Goldman Sachs: Loss of Child Tax Credit Could Upend Economic Recovery

U.S. economic recovery could stall if the estimated 65 million households receiving monthly child tax credits are cut off at the end of the year, Goldman Sachs economist Jan Hatzius said in a note to clients Sunday (Dec. 19), according to reports.

Now that President Joe Biden’s Build Back Better (BBB) plan is on rocky terrain, this possibility is seeming more likely.

Sen. Joe Manchin, D-W. Va, pointed to those monthly payments as the primary reason he won’t support the president’s sweeping $1.8 trillion plan, which is an indication the bill won’t pass. The monthly payments to households with children started in July.

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“BBB enactment had already looked like a close call and in light of Manchin’s comments we are adjusting our forecast to remove the assumption that BBB will become law,” the Goldman Sachs note indicated. “While BBB in its current form looks unlikely, there is still a good chance that Congress enacts a much smaller set of fiscal proposals dealing with manufacturing incentives and supply chain issues.”

The expiration of the credit, plus reduced new spending in the package, is anticipated to drop the expected GDP growth from 3% to 2%, Goldman Sachs estimates. That would be the lowest level since the second quarter of last year.

“A failure to pass BBB has negative growth implications,” Goldman Sachs economists said in the research report.

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Under Biden’s American Rescue Plan, the child tax credit (CTC) was expanded from $2,000 per child last year to $3,600 for each child under the age of 6 in 2021, and to $3,000 from $2,000 for children ages 6 to 17.

Typically, taxpayers claim the credit at tax-filing time, but in July, the IRS started sending out part of the credit in monthly installments.

“The year-end deadline to extend the CTC was the most important forcing event, and it is less clear what, if anything, will serve as a new deadline for action,” the report said.