An Expanded Child Tax Credit Will Help Children

It is a national disgrace that so many American children grow up in poverty. Depending on the measure, last year, there were between 7.1 million and 11.6 million children in poverty, defined as an annual household income of less than about $22,000 for a family of three. Child poverty leads to suffering. The Census Bureau estimates that nearly 9 million households with children did not have enough to eat in September. 

We do not have to accept such high rates of poverty and hardship for children. In my economics classes, I teach my students about the role of social insurance in helping offset the financial harm that comes from experiencing a bad turn of events. We have many programs that fit specific needs: disability insurance for those who suffer a career-ending disability, survivors’ benefits to their spouse and children after a worker dies, unemployment insurance for those who lose their jobs, social security benefits for the elderly who outlive their savings, and more. Missing from this list, though, is social insurance protecting children who—through no fault of their own—are born into families living with material hardship. We should offer such insurance to low-income children, some of the most vulnerable among us, because it is the morally right thing to do.

There’s also a strong case that alleviating child poverty is the right thing to do for traditional economic reasons. Allowing kids to grow up in poverty is economically short-sighted. Compelling research shows that investing in children—especially the most disadvantaged ones—improves a range of kids’ education and health outcomes. These gains last through adulthood, when children who benefitted from safety net programs earn more, are more likely to be employed, are less likely to receive safety-net benefits, and are less likely to have participated in criminal behavior. 

Considering both the moral and economic aspects, I argue that making the expanded Child Tax Credit (CTC) permanent, which would substantially reduce child poverty, is money well spent. 

For many years, many American families have been able to claim the CTC at tax time for up to $2,000 per child. This helped a lot of families with moderate and middle-class incomes, and it is one way the tax code helps to reduce the costs of raising children—a laudable policy goal. But because the tax credit was only available to those who owed federal income taxes, the poorest families did not receive any help from the CTC and those with slightly higher incomes only received a partial amount. In 2020, 27 million children lived in households with incomes too low to receive the full CTC.

President Biden’s COVID-19 economic stimulus and relief law changed the CTC so that families could receive the full amount of the credit regardless of the amount of taxes they owed, and even if they had no earnings. The CTC also was made more generous for most families, with the maximum annual benefit increasing from $2,000 per child to $3,000 or $3,600 for those under age six. Importantly, starting in July, the benefits have been paid monthly instead of in one lump sum once a year at tax time. As a result, families are getting boosts to their monthly cash flow, alleviating some of the stress on monthly family budgets. All these changes are only in effect for one year, unless Congress takes additional steps to extend them.

The CTC patches a big hole in our current safety net, which in recent decades has steadily shifted toward promoting work and supplementing low-wage employment and away from offering poor families unconditional cash transfers. The expanded CTC will ensure that children’s families have some cash to spend, regardless of the parents’ current employment status. Early evidence from the monthly CTC payments show that parents are using the benefits to buy necessities such as food, clothing, utilities and housing.

Last week on this blog, Wells King and Oren Cass posted an argument against making the expanded CTC permanent. Through a lot of bobbing and weaving, they came down in favor of an expanded CTC to most children. But for them it is a bridge too far to provide these benefits to the poorest children whose parents are not employed. To provide benefits to these children, they claim, would be “a fundamental shift in the American safety-net.”

This claim is overstated. Even though the CTC would do a lot to alleviate material hardship for the poorest children, a family of three without earnings participating in the CTC and SNAP would still have total resources well below the poverty threshold. The overall safety net for families—thanks in large part to the strong incentives from the EITC—would still promote and reward work.

Some are concerned that the expanded CTC will reduce employment among low-income parents. But the proposed expansion is well designed to avoid this unintended consequence. For those with low or moderate incomes, the amount of the credit does not reduce with additional earnings, so there is no direct incentive to work less.

Of course, giving parents cash might lead them to work less, even if it doesn’t change the incentive to earn an extra dollar. But the best estimates suggest that any reduction in employment due to the increased CTC payments will be quite small. And given that the expected benefits to children are large, trading off a little less work to allow millions of kids to escape poverty is a deal worth making.

Too many children live in poverty in the United States. As a result, they experience needless suffering and do not get a fair shot in life. The new monthly CTC takes a crucial and overdue step toward reducing child poverty and investing in children. 

Of course, work matters. But so do children.

Diane W. Schanzenbach is the Margaret Walker Alexander Professor of Human Development and Social Policy and Director of the Institute for Policy Research at Northwestern University. 

Editor’s Note: The opinions expressed in this article are those of the author and do not necessarily reflect the official policy or views of the Institute for Family Studies.