A GOP senator wants to fix a big flaw in the child tax credit so it pays out more when prices rise

• Sen. Chuck Grassley wants to peg the child tax credit to inflation.
• The changes he seeks so far are far less sweeping than what most Democrats support.
• The Grassley proposal does not restructure the program into a monthly cash benefit.

A top Senate Republican released a proposal on Friday meant to fix a major flaw in the child tax credit, pegging it to inflation so it pays out more during stretches of rising prices.

The measure would also reconfigure the child tax credit's income thresholds to reflect changes to the state of the economy. 

"The relentless 40-year high inflation we're seeing today has made it increasingly difficult for Americans to afford their trips to the gas station and grocery store," Sen. Chuck Grassley of Iowa said in a press release, adding he was adamant about working on "commonsense policies" to help people plug shortfalls in their household budgets.

Currently, the child tax credit issues $2,000 per child under 17 to families with taxable earnings, plus an extra $500 per qualifying dependent. Families can get the credit as a lump-sum after filing their taxes. It is not tied to inflation, so the amount doesn't fluctuate even when prices rise, meaning its purchasing power will drop over the years.

The changes Grassley seeks are much less dramatic compared to the temporary pandemic-era Democratic program that was established in 2021. 

President Joe Biden's stimulus law transformed the child tax credit into a near-universal monthly cash benefit for families, widening eligibility to the poorest households with little or no taxable income for the first time. Families received $250 per kid ages 6 to 17 or $300 for each child age 5 and under between July and December 2021.

The other half was provided during tax season, so it totaled $3,000 for older children and $3,600 annually for younger kids.

But resistance from Republicans and Sen. Joe Manchin of West Virginia kept Democrats from renewing the program in the House-approved Build Back Better bill. The nascent healthcare bill that Democrats are cobbling together with Manchin's apparent approval also won't include the child benefit.

Sen. Mitt Romney of Utah is another prominent Republican interested in redesigning the program. In June, he released a monthly child benefit plan that would send most families up to $350 per kid. But it established a $10,000 income threshold for parents to receive full checks. It lacked major GOP support.

Romney told Insider last week he had begun "preliminary" discussions with Democrats about overhauling the child tax credit. But he added Democrats must resolve the fate of their spending plan before child tax credit talks can progress to more advanced stages.