The child tax credit accomplished in one month what other policies took a decade to achieve. It could expire soon.
The expanded child tax credit, a policy passed in March 2021 that beefed up monthly payments to most families with kids, has already had a massive, positive effect on the lives of America’s children. After just one monthly payment, it cut child poverty by 25 percent — and should the larger payments continue, it could slash child poverty by more than 40 percent in a typical year, according to the Urban Institute.
This is a huge decline in a very short time frame. According to the Brookings Institution, child poverty rates dropped by 26 percent between 2009 and 2019, meaning the tax credit accomplished in one month what other policies took a decade to achieve.
Despite that success, the expanded child tax credit (CTC) is in serious danger. As part of their budget negotiations, Democrats are debating how long to extend the program — most likely for a year, with some calling for a four-year (or even indefinite) extension. In the best-case scenario with a short extension, the program will probably run out of money by the end of 2022. In the worst-case scenario, it could end as soon as April 2022, when families are currently due to receive their final enhanced payment.
To prevent the policy’s gains from being undone, the benefit needs to be extended. An Urban Institute study found that child poverty would go down by 50 percent or more in 11 states if changes to the CTC were made permanent. It also noted that poverty rates would be reduced across the board, with larger impacts for Black and Hispanic children.
Established in 1997, the CTC has been around for more than two decades, but a proposal included in the American Rescue Plan, signed into law in March, bumped up the amount significantly. Previously, families received a credit worth up to $167 per month per child ages 16 and under.
Families are now eligible for up to $300 per month for every child under 6, and $250 per month for every child ages 6 to 17, with half the credit being paid in monthly advances. The benefit is phased out as families’ incomes rise, but it currently covers 39 million households and more than 88 percent of children. Plus, lower-income households that previously didn’t qualify for the full credit are now able to receive it, including 1 million children in military families.
This increase has made a major difference, particularly for lower-income households: For instance, food insecurity has decreased as many families used the credit to cover basic necessities such as groceries, rent, and utilities. Per CNBC, food insecurity for families making less than $50,000 dropped by 7.5 percentage points (from 26 percent to 18.5 percent) one month after the first expanded payment went out.
To sustain the credit’s early success, the program needs to continue. Whether it will — and for how long — remains to be seen.
Letting the policy expire puts millions of children at risk of poverty
Given the policy’s effectiveness, some Democrats have pushed to extend the measure through 2025. Others want to make it permanent as part of the budget reconciliation bill currently being negotiated. Either extension seems unlikely due to demands from moderate Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ), both of whom want more than a trillion dollars cut from the reconciliation legislation.
To make those cuts, Democrats are considering an extension of the expanded child tax credit that might only last for one more year. That approach could leave the 30 million households that have come to depend on the benefit in danger of losing it after 2022.
“That’s going to be like taking the rug from under families,” says Elena Delavega, a professor of social work at the University of Memphis. “Especially if you have it for a year or a year and a half, it’s going to get budgeted into families’ expenses.”
An abrupt end to the program in 2022 could lead to major shocks. “In the absence of the CTC, more families — and low-income families in particular — will go hungry more often and be at risk for things like eviction, utility shut-offs, and other hardships,” said Stephen Roll, a research professor at Washington University in St. Louis who has studied the effects of the expanded child tax credit.
Families have recalled suddenly beginning to struggle to make rent, utility, and grocery payments after states wound down their pandemic unemployment insurance offerings this summer. A similar situation is possible with the expanded child tax credit since it’s helping families cope with the imminent financial stresses they’re facing.
“Getting these payments now, I know that at least I have help covering food,” David Watson, a technician and single parent of two, previously told Tiffanie Drayton in a story for Vox. “Now I can pull back on overtime. I need sleep, man.”
By letting the policy sunset, Democrats would also deprive families of some of the projected long-term benefits of the credit.
In addition to helping families meet their immediate costs, the credit could also enable people to bolster their emergency savings, build a college fund, and invest in extracurricular activities for their children they might not otherwise be able to afford.
“We know that providing these supports is associated with better outcomes for children once they reach adulthood, including higher earnings, improved health, and increased economic mobility,” says Roll. Columbia University researchers found that each dollar distributed via the child tax credit translates to a long-term societal return of $8 in lower health care costs and increased earnings for children who benefited.
Democrats are hoping that the child tax credit’s popularity will ensure that future Congresses renew it, no matter which party is in control. They argue data like a September Reuters/Ipsos poll that found 59 percent of US adults including 75 percent of Democrats and 41 percent Republicans back the policy, shows wide political buy-in. And they believe that if they only authorize a one-year extension of the credit, public pressure would be enough to guarantee the program’s renewal even if Democrats lose control of either chamber in the 2022 midterm elections.
There are no guarantees they are right, however. While popular policies like the Bush administration’s 2001 and 2003 tax cuts were renewed on a bipartisan basis after their expiration date, other proposals like 2020’s eviction moratorium and expanded pandemic unemployment insurance simply ended after Congress failed to extend them.
Democrats have very different visions for the child tax credit’s future
Sen. Michael Bennet (D-CO) and Rep. Rosa DeLauro (D-CT), both longtime backers of the proposal, have pushed for this year’s expansion to be indefinite. Democrats who are more skeptical of its effects have wondered whether it should be limited further.
“It is food. It is diapers. It is going to the dentist, getting a kid to the doctor. Buy school uniforms or supplies. Or paying rent. It has made a profound difference already, which is why I’m trying to move it to be permanent,” DeLauro has said. In September, 400 economists signed a letter calling for the policy to be permanent because of its effects on poverty and children’s long-term health care outcomes.
Opponents of the policy, however, argue that these payments could deter recipients from working since parents without an income can receive the help as well. Manchin has expressed this concern, arguing that work and/or education requirements ought to be added to the policy should it be extended. “Don’t you think, if we’re going to help the children, that the people should make some effort?” Manchin has said.
Some researchers have pushed back against this view, noting that a continual credit might help parents join the workforce by enabling them to afford basic services like child care. Given that the expanded child tax credit has only been distributed since July, it’s too early to ascertain which argument is correct, though data from a Columbia University study found that the credit hadn’t had a “significant effect on employment or labor force participation” so far.
There is also debate as to whether access to the credit should be capped even more. Right now, families that make up to $150,000 a year receive the full boost, a figure that Manchin would like to see go down. Manchin has argued that the policy should be capped at households that make $60,000 or less.
Proponents of a more universal policy, meanwhile, argue that broadening the constituency that benefits from the credit will increase its political support. More universal programs including Social Security and Medicare are some of the most popular government offerings and have polled better than Medicaid, which is means-tested.
With pressure from Manchin and Sinema, the reality is Democrats likely won’t be able to implement the most comprehensive tax credit. The estimated annual cost of the program is around $110 billion, or roughly $450 billion if it were to be extended through the end of 2025. It’s possible lawmakers could also try to reduce the size of the expanded payment in order to lower the cost of the bill.
It will become clear in about a year whether Democrats were right and the credit becomes something lawmakers of both parties vote to keep intact. But if they are wrong, more than 4 million children could be thrown back into poverty, and millions of families could once again find themselves struggling to cover payments for food and shelter.