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    Biden’s ‘Made in America’ Policies Anger Key Allies

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    The president’s plans to bolster America’s electric vehicle and battery production have opened a rift in relationships in Asia and Europe.WASHINGTON — President Biden’s efforts to bolster domestic manufacturing are coming under diplomatic fire from key allies, with European governments accusing his administration of undercutting the trans-Atlantic alliance with “Made in America” policies that threaten their economies.The objections center on policies included in the Inflation Reduction Act, which aims to make the United States less reliant on foreign suppliers by providing financial incentives to locate factories and produce goods in the United States, including electric vehicles. Mr. Biden has touted the law as key to creating “tens of thousands of good-paying jobs and clean energy manufacturing jobs, solar factories in the Midwest and the South, wind farms across the plains and off our shores, clean hydrogen projects and more — all across America, every part of America.”But that has prompted cries of protectionism by foreign officials and accusations that the Biden administration is violating trade laws by giving preferential treatment to U.S.-based firms.“We are having concerns that a number of the provisions are discriminatory against E.U. companies, which of course obviously is a problem for us,” Valdis Dombrovskis, the European Union’s commissioner for trade, told reporters in Washington on Thursday.The disagreement represents the first major rift between the United States and Europe since Mr. Biden took office last year. The president, who promised to take a softer diplomatic touch than the Trump administration had with its “America First” agenda, has worked closely with European allies on a number of priorities, including punishing Russia for its invasion of Ukraine. In his first months in office, Mr. Biden quickly moved to repair relations with Europe, including by resolving a 17-year dispute over aviation subsidies.But the unified front between the United States and Europe showed signs of strain during this week’s annual meetings of the World Bank and International Monetary Fund. European officials complained to the top ranks of the Biden administration that provisions in the expansive climate and energy law to support domestic production of electric vehicles violate international trade rules that require countries to treat foreign and domestic companies equally. They argued the provisions are unfair to their domestic car industries.Mr. Dombrovskis said that he and other European officials would be directing their concerns to Treasury Secretary Janet L. Yellen, whose agency is responsible for implementing much of the law, along with Katherine Tai, the U. S. trade representative, and Gina Raimondo, the commerce secretary.Read More on Electric VehiclesRivian Recall: The electric-car maker said that it was recalling 13,000 vehicles after identifying an issue that could affect drivers’ ability to steer some of its vehicles.China’s Thriving E.V. Market: More electric cars will be sold in the country this year than in the rest of the world combined, as its domestic market accelerates ahead of the global competition.A Crucial Mine: A thousand feet below wetlands in northern Minnesota are ancient deposits of nickel, a sought-after mineral seen as key to the future of the U.S. electric car industry.Banning Gasoline Cars: California is leading the way in the push to electrify the nation’s car fleet with a plan to ban sales of new internal-combustion vehicles by 2035, but the rule will face several challenges.In a meeting with Mr. Dombrovskis on Thursday, Ms. Tai “shared her view that seriously combating the climate crisis will require increased investments in clean energy technologies,” the Office of the United States Trade Representative said in a statement. Both Ms. Tai and Mr. Dombrovskis “asked their teams to increase engagement” on the issue.European officials are discussing whether to contest the law, which was passed by Democrats along party lines, at the World Trade Organization, which could be time consuming and fruitless, or to formally raise the matter through the Trade and Technology Council that was formed last year.The crux of the international fight centers on more than $50 billion in tax credits to entice Americans to buy electric vehicles. The law restricts the credit to vehicles that are assembled in North America. It also has strict requirements surrounding the components that go into powering electric vehicles, including batteries and the critical minerals that are used to make them. That is creating new incentives for battery makers to build recycling and production facilities in the United States.Foreign companies that manufacture cars and car parts in the United States can also qualify for the credit. But some foreign carmakers, particularly those from Asia, tend to import more components for electric vehicles from outside the United States, meaning that fewer of their models qualify.That has sparked accusations that the terms of the law were written to benefit U.S. companies like General Motors or Ford, rather than foreign companies like Toyota and Honda, even though many foreign companies have invested heavily in the United States.“We understand that some trading partners have concerns with how the EV tax credit provisions in the law will operate in practice with respect to their producers,” said Eduardo Maia Silva, a spokesman for the National Security Council. “We are committed to working with our partners to better understand their concerns and keep open channels of engagement on these issues.”European officials are concerned that the U.S. law will drive a wedge between European companies and their home countries if carmakers such as Porsche are under pressure to set up shop in the United States instead of opening more factories in Germany. Since the law went into effect, Honda, Toyota and LG Energy Solutions of South Korea have all announced major battery investments in the United States.A previous version of the bill would have offered the tax credit to only U.S.-produced vehicles. But Canada and Mexico both lobbied against that draft version, and the measure was ultimately expanded to apply to vehicles produced throughout North America.Asian allies have also expressed concerns about the law.When Vice President Kamala Harris met with South Korean leaders in Tokyo and Seoul last month, the allies did not hesitate to express their frustration.Hours before Ms. Harris attended the funeral of former Prime Minister Shinzo Abe of Japan, Korean officials, including Prime Minister Han Duck-soo expressed their concerns about the legislation to the vice president in a closed-door meeting. The Japanese government has also expressed concerns.Frank Aum, a senior expert on Northeast Asia at the U.S. Institute of Peace, said the tax credit was a “direct harm” to South Korean companies like Hyundai and Kia that wouldn’t get the benefit of the tax credit.“South Korea is feeling very much betrayed because of the investments that they have made in the electric vehicle battery and semiconductor industries in the U.S. over the last couple years,” he said.Just months before he signed it into law, Mr. Biden stood with the chairman of Hyundai in Seoul to celebrate the South Korean company’s investment in a new electric vehicle and battery manufacturing facility in Savannah, Ga. In meetings with Mr. Han and later with President Yoon Suk Yeol of South Korea in Seoul, Ms. Harris said she would consult with South Korea as the law is implemented. The Biden administration has downplayed the tensions, saying that it is relying on its strong relationships with other governments to talk through those differences and fight the bigger battle of climate change.In an Oct. 7 speech at the Roosevelt Institute, a Washington think tank, Ms. Tai called out the European Union’s Carbon Border Adjustment Mechanism — a proposal that would encourage cleaner manufacturing by levying a tax on imported goods based on how many greenhouse gasses their production emits — saying that those European measure could also cause tensions with allies. But the United States and Europe should work through those differences to combat climate change together, she added.“As we seek to reduce our carbon footprints and benefit our industries, we’re each going to do things that cause anxiety, whether it’s the Carbon Border Adjustment Mechanism or the Inflation Reduction Act. But this also creates an opportunity for us to work together, to tackle this existential crisis that threatens all of us,” Ms. Tai said.Still, trade experts have warned that the U.S. efforts could potentially kick off a similar wave of protectionist measures to match those adopted by the United States.Bruno Le Maire, France’s finance minister, said last month that the European Union should consider adopting electric vehicle bonuses for cars that are produced within the E.U. and meet rigorous environmental standards.In that event, America’s policies could backfire in the long run, if American cars or components face similar barriers to being sold in Europe or Asia, said Chad P. Bown, a senior fellow at the Peterson Institute for International Economics.“I think the risk on the U.S. side is that if we don’t address some of their major concerns, that they’ll ultimately do the same thing,” he said.Wally Adeyemo, the deputy Treasury secretary, said at an event this week that he hopes that eventually U.S. allies will benefit from America’s investment in its production of goods such as critical minerals because it will also solidify their supply chains.A Treasury Department spokeswoman declined to comment on how Ms. Yellen responded to the complaints of her European counterparts this week. In remarks at her closing news conference on Friday, Ms. Yellen touted the ambitions of the Inflation Reduction Act without acknowledging the concerns in Europe and Asia.“It’s our nation’s most aggressive domestic action on climate,” Ms. Yellen said. “And it puts us on a strong path to meet our emissions reduction goals.” More

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    Pandemic Aid Cut U.S. Poverty to New Low in 2021, Census Bureau Reports

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    A measure that accounts for all federal subsidies also showed a reduction of almost half in the number of children below the poverty level.A second year of emergency pandemic aid from the federal government drove poverty to the lowest level on record in 2021 and cut the number of poor children by nearly half, the Census Bureau reported on Tuesday.The poverty rate fell to 7.8 percent, down from 9.2 percent the previous year, according to the Supplemental Poverty Measure, a yardstick that includes wages, taxes and the fullest account of government aid. In addition, the share of children in poverty sank to another record low of 5.2 percent, down 4.5 percentage points from 2020, a sharp acceleration of a long-term trend. In large part, those changes reflect the trillions of stimulus dollars approved by Congress, culminating in the Democrats’ American Rescue Plan of March 2021, especially the expanded child tax credit, which temporarily provided an income guarantee to families with children.Real median household income reached $70,800, not significantly different from 2020, as increases in full-time employment were offset by rising inflation and decreases in unemployment insurance, which had been supplemented above normal levels through the summer of 2021. The “official” poverty rate, generally considered outdated because it omits hundreds of billions spent on programs like tax credits and housing assistance, also did not change significantly from the previous year.How Poverty Has DecreasedThe official poverty rate was 11.6 percent last year, but the supplemental rate — which accounts for the impact of government programs — fell to 7.8 percent.

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    Share of the population living in poverty
    The supplemental rate adjusts for geographic differences. It also includes wage income, taxes and the fullest account of government aid.Sources: Census Bureau; Columbia UniversityKarl RussellThis data covers a year that was profoundly influenced by a set of emergency programs that have largely expired. Since then, many families have again found themselves under financial strain.Progressives see the reduction in poverty — even if temporary — as evidence that the federal government has the power to give people a better standard of living and that it should continue to do so in the future.“Man, I’m just grinning ear to ear,” said Luke Shaefer, who runs a center on poverty at the University of Michigan and sees the expanded child tax credit as a blueprint for a permanent program. “Americans wonder if the government can shape successful policies that address poverty. This offers incontrovertible evidence that it can.”Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Pace of Climate Change Sends Economists Back to Drawing Board

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    Economists have been examining the impact of climate change for almost as long as it’s been known to science.In the 1970s, the Yale economist William Nordhaus began constructing a model meant to gauge the effect of warming on economic growth. The work, first published in 1992, gave rise to a field of scholarship assessing the cost to society of each ton of emitted carbon offset by the benefits of cheap power — and thus how much it was worth paying to avert it.Dr. Nordhaus became a leading voice for a nationwide carbon tax that would discourage the use of fossil fuels and propel a transition toward more sustainable forms of energy. It remained the preferred choice of economists and business interests for decades. And in 2018, Dr. Nordhaus was honored with the Nobel Memorial Prize in Economic Sciences.But as President Biden signed the Inflation Reduction Act with its $392 billion in climate-related subsidies, one thing became very clear: The nation’s biggest initiative to address climate change is built on a different foundation from the one Dr. Nordhaus proposed.Rather than imposing a tax, the legislation offers tax credits, loans and grants — technology-specific carrots that have historically been seen as less efficient than the stick of penalizing carbon emissions more broadly.The outcome reflects a larger trend in public policy, one that is prompting economists to ponder why the profession was so focused on a solution that ultimately went nowhere in Congress — and how economists could be more useful as the damage from extreme weather mounts.A central shift in thinking, many say, is that climate change has moved faster than foreseen, and in less predictable ways, raising the urgency of government intervention. In addition, technologies like solar panels and batteries are cheap and abundant enough to enable a fuller shift away from fossil fuels, rather than slightly decreasing their use.Robert Kopp, a climate scientist at Rutgers University, worked on developing carbon pricing methods at the Department of Energy. He thinks the relentless focus on prices, with little attention paid to direct investments, lasted too long.“There was an idealization and simplification of the problem that started in the economics literature,” Dr. Kopp said. “And things that start out in the economics literature have half-lives in the applied policy world that are longer than the time period during which they’re the frontier of the field.”Carbon taxes and emissions trading systems have been instituted in many places, such as Denmark and California. But a federal measure in the United States, setting a cap on carbon emissions and letting companies trade their allotments, failed in 2010.What’s in the Inflation Reduction ActCard 1 of 8What’s in the Inflation Reduction ActA substantive legislation. More

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    The Carried Interest Loophole Survives Another Political Battle

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    The latest effort to narrow the preferential tax treatment used by private equity executives failed after Senator Kyrsten Sinema objected.WASHINGTON — Once again, carried interest carried the day.The last-minute removal by Senate Democrats of a provision in the climate and tax legislation that would narrow what is often referred to as the “carried interest loophole” represents the latest win for the private equity and hedge fund industries. For years, those businesses have successfully lobbied to kill bills that aimed to end or limit a quirk in the tax code that allows executives to pay lower tax rates than many of their salaried employees.In recent weeks, it appeared that the benefit could be scaled back, but a last-minute intervention by Senator Kyrsten Sinema, the Arizona Democrat, eliminated what would have been a $14 billion tax increase targeting private equity.Lawmakers’ inability to address a tax break that Democrats and some Republicans have called unfair underscores the influence of lobbyists for the finance industry and how difficult it can be to change the tax code.In addition to doing away with the carried interest provision, the deal Democratic leaders cut with Ms. Sinema included a 1 percent excise tax on stock buybacks and changes to a minimum corporate tax of 15 percent that favored manufacturers.On Friday, the private equity and hedge fund industries applauded the development, describing it as a win for small business.“The private equity industry directly employs over 11 million Americans, fuels thousands of small businesses and delivers the strongest returns for pensions,” said Drew Maloney, the chief executive of the American Investment Council, a lobbying group. “We encourage Congress to continue to support private capital investment in every state across our country.”Bryan Corbett, the chief executive of the Managed Funds Association, said: “We’re happy to see that there is bipartisan recognition of the role that private capital plays in growing businesses and the economy.”Carried interest is the percentage of an investment’s gains that a private equity partner or hedge fund manager takes as compensation. At most private equity firms and hedge funds, the share of profits paid to managers is about 20 percent.Under existing law, that money is taxed at a capital-gains rate of 20 percent for top earners. That’s about half the rate of the top individual income tax bracket, which is 37 percent. A tax law passed by Republicans in 2017 largely left the treatment of carried interest intact, after an intense lobbying campaign, but it did narrow the exemption by requiring executives to hold their investments for at least three years in order to enjoy preferential tax treatment.An agreement reached last week by Senator Joe Manchin III, Democrat of West Virginia, and Senator Chuck Schumer of New York, the majority leader, would have extended that holding period to five years from three, while changing the way the period is calculated in hopes of reducing taxpayers’ ability to take advantage of the lower 20 percent tax rate.What’s in the Democrats’ Climate and Tax BillCard 1 of 6A new proposal. More

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    Carried Interest Is Back in the Headlines. Why It’s Not Going Away.

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    Changes demanded by Senator Kyrsten Sinema will preserve a tax loophole that Democrats have complained about for years.For years, Democrats and even some Republicans such as former President Donald J. Trump have called for closing the so-called carried interest loophole that allows wealthy hedge fund managers and private equity executives to pay lower tax rates than entry-level employees.Those efforts have always failed to make a big dent in the loophole — and the latest proposal to do so also faltered this week. Senate leaders announced on Thursday that they had agreed to drop a modest change to the tax provision in order to secure the vote of Senator Kyrsten Sinema, Democrat of Arizona, and ensure passage of their Inflation Reduction Act, a wide-ranging climate, health care and tax bill.An agreement reached last week between Senator Chuck Schumer, the majority leader, and Senator Joe Manchin III, Democrat of West Virginia, would have taken a small step in the direction of narrowing carried interest tax treatment. However, it would not have eliminated the loophole entirely and could still have allowed rich business executives to have smaller tax bills than their secretaries, a criticism lobbed by the investor Warren E. Buffett, who has long argued against the preferential tax treatment.The fate of the provision was always in doubt given the Democrats’ slim control of the Senate. And Ms. Sinema had previously opposed a carried interest measure in a much larger bill called Build Back Better, which never secured the 50 Senate votes needed — Republicans have been unified in their opposition to any tax increases.Had the legislation passed in the form that Mr. Schumer and Mr. Manchin presented it last week, the shrinking of the carried interest exception would have brought Democrats a tiny bit closer to realizing their vision of making the tax code more progressive.What is carried interest?Carried interest is the percentage of an investment’s gains that a private equity partner or hedge fund manager takes as compensation. At most private equity firms and hedge funds, the share of profits paid to managers is about 20 percent.Under existing law, that money is taxed at a capital-gains rate of 20 percent for top earners. That’s about half the rate of the top individual income tax bracket, which is 37 percent.The 2017 tax law passed by Republicans largely left the treatment of carried interest intact, after an intense business lobbying campaign, but did narrow the exemption by requiring private equity officials to hold their investments for at least three years before reaping preferential tax treatment on their carried interest income.What would the Manchin-Schumer agreement have done?The agreement between Mr. Manchin and Mr. Schumer would have further narrowed the exemption, in several ways. It would have extended that holding period to five years from three, while changing the way the period is calculated in hopes of reducing taxpayers’ ability to game the system and pay the lower 20 percent tax rate.Senate Democrats say the changes would have raised an estimated $14 billion over a decade, by forcing more income to be taxed at higher individual income tax rates — and less at the preferential rate.The longer holding period would have applied only to those who made $400,000 per year or more, in keeping with President Biden’s pledge not to raise taxes on those earning less than that amount.The tax provision echoed a measure that was initially included in the climate and tax bill that House Democrats passed last year but that stalled in the Senate. The carried interest language was removed amid concern that Ms. Sinema, who opposed the measure, would block the overall legislation.Why hasn’t the loophole been closed by now?Many Democrats have tried for years to completely eliminate the tax benefits private equity partners enjoy. Democrats have sought to redefine the management fees they get from partnerships as “gross income,” just like any other kind of income, and to treat capital gains from partners’ investments as ordinary income.Such a move was included in legislation proposed by House Democrats in 2015. The legislation would also have increased the penalties on investors who did not properly apply the proposed changes to their own tax filings.The private equity industry has fought back hard, rejecting outright the basic concepts on which the proposed changes were based.“No such loophole exists,” Steven B. Klinsky, the founder and chief executive of the private equity firm New Mountain Capital, wrote in an opinion article published in The New York Times in 2016. Mr. Klinsky said that when other taxes, including those levied by New York City and the state government, were accounted for, his effective tax rate was between 40 and 50 percent.What would the change have meant for private equity?The private equity industry has defended the tax treatment of carried interest, arguing that it creates incentives for entrepreneurship, healthy risk-taking and investment.The American Investment Council, a lobbying group for the private equity industry, described the proposal as a blow to small business.“Over 74 percent of private equity investment went to small businesses last year,” said Drew Maloney, chief executive of the council. “As small-business owners face rising costs and our economy faces serious headwinds, Washington should not move forward with a new tax on the private capital that is helping local employers survive and grow.”The Managed Funds Association said the changes to the tax code would hurt those who invested on behalf of pension funds and university endowments.“Current law recognizes the importance of long-term investment, but this proposal would punish entrepreneurs in investment partnerships by not affording them the benefit of long-term capital gains treatment,” said Bryan Corbett, the chief executive of the association.“It is crucial Congress avoids proposals that harm the ability of pensions, foundations and endowments to benefit from high-value, long-term investments that create opportunity for millions of Americans.”Jim Tankersley More

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    Analysis Deems Biden’s Climate and Tax Bill Fiscally Responsible

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    Despite Republican claims, the new legislation would be only a modest corporate tax increase, Congress’s Joint Committee on Taxation found.After more than a year of trying — and failing — to pack much of President Biden’s domestic agenda into a single tax-and-spend bill, Democrats appear to have finally found a winning combination. They’ve scrapped most of the president’s plans, dialed down the cost and focused on climate change, health care and a lower budget deficit.As soon as party leaders announced that new bill last week, Republicans began attacking it in familiar terms. They called it a giant tax increase and a foolish expansion of government spending, which they alleged would hurt an economy reeling from rapid inflation.But outside estimates suggest the bill would not cement a giant tax increase or result in profligate federal spending.An analysis by the Joint Committee on Taxation, a congressional nonpartisan scorekeeper for tax legislation, suggests that the bill would raise about $70 billion over 10 years. But the increase would be front-loaded: By 2027, the bill would actually amount to a net tax cut each year, as new credits and other incentives for low-emission energy sources outweighed a new minimum tax on some large corporations.That analysis, along with a broader estimate of the bill’s provisions from the nonpartisan Committee for a Responsible Federal Budget, suggests that the legislation, if passed, would only modestly add to federal spending over the next 10 years. By the end of the decade, the bill would be reducing federal spending, compared with what is scheduled to happen if it does not become law.And because the bill also includes measures to empower the Internal Revenue Service to crack down on corporations and high-earning individuals who evade taxes, it is projected to reduce the federal budget deficit over a decade by about $300 billion.Adding up the headline cost for what Democrats are calling the Inflation Reduction Act is more complicated than it was for many previous tax or spending measures that lawmakers approved. The bill blends tax increases and tax credits, just as Republicans did when they passed President Donald J. Trump’s signature tax package in 2017. But it also includes a spending increase meant to boost tax revenues and a spending cut meant to put more money in consumers’ pockets.Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, said the composition of the deal was vastly different from a larger bill that Democrats failed to push through the Senate in the fall. It included several spending programs that were set to expire after a few years, and budget hawks warned that the overall package would add heavily to federal debt if those programs were eventually made permanent, as Washington has been known to do, without offsetting tax increases.Ms. MacGuineas called the original idea, known as Build Back Better, “a massive gimmicky budget buster.” She had kinder words for the new package, saying it “manages to push against inflation, reduce the deficit, and, once fully phased in, it would actually cut net spending, without raising net taxes.”“That is a pretty monumental improvement,” she added.The bill springs from an agreement between Senator Chuck Schumer of New York, the majority leader, and Senator Joe Manchin III of West Virginia, a key centrist Democrat. President Biden blessed it last week, and it carries what remains of what was once his $4 trillion domestic agenda.Understand What Happened to Biden’s Domestic AgendaCard 1 of 7‘Build Back Better.’ More

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    As Broadway Struggles, Governor Hochul Proposes Expanded Tax Credit

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    With Omicron complicating Broadway’s return, Gov. Kathy Hochul proposed more assistance for commercial theater, which her budget director called “critical for the economy.”As Broadway continues to reel from the economic effects of the coronavirus pandemic, Gov. Kathy Hochul is proposing to expand and extend a pandemic tax credit intended to help the commercial theater industry rebound.Ms. Hochul on Tuesday proposed budgeting $200 million for the New York City Musical and Theatrical Production Tax Credit, which provides up to $3 million per show to help defray production costs.“They were starting to recover before Omicron, and then, as you have all seen, a lot of these performance venues had to shut down again, and those venues are critical for the economy,” the state budget director, Robert Mujica, told reporters.The tax credit program, which began last year under Gov. Andrew Cuomo, was initially capped at $100 million. Early indications are that interest is high: Nearly three dozen productions have told the state they expect to apply, said Matthew Gorton, a spokesman for Empire State Development, the state’s economic development agency.The Hochul administration decided to seek to expand the tax credit program — and to extend the initial application deadline, from Dec. 31, 2022 to June 30, 2023 — as it became clear that Broadway’s recovery from its lengthy pandemic shutdown would be bumpier than expected.Shows began resuming performances last summer, and many were drawing good audiences — Ms. Hochul visited “Chicago” and “Six” in October, while Mr. Gorton saw “The Lehman Trilogy” and “To Kill a Mockingbird.”But the industry is now struggling after a spike in coronavirus cases prompted multiple cancellations over the ordinarily lucrative holiday season, and then attendance plunged. Last week, 66 percent of Broadway seats were occupied, according to the Broadway League; that’s up from 62 percent the previous week, but down from 95 percent during the comparable week before the pandemic.“Clearly, we’re not out of the woods yet,” said Jeff Daniel, who is the chairman of the Broadway League’s Government Relations Committee, as well as co-chief executive of Broadway Across America, which presents touring shows in regional markets. Mr. Daniel, still recovering from his own recent bout of Covid, welcomed the governor’s proposal, and said the League would work to urge the Legislature to approve it.“Every show we can open drives jobs and economic impact,” said Mr. Daniel, who noted the close economic relationship between Broadway and other businesses, including hotels and restaurants. “If we can maximize Broadway, we maximize tourism.”Under the program, shows can receive tax credits to cover up to 25 percent of many production expenditures, including labor. As a condition of the credit, shows must have a state-approved diversity and arts job training program, and take steps to make their productions accessible to low-income New Yorkers. More

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    Child Tax Credit’s Extra Help Ends, Just as Covid Surges Anew

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    A pandemic benefit that many progressives hoped to make permanent has lapsed in a congressional standoff. Researchers say it spared many from poverty.For millions of American families with children, the 15th of the month took on a special significance in 2021: It was the day they received their monthly child benefit, part of the Biden administration’s response to the pandemic.The payments, which started in July and amounted to hundreds of dollars a month for most families, have helped millions of American families pay for food, rent and child care; kept millions of children out of poverty; and injected billions of dollars into the U.S. economy, according to government data and independent research.Now, the benefit — an expansion of the existing child tax credit — is ending, just as the latest wave of coronavirus cases is keeping people home from work and threatening to set off a new round of furloughs. Economists warn that the one-two punch of expiring aid and rising cases could put a chill on the once red-hot economic recovery and cause severe hardship for millions of families already living close to the poverty line.“It’s going to be hard next month, and just thinking about it, it really makes me want to bite my nails to the quick,” said Anna Lara, a mother of two young children in Huntington, W.Va. “Honestly, it’s going to be scary. It’s gong to be hard going back to not having it.”Ms. Lara, 32, lost her job in the pandemic, and with the cost of child care rising, she has not been able to return to work. Her partner kept his job, but the child benefit helped the couple make ends meet at a time of reduced income and rising prices.“Your children watch you, and if you worry, they catch on to that,” she said. “With that extra cushion, we didn’t have to worry all the time.”The end of the extra assistance for parents is the latest in a long line of benefits “cliffs” that Americans have encountered as pandemic aid programs have expired. The Paycheck Protection Program, which supported hundreds of thousands of small businesses, ended in March. Expanded unemployment benefits ended in September, and earlier in some states. The federal eviction moratorium expired last summer. The last round of stimulus payments landed in Americans’ bank accounts last spring.Relative to those programs, the rollback in the child tax credit is small. The Treasury Department paid out about $80 billion over six months in the form of checks and direct deposits of up to $300 per child each month. That is far less than the more than $240 billion in stimulus payments issued on a single day last March.Unlike most other programs created in response to the pandemic, the child benefit was never intended to be temporary, at least according to many of its backers. Congress approved it for a single year as part of the $1.9 trillion American Rescue Plan, but many progressives hoped that the payments, once started, would prove too popular to stop.That didn’t happen. Polls found the public roughly divided over whether the program should be extended, with opinions splitting along partisan and generational lines. And the expanded tax credit failed to win over the individual whose opinion mattered most: Senator Joe Manchin III, Democrat of West Virginia, who cited concerns over the cost and structure of the program in his decision to oppose Mr. Biden’s climate, tax and social policy bill. The bill, known as the Build Back Better Act, cannot proceed in the evenly divided Senate without Mr. Manchin’s support.To supporters of the child benefit, the failure to extend it is especially frustrating because, according to most analyses, the program itself has been a remarkable success. Researchers at Columbia University estimate that the payments kept 3.8 million children out of poverty in November, a nearly 30 percent reduction in the child poverty rate. Other studies have found that the benefit reduced hunger, lowered financial stress among recipients and increased overall consumer spending, especially in rural states that received the most money per capita.Congress last spring expanded the existing child tax credit in three ways. First, it made the benefit more generous, providing as much as $3,600 per child, up from $2,000. Second, it began paying the credit in monthly installments, usually deposited directly into recipients’ bank accounts, turning the once-yearly windfall into something closer to the children’s allowances common in Europe.Finally, the bill made the full benefit available to millions who had previously been unable to take full advantage of the credit because they earned too little to qualify. Poverty experts say that change, known in tax jargon as “full refundability,” was particularly significant because without it, a third of children — including half of all Black and Hispanic children, and 70 percent of children being raised by single mothers — did not receive the full credit. Mr. Biden’s plan would have made that provision permanent.“What we’ve seen with the child tax credit is a policy success story that was unfolding, but it’s a success story that we risk stoping in its tracks just as it was getting started,” said Megan Curran, director of policy at Columbia’s Center on Poverty and Social Policy. “The weight of the evidence is clear here in terms of what the policy is doing. It’s reducing child poverty and food insufficiency.”But the expanded tax credit doesn’t just go to the poor. Couples earning as much as $150,000 a year could receive the full $3,600 benefit — $3,000 for children 6 and older — and even wealthier families qualify for the original $2,000 credit. Critics of the policy, including Mr. Manchin, have argued that it makes little sense to provide aid to relatively well-off families. Many supporters of the credit say they’d happily limit its availability to wealthier households in return for maintaining it for poorer ones.Mr. Manchin has also publicly questioned the wisdom of unconditional cash payments, and has privately voiced concerns that recipients could spend the money on opioids, comments that were first reported by The Wall Street Journal and confirmed by a person familiar with the discussion. But a survey conducted by the Census Bureau found that most recipients used the money to buy food, clothing or other necessities, and many saved some of the money or paid down debt. Other surveys have found similar results.For one of Mr. Manchin’s constituents, Ms. Lara, the first monthly check last year arrived at an opportune moment. Her dishwasher had broken days earlier, and the $550 a month that she and her family received from the federal government meant they could replace it.Ms. Lara, who has a 6-year-old daughter and a 3-year-old son and whose partner earns about $40,000 a year, said the family had long lived “right on the edge of need” — not poor, but never able to save enough to withstand more than a modest setback.The monthly child benefit, she said, let them step a bit further back from the edge. It allowed her to get new shoes and a new car seat for her daughter, stock up on laundry detergent when she found it on sale and fix the brakes on her car.A line at a Covid testing site in Atlanta on Friday. The child tax benefit is ending just as the latest wave of coronavirus cases is keeping people home from work.Nicole Craine for The New York Times“None of the dash lights are on, which is amazing,” she said.Some researchers have questioned the policy’s effectiveness, particularly over the long term. Bruce D. Meyer, an economist at the University of Chicago who studies poverty, said that whatever the merits of direct cash payments at the height of the pandemic-induced disruptions, a permanent policy of providing unconditional cash to parents could have unintended consequences. He and several co-authors recently published a working paper finding that the child benefit could discourage people from working, in part because it eliminated the work incentives built into the previous version of the tax credit.“Early on, we just wanted to get cash in people’s hands — we were worried about a recession, we were worried about people being able to pay for their groceries,” Mr. Meyer said. Now, he said, “we certainly should be more focused on the longer-term effects, which include likely larger effects on labor supply.”Analyses of the data since the new child benefit took effect, however, have found no evidence that it has done much to discourage people from working, and some researchers say it could actually lead more people to work by making it easier for parents of young children to afford child care.“There’s every reason to believe that in the current labor market, the child tax credit is work-enabling, and no evidence to the contrary has been presented,” said Samuel Hammond, director of poverty and welfare policy at the Niskanen Center, a research organization in Washington.Mr. Hammond said the child benefit should also have broader economic benefits. In a report last summer, he estimated that the expansion would increase consumer spending by $27 billion nationally and create the equivalent of 500,000 full-time jobs. The biggest impact, on a percentage basis, would come in rural, mostly Republican-voting states where families are larger and incomes are lower, on average.Some Republican critics of the expanded child tax credit, including Senator Roy Blunt of Missouri, have argued that it has essentially done too much to increase spending — that by giving people more money to spend when the supply chain is already strained, the government is contributing to faster inflation.But many economists are skeptical that the tax credit has played much of a role in causing high inflation, in part because it is small compared with both the economy and the earlier rounds of aid distributed during the pandemic.“That’s a noninflationary program,” said Joe Brusuelas, chief economist at the accounting firm RSM. “That’s dedicated toward necessities, not luxuries.”For those receiving the benefit, inflation is an argument for maintaining it. Ms. Lara said she had noticed prices going up for groceries, utilities and especially gas, stretching her budget even thinner.“Right now, both of my vehicles need gas and I can’t put gas in the car,” she said. “But it’s OK, because I’ve got groceries in the house and the kids can play outside.”Emily Cochrane More