Revolutionizing Redistribution : Tax Credits and the American Rescue Plan

The American Rescue Plan Act (ARPA) dramatically alters the federal government’s approach to redistribution in 2021. Among its boldest reforms are its temporary expansions of the Child Tax Credit and the Earned Income Tax Credit. For the first time, ARPA authorizes meaningful cash support for nonworking families and childless workers, two groups that have been historically disadvantaged by social safety net programs. This Essay considers ARPA’s effects on low-income American taxpayers, spotlighting in particular how the reforms will protect millions of households from being pushed into poverty or further into poverty as a result of paying taxes—a phenomenon called “fiscal impoverishment.” Policy makers must make ARPA’s reforms permanent in order to ensure that low-income taxpayers remain protected past 2021. As they work to do so, policy makers should be mindful of gaps in the tax credits that will undermine the reforms’ positive effects. The Essay identifies several such gaps and argues that Congress should legislate more dramatic inclusion for households with and without children