell by 66 cents,” Mr. Rector and Leslie Ford of the Heritage Foundation, write. “Even worse, the experiments came with long-term negative effect on earnings of participants that persisted long after the programs ended. Each $1 of higher benefits provided by the experimental programs led to a $5 drop in the lifetime earnings of recipients.”

The child tax credit has its place. But it shouldn’t be turned into a welfare program for parents.