Ameya Sriram

October 11th, 2023

Expanding the Child Tax Credit

The Child Tax Credit (CTC) is a tax break received by qualifying families to help
supplement the cost of raising children. First enacted in 1997, the CTC currently provides up to
$2000 in tax relief for each child under 17, with benefit amounts varying based on income level,
household structure, and other factors. If a family owes less in federal income tax than what they
receive in child tax credits and meets further qualifying standards, they may receive an
Additional Child Tax Credit (ACTC). The ACTC is a portion of the leftover amount that is
refundable and paid back to the taxpayer. As of 2023, the ACTC equals 15% of earned income
over $2,500 up to a maximum of $1,600 per child. However, this means that many low-income
families that do not make $2,500 or significantly more receive less than the full refund or no
refund at all. In 2021, under President Biden’s American Rescue Plan, the CTC underwent a
major shift. The maximum tax credit increased to $3,000 per child 6-17 years old (including the
age of 17) and $3,600 per child under 6 years old. Additionally, all families making up to
$150,000 for a couple or $112,500 for a single head of household would receive full refunds on
their tax credits, with the minimum earning requirement eliminated. These provisions were rolled
out from July to December 2021, and have now reverted back to the standard.

Evidence from 2021 has shown that an increase in the Child Tax Credit and the
implementation of full refunds without minimum earning requirements has been highly
beneficial for American families. The CTC should be permanently made more generous by
raising the maximum credit for children, with differentiation between the ages of 6-17 and below
6, and by making the full credit available without a minimum required amount of earned income.
These amendments to the CTC are incredibly valuable to American society, as the extra income
has been linked with lifting millions of children above poverty, directly reducing structural
inequalities, and providing much-needed relief to the lowest-income families.

The CTC already has a history of being one of the most effective programs for reducing
poverty levels, and in conjunction with the Earned Income Tax Credit, was credited with lifting
9.4 million people out of poverty in 2013, including 5 million children (Marr et al., 2015).
However, the addition of the expansions proved to make critical differences. A report from the
Census Bureau compared estimations of the CTC’s impact based on 2020 metrics – without any
expansions – against what happened in 2021 with the expansions (Burns & Fox, 2022). It was
found that the expansions alone lifted 2.1 million children out of poverty. They further estimated
that without 2021 expansions, child poverty would have been 8.1%, whereas it was actually
5.3%, implying a difference of 2.9 percentage points as attributable purely to the expansions.
Burns and Fox also compared child poverty rates since 2009, and the child poverty rate was the
lowest in 2021 whether measured by the official poverty measure or Supplemental Poverty
Measure (SPM). While there was a modest decrease in the numbers of the official poverty
measure, child poverty rates as estimated by the SPM dropped by 46%, or 4.5 percentage points.
A month-by-month analysis of child poverty rates conducted by the Center on Poverty & Social
Policy found that there was a sharp drop in the monthly child poverty rate right as the first
payments of the expanded CTCs were rolled out (Curran et al., 2022). In June, prior to the
rollouts, the monthly child poverty rate was 15.8 percent. By July 2021, after payments were
given, the rate dropped to 11.9 percent; by December 2021, the monthly child poverty rate was
reduced by 30%, effectively lifting 3.7 million children from poverty. In January 2022, once
CTC expansions had lapsed, the monthly child poverty rate rose to 17 percent, even higher than
pre-CTC expansion levels. Both estimated and real-life figures show the specific effect of the
2021 expansions of the CTC and their large impact on lifting children and families out of
poverty.

The most critical aspect of the CTC’s 2021 expansion that should be further retained is
the full credit availability with no minimum income restrictions. The original provisions of the
CTC and the minimum income cutoff for receiving even partial refunds meant that 23 to 27
million children in the lowest-income families received little or none of their ACTC. Research
conducted by the Center on Budget and Policy Priorities (CBPP) concluded that the maximum
credit increase and adding 17-year-olds would lift ~543,000 children above the poverty line and
reduce the child poverty rate by 5 percent (Marr et al., 2021). However, the addition of full
refundability meant raising over 4.1 million children above the poverty line and led to a decline
in the child poverty rate by more than 40 percent. The allowance of full refundability led to a
dramatic difference in the effect of the CTC. Providing full refunds to those families especially
has been found to improve quality of living. Analysis of the Census’ Household Pulse Survey
conducted by the CBPP showed that upon receiving their fully refunded CTC in 2021, 88% of
low-income households spent their payments on necessities like food, clothing, or rent (Zippel,
2021). This indicates that these low-income families require these refunds to meet their basic
needs. JPMorgan Chase examined checking account balances across income levels and reported
that checking account balances among families with low incomes remained 65 percent higher
than pre-pandemic (Greig et al., 2022). They further found that families that received the CTC
retained higher balances than non-recipient families by the end of 2021. Tracking the usage of
the additional income received via the full refund provision of the CTC finds that the money
went to necessary expenses and into savings, underscoring how critical these refunds were to
families who previously could not receive them.

The CTC’s inclusion of full credit availability without restriction also helped close gaps
for minority groups. Black and Hispanic families are disproportionately unable to get refunds
under the current CTC regulations, with roughly 45 percent of Black children and up to 39
percent of Latino children receiving no refunds (Center on Budget and Policy Priorities, 2022).
Burns and Fox of the Census Bureau (2022) measured poverty ratings by SPM and found that the
Black child poverty rate fell by 6.3 percentage points from 2020 to 2021, meaning approximately
716,000 Black children were lifted out of poverty by the inclusion of the CTC. The Hispanic
child poverty rate dropped by 6.3 percentage points in that timespan as well, representing 1.2
million Hispanic children. This Census Bureau report also showed that 649,000 non-Hispanic
White, 600,000 Black, 56,000 Asian, and 752,000 Hispanic children were lifted above the
poverty line purely due to the CTC’s expansion. In comparison, the month-by-month research
conducted by Curran and colleagues (2022) found that child poverty rates between December
2021 and January 2022 rose by 7.1 percentage points for Latino children and 5.9 percentage
points for Black children. These increases, when compared to the overall increase of 3.2
percentage points, highlight the disproportionate effects of reduced CTC benefits for
marginalized communities.
 Common arguments against expansion of the CTC include fears about a reduction in
labor participation and its impact on the federal budget. The “income effect”, or the idea that a
person receiving a supplement to their income will work less hours because their needs are more
easily met, is often echoed. Research suggests that these fears are “overstated and misguided”
(Trisi & Floyd, 2021). A report by the National Academies of Sciences (2019) found that
program expansions of the CTC and EITC were estimated to increase earnings by as much as $9
billion and employment by about 500,000 jobs for low-income families, and minimal
employment losses for other groups. In addition, this view, as well as fears surrounding higher
costs of social safety, fails to take into account the longer-term benefits. Increasing income for
poorer families not only leads to better immediate well-being, but also higher educational
attainment and more working hours for those children later in life (Center on Budget and Policy
Priorities, 2022). A cost-benefit analysis conducted by the Center on Poverty & Social Policy
found that the 2021 CTC allowances cost $97 billion per year but create a total benefit for
society of $929 billion per year (Garfinkel et al., 2022). These investments in children not only
lead to better adult lives, but invigorate the economy and deliver a value over 9 times the cost.

The expansion of the CTC in 2021 to include higher maximums for relief, inclusion of 17
year olds, and full refundability without minimum income requirements changed the landscape
of the US social safety net. Due to those provisions, the latter half of 2021 saw historic drops in
the child poverty rate and millions lifted out of poverty. A number of studies using data from
June to December 2021, when the additional benefits were rolled out, found that there were
dramatic differences pre- and post- that time frame or against estimated calculations for those 6
months without the benefits. Specifically, the data shows that these CTC expansions are capable
of dropping poverty rates, supporting very low-income families, and narrowing disproportionate
gaps for historically disadvantaged groups. Fears concerning the CTC’s disincentives for work
and its monetary toll on the federal government have not only been found to be overexaggerated,
but pale in comparison to the approximated societal value. The Child Tax Credit has already
been effective in alleviating the damages of poverty, but these necessary expansions to the Child
Tax Credit are direct investments into the lives of the future of America.
 References

Burns, K., & Fox, L. (2022). The impact of the 2021 expanded child tax credit on child poverty.

United States Census Bureau.

https://www.census.gov/library/working-papers/2022/demo/SEHSD-wp2022-24.html

Center on Budget and Policy Priorities. (2022). Policy basics: the child tax credit.

https://www.cbpp.org/research/federal-tax/the-child-tax-credit

Curran, M., Collyer, S., & Parolin, Z. (2022). Absence of monthly child tax credit leads to 3.7

million more children in poverty in January 2022. Center on Poverty & Social Policy.

https://www.povertycenter.columbia.edu/publication/monthly-poverty-january-2022

Garfinkel, I., Sariscsany, L., Ananat, E., Collyer, S., Hartley, R., Wang, B., & Wimer, C. (2022).

The benefits and costs of a child allowance. Journal of Benefit-Cost Analysis, 13(3),

335-362. doi:10.1017/bca.2022.15

Greig, F., Deadman, E., & Sonthalia, T. (2022). Household pulse: The state of cash balances at

year end. JPMorgan Chase Institute.

https://www.jpmorganchase.com/institute/research/household-income-spending/househol

d-pulse-cash-balances-at-year-end

Marr, C., Cox, K., & Sherman, A. (2021). Recovery package should permanently include

families with low incomes in full child tax credit. Center on Budget and Policy Priorities.

https://www.cbpp.org/research/federal-tax/recovery-package-should-permanently-include

-families-with-low-incomes-in-full

Marr, C., Huang, C., Sherman, A., & Debot, B. (2015). EITC and child tax credit promote work,

reduce poverty, and support children’s development, research finds. Center on Budget and

Policy Priorities.
 https://www.cbpp.org/research/federal-tax/eitc-and-child-tax-credit-promote-work-reduce

-poverty-and-support-childrens#:~:text=Research%20not%20directly%20on%20the,prog

rams%20that%20provided%20more%20income.

National Academies of Sciences, Engineering, and Medicine. (2019). A Roadmap to Reducing

Child Poverty. National Academies Press. https://doi.org/10.17226/25246

Trisi, D., & Floyd, I. (2021). Benefits of expanding child tax credit outweigh small employment

effects. Center on Budget and Policy Priorities.

https://www.cbpp.org/research/federal-tax/benefits-of-expanding-child-tax-credit-outwei

gh-small-employment-effects#_ftn16

Zippel, C. (2021, October 21). 9 in 10 families with low incomes are using child tax credits to

pay for necessities, education. Center on Budget and Policy Priorities.

https://www.cbpp.org/blog/9-in-10-families-with-low-incomes-are-using-child-tax-credit

s-to-pay-for-necessities-education