Lawmakers are locking horns over a piece of legislation, the expiration of which would trigger a tax hike on America’s most financially vulnerable households.

The Tax Cuts and Jobs Act (TCJA), enacted in 2017 during the Trump administration, has tax provisions that provide substantial savings to households who earn below $400,000.

But the clock is ticking on those perks, chief among them being a child tax credit expiring in 2025.

Tax credits serve as “dollar-for-dollar” reductions on a person’s tax bill, differing from tax deductions, which lower the earnings on which the filer must pay taxes.

If Congress fails to extend the credits, lawmakers warn it would trigger a wave of tax increases on all Americans, including the people who are hurting the most—the middle and working class.

President Biden’s fiscal year 2025 budget proposal addresses this but fails to offer a solution, including a proposal for the government to pay for an extension. And that has Republican senators in a tizzy.

In response, Treasury Secretary Janet Yellen doubled down on President Biden’s promise to avoid raising taxes on middle-class earners and protect the child tax subsidy for low-income families.

But Republican lawmakers aren’t convinced, including Sen. Steve Daines from Montana, who accused the president of potentially reneging on a promise he made to Americans four years ago.

“And now President Biden is choosing to let the Tax Cuts and Jobs Act expire and increase the corporate tax rate, forcing American families and workers to bear the cost of these ‘woke’ policies,” he said.

Meanwhile, America's middle class, which is already pushed to the brink by high inflation and elevated interest rates, is living on pins and needles.

Tax bill mechanics

The key tax break in question is a doubling of the child tax credit to $2,000 per child, courtesy of TCJA, which currently phases out at the $200,000 and $400,000 gross income levels for singles and married couples, respectively.

Additionally, a relief act during Covid temporarily buoyed the credit by up to $1,600, helping to slash the child poverty rate nearly in half, from 9.7% in 2020 to 5.2% in 2021.

Without an extension to TCJA provisions, families’ tax bills would be thousands of dollars more per child, money they’d need to pay Uncle Sam instead of socking away in an emergency savings fund where many need it the most.

Another subsidy in question is the “other dependent credit.” This one saves taxpayers who are ineligible for the child tax credit but who have qualified dependents and fall into the eligible income bucket up to $500 on their tax bill.

The only way that Republicans could pass TCJA years ago was to include fine print stating tax cuts would expire in less than a decade so that the government didn’t bite off more than it could chew.

President Biden’s budget proposal offers potential relief, stating: "The President, faced with this fiscally irresponsible legacy, will work with the Congress to address the 2025 expirations, and focus tax policy on rewarding work, not wealth.”

But there’s no game plan or road map to follow, making that commitment fall on deaf ears in Congress.

Even by taxing the wealthy and corporations more, which President Biden fully intends to do, the government would need to generate a minimum of $1.7 trillion in additional revenue to prevent tax hikes on families earning below the $400,000 threshold in the coming decade.

That’s a tall order for any administration that picks up the tab after the election.

The middle class is shrinking

Even the thought of tax hikes is enough to send America’s middle class spiraling off the edge. In 2020, the latest IRS data available, the average federal income tax bill was $16,615.

As things stand, the middle-class lifestyle feels out of reach for many Americans.

According to Pew Research, the middle class is traditionally defined by income, somewhere between $67,819 and just over $203,000, depending on the household size. But Americans believe its more intricately linked to lifestyle.

To fit into the middle class, 90% of participants in a poll by The Washington Post agreed they must meet certain conditions, including health insurance, steady employment, a savings fund, a rainy day fund, and the ability to pay bills and retire with ease.

One-third (35%) of adults say they feel financially secure enough to fit into all six buckets comprising the middle class. Nearly two-thirds of those surveyed associate homeownership with the middle class label.

The child tax credit would go a long way in helping middle-class families to not only afford childcare but also housing.

Meanwhile, Congress continues to debate the latest $79 billion Tax Relief for American Families and Workers Act, which includes a child tax credit for low-income families and hangs in the balance.