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american rescue plan
GOP Megalaw Will Mean Tax Hikes for Many Poor Americans as Soon as 2026: Analysis
But the lawmakers also allowed an enhancement of tax credits that helped millions of Americans pay for health insurance to expire and those effects will be felt much sooner, according to a study published Tuesday by the nonpartisan Institute on Taxation and Economic Policy (ITEP)
That enhancement—passed in 2021 as part of the American Rescue Plan and extended until 2025 by the Inflation Reduction Act—provided nearly 20 million low- and moderate-income Americans who purchased health insurance on state and federal exchanges with tax relief that significantly shrunk their insurance premiums.
According to the Center on Budget and Policy Priorities, recipients saved over $700 on average on their insurance premiums as a result of the tax breaks.
Largely as a result of this policy change, the ITEP study projects that the poorest 20% of Americans will end up paying $140 more on average than they paid before the law passed as soon as next year. The next poorest 20% will end up paying $100 more.
(Chart: Institute on Taxation and Economic Policy)
An estimated 4.2 million are also expected to lose health insurance as a result of the change, according to the Congressional Budget Office (CBO), adding to the 10 million it estimates will lose insurance due to Medicaid cuts.
This does not even take into account the effects of President Donald Trump's regressive tariffs, which will also hit the poorest Americans hardest by increasing the cost of goods.
"The central fiscal priority in the megabill is to reward the wealthiest Americans with even more tax cuts, but to try to disguise that as a boon for working families," Jon Whiten, the deputy director of ITEP told Common Dreams.
A previous ITEP estimate found that for everyone except the top 20% of Americans, the cost of the tariffs will either largely offset or surpass the amount they'll save due to the tax breaks in the law.
(Chart: Institute on Taxation and Economic Policy)
Meanwhile, the law is estimated to give the richest 1% of Americans $117 billion in tax cuts next year. That amount far exceeds the tax savings of the bottom 60% of Americans put together, who will cumulatively save just $77 billion.
The report found that even foreign investors who own shares in U.S. companies will benefit more in 2026 than many of the poorest Americans due to the law's extension of corporate tax breaks: They will receive $32 billion in tax cuts in 2026 compared to just $1.5 billion for the bottom 20% of Americans.
"This bill is already very unpopular, and most Americans see it for what it is: a big boost for the richest folks and not much for anyone else," said Whiten.
According to polling last week by the Associated Press-NORC Center for Public Affairs Research, 6 in 10 Americans believe the law will do more to hurt than help lower-income people.
Whiten added, "People are likely to continue to sour on it as they learn more about it and see how it impacts their family finances."
Both Parties Should Rally Behind Expanding the Child Tax Credit
When the expanded credit expired, the number of children experiencing poverty rose substantially, demonstrating that child poverty is created—and can be alleviated —through policy choices.
There has been intensive congressional interest in the Child Tax Credit this year, including the House-passed bipartisan Wyden-Smith expansion, and proposals from congressional Child Tax Credit champions that build on the Rescue Plan.
Under current law, three major design flaws in the Child Tax Credit deny its full benefit to millions of children in low-income families:
- It phases in slowly at $0.15 per dollar of earnings, regardless of the number of children in a family;
- It starts phasing in only after a family has $2,500 in earnings; and
- It caps the credit amount that families with lower incomes can receive as a refund to $1,700 per child (for 2024), less than the $2,000 maximum for children in families with higher incomes. (The 2017 tax law set the limit on the credit refund amount, which is sometimes referred to as a “refundability cap.”)
The credit is also unavailable to 17-year-olds, who typically are still in high school.
An estimated 1 in 4 children—or roughly 19 million children—got less than the full $2,000-per-child credit or no credit in 2022 because their families’ incomes were too low. (See chart for examples of families at different income levels.) This includes nearly half of Black children, 4 in 10 Native American children, more than 1 in 3 Latino children, and about 1 in 3 children living in rural areas. Their families are overrepresented in low-paying work due to past and present hiring discrimination, inequities in educational and housing opportunities, and other sources of inequality. About 1 in 6 white children, more than 1 in 7 Asian children, and all children in Puerto Rico are also left out of the full credit.
When Congress temporarily expanded the Child Tax Credit in 2021, child poverty plummeted; the credit expansion reduced the number of children living below the poverty line by more than a third. While all racial and ethnic groups saw large reductions in poverty, the percentage point reduction in child poverty was largest for Black, Latino, and Native American children. In passing the American Rescue Plan, Congress extended the Child Tax Credit to all children living in families with low or no income for the first time, and increased the $2,000-per-child credit to $3,600 per child aged 5 and younger, and $3,000 per child aged 6 to 17 (making 17-year-olds eligible for the first time), among other changes.
When the expanded credit expired, the number of children experiencing poverty rose substantially, demonstrating that child poverty is created—and can be alleviated —through policy choices. A 2019 National Academies of Science, Engineering, and Medicine report on reducing child poverty found that “income poverty itself causes negative child outcomes.” A large number of studies have found evidence that additional income can improve children’s outcomes in the short and long term.
If the Rescue Plan version of the Child Tax Credit were in place for 2024, roughly 2.6 million fewer children would live in families with incomes below the poverty line. (See Table 1 at this link for estimates by state.) This includes 959,000 Latino children, 755,000 white children, 654,000 Black children, 79,000 Native American children, and 71,000 Asian children.
Congress should, at a minimum, reinstate the Rescue Plan expansion of the Child Tax Credit.
We’ve seen strong interest in the Child Tax Credit over the last year. Bipartisan tax legislation, which was negotiated by House Ways and Means Chair Jason Smith (R-Mo.) and Senate Finance Committee Chair Ron Wyden (D-Ore.), included a modest, but still important, expansion and passed the House with a large majority in January 2024. That proposal would have increased the Child Tax Credit for an estimated 16 million children in the first year, and lifted some 500,000 children above the poverty line when fully in effect.
Separately, two congressional proposals, Sens. Sherrod Brown (D-Ohio) and Michael Bennet’s (D-Colo.) Working Families Tax Relief Act and Rep. Rosa DeLauro’s (D-Conn.) American Family Act, build on the success of the Rescue Plan’s expanded Child Tax Credit. They make the full credit available to children in families with low incomes, propose larger maximum credit amounts than the Rescue Plan (by adjusting the Rescue Plan maximum credit amounts for inflation), and make additional changes to the credit. Though details differ, both proposals would lift more children above the poverty line over time than reinstating the 2021 Rescue Plan credit due to their larger maximum credit values and other changes. For example, according to a Columbia University analysis, had the American Family Act been in place for 2023 the credit expansion would have lifted an additional 3.6 million children out of poverty compared to current law.
Policymakers in both parties should make expanding the Child Tax Credit a priority in the 2025 tax debate. At minimum they should reinstate the Rescue Plan changes, which would provide an income boost to more than 60 million children in total, including the 19 million children in families with the lowest incomes. (See Table 2 at this link for estimates by state.) Expanding the Child Tax Credit is a proven solution for lifting millions of children above the poverty line and helping to ensure that all children have the resources they need to thrive.
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