The expansion of the Child Tax Credit in 2021 was one of the most significant and unprecedented forms of support for American parents ever. Building on a 1997 program from former President Bill Clinton that was functionally a tax break for middle-class parents, the expansion of the program significantly slashed child poverty and financial insecurity for families in the six months it was law.
The expanded child tax credit fundamentally changed the way that parents are supported. The credit was fully refundable — meaning that for the first time, the poorest parents and their kids were able to receive assistance from the government. It also expanded the credit from up to $2,000 per kid in one lump sum at tax time to up to $3,600 per kid, half of which was distributed in monthly cash installments. Those changes to the existing program lifted about 30% of kids out of poverty in just a few short months.
The effects of the payments, which came out on the 15th of every month from July until December of 2021 to most families and petered out at higher income levels, were immediate. Child poverty dropped by nearly a third. Food insecurity fell. Millions of families paid down debts, paid for child care, and were better able to manage their finances.
Similarly, the effects of the end of the program — and the fact that the government reverted to a $2,000, not fully refundable credit, were also seen immediately. Child poverty has jumped as much as it had fallen. Food insecurity has risen. Parents report skipping meals to ensure their kids are fed. As more data comes out about the transformative effects of the Child Tax Credit, we spoke to experts who outlined 11 major takeaways on what we know about the CTC.
Families Kept Working
Many people have argued we need to force parents to work to receive cash assistance, or else they’ll quit their jobs. That wasn’t true, experts say.
“The amount of money we’re talking about [was] not enough to make many people leave their jobs,” explains Elaine Maag, a senior fellow at the Urban-Brookings Tax Policy Center. “Many, many families continued working and were just able to pay their child care expenses and meet their ongoing needs. [New data we compiled] found that both recipients and nonrecipients were more likely to be working in December of 2021 than they were in December of 2020.”
Alí Bustamante, the deputy director of education, jobs and worker power at the Roosevelt Institute, noted the power of not tying work to government assistance. “For a really long time, any kind of cash assistance programs in the U.S. have been tied to employment. That’s a faulty framework. Employment, as we know, is not completely secure sometimes. Even child care issues themselves could lead to someone losing a job. The Child Tax Credit provided great evidence of untying cash assistance from being able to work or not… The Child Tax Credit is not tied to employment; it’s just tied to the existence of children in the household. That’s powerful policy. It’s clear that if you give families with children money, that these children will directly benefit from it.”
Kids Got More Food
Cash payments led to families getting to eat more food, Maag stated.
“Families with children saw food insecurity drop,” Maag explains. “A new study from Urban Institute compared families in December of 2020 with families in December of 2021 and found those who received those monthly child tax credit payments seemed to be better off than those who did not report the payments. Those are the big things.”
Basic Needs Were Met
One major success of the program was just how much cash could empower families to make their own choices, says Kris Cox, deputy director of federal tax policy at the Center on Budget and Policy Priorities.
“People used this money in the way that made the most sense for them, to make sure that they’re putting enough food on the table, to make sure that they’re able to put a roof over their children’s head. Some people might have needed to use it to fix their car. Some may have needed to pay for child care for a few months. Some may have needed it for unexpected doctor bills for their family.
“[The CTC] enabled families to make the investment that they need to keep themselves and their children moving forward. For the bulk of families, we saw that that meant spending it on basic needs, but we know that other families spent it in other ways that also supported their ability to get to work, to keep their children safe, to help educate their children.”
Middle-Class Families Invested In Their Kids
Maag explained that middle-income families benefited a lot from the expansion — not just the poorest families.
“Some surveys I worked on [found] people were using those monthly payments to meet monthly needs like child care and to pay down debt. And we observed that at higher income levels than you might guess. Among families who are Black, with incomes up to as high as $75,000, they were reporting using those payments to pay off debt.”
Some families used those payments to make investments in kids. Higher income families were saving that money for college. Middle income families were doing that as well. Low income families were purchasing after-school programs and education activities.
Child Poverty Plummeted
One thing the Child Tax Credit program has revealed is just how much giving cash to parents transfers to their children, Bustamante explains.
“Poverty is experienced at the household level. So, if my income is low, it means that I’m poor, and everyone in my household is poor. If there’s one adult and multiple children, those multiple children are going to have even greater rates of poverty… At least 61 million children received the CTC, and it reduced child poverty by about 30%. We know it’s really expensive to care for children. Any cash assistance that the government can provide [has a huge] impact on pocketbooks and the ability to make sure that kids especially, but families, are getting the things they need.”
The Extent of Income Inequality Was Exposed
That giving families just a few hundred bucks was enough to cut child poverty by a third is a solid sign of just how bad our income distribution is in the United States, per Bustamante.
“Reducing poverty by 30% with one simple policy that provided folks with a few hundred dollars, whether it’s $250 or $300 a month, for six months was huge. It doesn’t sound like a lot, but it really tells you about how low some folks’ incomes are. The CTC gave us a sense of what the distribution of incomes look like in the U.S. and how many folks in America are just barely getting by. That really strikes those with children that much harder.”
And while the expansion of the CTC was done because families were struggling in the pandemic, they have been struggling a lot longer, Bustamante says. “Both the White House and policymakers should take note of the fact that we always have folks who are economically insecure. It’s not limited to the pandemic.”
The Need for Renewal Became Quickly Obvious
Cox’s work saw that the child poverty rate came down “substantially” after the initial monthly CTC payments — and that poverty was reduced by nearly 30%. “The monthly payments delivered in December kept 3.7 million children out of poverty, and unfortunately that was largely reversed in the early part of this year because the monthly payment stopped at the end of December. Research shows that in February, 3.4 million more children were in poverty than December of last year. We basically saw the gains from the Child Tax Credit almost immediately reversed.”
It Was Indiscriminate — Which Led to Its Success
No small part of the CTC’s success was because of how much more accessible the credit became to the families that needed it most. The expansion of the credit to be fully refundable alone is to thank here. “We estimate that roughly 87% of the poverty reduction was due to making the credit fully refunded,” Cox explained.
When you take a bird’s eye view of the policy, you might think it was a massive program because of how much it helped families. But in reality, it actually was a relatively minor investment.
“Already, prior to the child tax credit expansion, families received $2,000 per child per year. This was expanded to $3,600. It’s not like we’re giving folks tens of thousands of dollars. Yet that modest increase in the Child Tax Credit was just so impactful,” Bustamante said. The combination of just a little bit of extra cash — plus making sure the credit was fully refundable for all families — made it transformative.
And even if we don’t go back to the $3,600 credit, much could still be saved. “If you took the current credit of $2,000 and made it fully refundable, it would be still estimated to lift roughly 2 million kids above the poverty line, or to reduce child poverty by roughly 20%,” Cox noted.
Black and Latinx Kids Disproportionately Benefited
“Before the American Rescue Plan, nearly 27 million children received less than the full credit, because their families earn too little,” and half of all Black and Latinx kids didn’t get the full credit before the expansion, Cox explains. That was compared to just 20% of white kids. And that’s the “the structure of the credit that we’re returning to… [where] children in lower income families get a smaller child tax credit than children in families with more financial resources.”
When the payments expired, we saw just how much going back to the initial structure of the credit made poverty go up in particular for Black and Latinx kids. “Families making the minimum wage actually didn’t make enough to get the full child tax credit, so in some way, it was an upside down policy. It didn’t deliver sufficient help to the people who needed it the most.”
America’s Disproportionate Rates of Child Poverty Were Revealed
Cox points to the fact that while we have Social Security in the United States, we have very little in the way of supporting kids. “Many developed countries have what’s referred to as a child allowance, which recognizes the importance of providing families, especially those with young children, with income from the government. Our research showed that in large part, other developed countries may have had similar child poverty rates before those government programs, but when you look at child poverty rates after government programs, the U.S. is an outlier with much higher child poverty. That’s precisely because other countries have chosen to institute child allowances that help to protect many children from poverty.”
“Do we want to have persistently higher child poverty than many comparable nations around the world?” she asks. “Or does the U.S. want to catch up to the rest of the world and recognize the importance of investing in children?”