Expanded Child Tax Credit cuts child poverty nearly in half

Recent data from the Census Bureau shows that the Expanded Child Tax Credit cut child poverty almost in half in 2021. 

This temporary measure helped millions of poor families during the pandemic, and its success is an argument for making it a permanent part of the tax code.

When Congress passed the American Rescue Plan, it authorized many supports to help people stay safely housed, healthy, and current on their bills. Low-income renters benefited from additional stimulus checks, better health insurance subsidies, and enhanced unemployment benefits.

What is the Expanded Child Tax Credit?

The expanded Child Tax Credit (CTC) provided $3,600 per child under age 6, and $3,000 per child age 6-17. The amount of the credit was gradually reduced for singles earning $75,000 or couples earning $150,000.

The CTC was refundable. If the taxpayer did not owe the government taxes, the government returned the excess credit as a refund.

Families that qualified for the full credit could receive half the credit in monthly payments. The payments could be stretched from July, 2021 through the end of December, 2021 when the expanded CTC expired. They would receive the rest of the credit in their 2021 tax return.

Expanded CTC makes a huge dent in child poverty

Among all the pandemic relief measures, the CTC may have had the biggest impact on children’s welfare. 

According to a special measure of poverty used by the Census Bureau since 2009, there was a 46% reduction in child poverty in 2021 compared with the year before. Child poverty fell from 9.7% in 2020 to 5.2% in 2021. 

This is the lowest child poverty rate since the Census Bureau began using the Supplemental Poverty Measure (SPM) in 2009. The official poverty rate is calculated mostly by looking at the pre-tax income of households. SPM instead accounts for public benefits as income and what it takes to cover basic household expenses. 

The official poverty rate is the figure still used to determine eligibility for many social welfare programs. The advantage of looking at the SPM is that it shows the impact of public benefits and what costs are dragging down families.

Pandemic relief reduced poverty overall

The decrease in child poverty was dramatic, but was also part of an overall drop in poverty during 2021. The overall SPM poverty rate fell to 7.8% in 2021, down 1.4% from 2020. 

This is the lowest overall poverty rate on record since the SPM was first used. There was no statistically significant change in the official poverty rate from 2020 to 2021.

Pandemic benefits lifted millions out of poverty, especially children. Although Social Security remained the largest antipoverty program, tax credits and pandemic stimulus checks also had a major impact. In 2021:

• Social Security lifted 26.3 million people above the SPM poverty line.
• Refundable Tax Credits lifted 9.6 million people out of poverty.
• Stimulus payments moved 8.9 people from poverty.

Impact of Expanded CTC exceeds expectations

The expanded CTC exceeded expectations. Democrats had considered making it permanent in their big economic stimulus and climate change bill, the Build Back Better Act.

At the time it was proposed, the Center on Budget and Policy Priorities estimated that making the expanded CTC permanent would reduce child poverty by 40%. One year of the expanded CTC had a greater impact than that.

According to Columbia University’s Center on Poverty and Social Policy, 3.7 million children slipped back into poverty in January 2022 after the expanded CTC expired in December 2021.

Why not make the Expanded CTC permanent?

As the Build Back Better Act got pared down and passed as the Inflation Reduction Act, the expanded CTC was removed. Why would a measure that lifts so many children out of poverty not become a permanent part of the tax code?

Congressional Republicans balked at the cost of the expanded CTC. Democratic Senator Joe Manchin (D-WV) also expressed concerns that it would contribute to inflation. Senator Manchin’s support was needed in a Senate split 50-50, with Vice President Kamala Harris to cast the tie-breaking vote.

Families used the CTC during the pandemic to cover basic needs like food, utility bills, and the rent. Inflation and rising rents have hit low-income renters hard, especially those raising children. Making the CTC permanent would keep millions of kids out of poverty over the next decade.