New bipartisan proposal to enhance the Child Tax Credit: What to know

A new, bipartisan tax framework unveiled by lawmakers Tuesday would enhance the popular Child Tax Credit to benefit millions of American families. The video is from a previous report. The proposal, released by Democratic Sen. Ron Wyden and Republican Rep. Jason Smith, would boost the refundable portion of the credit people can claim, allow low income families with multiple children to receive more of the benefit and adjust the credit for inflation.

"Fifteen million kids from low income families will be better off as a result of this plan, and given today's miserable political climate, it's a big deal to have this opportunity to pass pro family policy that helps so many kids get ahead," Wyden, an Oregon Democrat, said in a statement.

The tax package also includes new low income housing tax credits, disaster tax relief and tax benefits for Taiwan. Smith, the chairman of the House Ways and Means Committee, called the proposal a "common sense tax package that will strengthen Main Street businesses, rebuild communities, support American families, and boost our competitiveness with China." The legislation's fate in Congress, however, is unclear.

Lawmakers are already struggling to coalesce on spending measures to keep the government open and operating before Friday's partial shutdown deadline. Also, notably absent from Tuesday's announcement of the tax agreement was Mike Crapo, the top Republican on the Senate Finance Committee, and Richard Neal, the top Democrat on the House Ways and Means Committee.

Wyden said it was his goal to pass the package before the start of tax season, which is Jan. 29. The changes to the federal Child Tax Credit enacted in 2021 under the American Rescue Plan had a significant impact on families. According to Census Bureau data, 3 million children were lifted out of poverty because of the expanded credit.

The child poverty rate in 2021 dropped to a record low. The policy significantly increased the dollar amount that families with children received from $2,000 to $3,600 per year for kids under the age of 6 and $3,000 per year for kids between 6 and 18 years old. Checks were sent out monthly instead of once a year, which helped many households meet day to day expenses.

The expanded credit expired at the end of 2021 amid opposition to its price tag from Republicans and notably Democratic Senator Joe Manchin of West Virginia. The cost of the one year expanded credit was estimated to be about $105 billion. After it ended, the child poverty rate more than doubled in 2022.

Since then, Democrats have advocated for renewing the policy. President Joe Biden included an enhanced Child Tax Credit in his 2024 budget proposal, which was dead on arrival in Congress largely due to its tax increases on wealthy Americans and corporations. The White House said Tuesday Biden "remains committed to fighting for the full expanded Child Tax Credit" in their response to the proposed tax deal.

"We appreciate Chairman Wyden and Chairman Smith's work toward increasing the Child Tax Credit for millions of families and supporting hundreds of thousands of additional affordable homes, and look forward to reviewing the full details of their agreement," said White House spokesperson Michael Kikukawa.

While the proposal is not a return to the expanded Child Tax Credit implemented by Biden in 2021, lawmakers say it would make the program more generous especially for low income households. According to the framework, the maximum refundable portion of Child Tax Credit would increase from the current level of $1,600 per child to $1,800 in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025.

It would also change the way the credit is phased in to ensure benefits are "applied fairly to families with multiple children." Other changes include adjusting the credit for inflation starting in 2024, and allowing parents to use current or prior year income to calculate their credit. The nonpartisan Center on Budget and Policy Priorities, in a report released Tuesday, said the changes would allow a single parent with two children who earns $13,000 to see their credit double in the first year, or a married couple earning $32,000 to see a $975 gain.

The CBPP estimated overall the change could lift as many as 400,000 children above the poverty line in its first year, and 500,000 children or more when fully in effect. ABC News' Alexandra Hutzler contributed to this report..