In response to the COVID-19 pandemic, the United States engaged in an innovative policy experiment: for one year, the federal government expanded the existing child tax credit—making it available to families with little or no earnings, increasing the credit amount, and providing monthly payments instead of an annual payment at tax time.
This expanded child tax credit was incredibly effective: child poverty went down by a record-breaking amount, lifting an estimated 2.9 million children out of poverty, reducing food hardship, decreasing parent financial stress, and more.
Yet, Congress failed to extend the expanded program, and it ended in January 2022. Why did Congress let it expire? And what happened to families once it did? This temporary program offered us many valuable lessons that have huge implications for future efforts to eradicate domestic child poverty.
To back up, the COVID-19 pandemic had detrimental impacts on families across the nation—particularly low-income families and families of color. Schools closed, unemployment and poverty skyrocketed, and health and wellness plummeted. The pandemic also reinforced generations-old racial inequities and cracks in our social systems. In response to this crisis, Congress passed the American Rescue Plan Act (ARPA) in spring 2021.
ARPA made three big—but temporary—changes to the child tax credit for 2021:
- It increased the credit available to parents, especially for families with young children. Families became eligible for $300 per month for each child younger than six years old, and $250 per month for each child ages six through 17. These annual totals of $3,600 for young children and $3,000 for older children were higher than the existing annual credit of $2,000 per child.
- Ordinarily, child tax credit payments are made annually when families file their taxes. ARPA created a monthly payment schedule from July through December 2021, automatically sending payments to families who had filed taxes, including those who received the stimulus payments, unless they opted out. This payment frequency aligned with people’s expenses—rent, utility bills, internet, and other essentials.
- ARPA made the child tax credit “fully refundable,” allowing families to access the credit even if they had limited or no earnings.
These changes expired at the end of 2021. But despite their short implementation period, the program dramatically reduced child poverty. According to the US Census Bureau, the expanded credit lifted one million children under the age of six out of poverty, while it did the same for 1.9 million children between the ages of six and 17.
For context, the child poverty rate in 2019 as measured by the supplemental poverty rate was 12.5 percent and in 2020 9.7 percent. This rate plummeted to 5.2 percent in 2021—the largest decline on record. The child tax credit played a huge role in this drop. The full refundability of the credit disproportionately benefited children who are Black or Latinx, who were more likely to be denied the full credit under prior law because their families earned too little. Indeed, the credit expansion reduced poverty among Black and/or Latinx children by 6.3 percentage points in 2021.
The expanded child tax credit had other positive outcomes. It reduced families’ food insecurity, lessened parents’ financial stress, and helped parents afford essential expenses. And the monthly payments made it easier for many parents to work—enabling some parents to work more hours than they had previously done.
Assessing the Impact of the Expanded Child Tax Credit
In October 2021, the Center for Law and Social Policy (CLASP), in collaboration with other organizations, surveyed 1,000 parents with low to moderate incomes about their experiences with the expanded child tax credit. In the survey, we evaluated whether parents were receiving the monthly payments and how the payments were impacting families’ well-being, such as their ability to pay their expenses, financial stress, and ability to work. The survey was administered by the Ipsos polling firm, and the results are nationally representative. Our findings verified what other research has confirmed – the monthly payments helped families afford essentials.
According to our data, about 78 percent of parents who had filed a tax return in the past two years received monthly payments. Some parents may not have received the monthly payments due to opting out or because the child’s other parent claimed the credit.
Because the Internal Revenue Service used information already available from tax data, child tax credit receipt was automated for most families; according to the Internal Revenue Service, about 90 percent of the children who received the expanded credit were in families who automatically qualified for the credit without needing to take any further action. A successful design feature of the program’s expansion, this automation reduced families’ administrative burden—they didn’t have to resubmit data that the federal government already had—and it allowed the credit to reach more families.
These findings aren’t surprising. It is intuitive that providing cash will reduce poverty, help people afford essentials, and reduce stress about money. They give us a clear roadmap for how we can successfully reduce poverty and provide children with a secure foundation that will allow them to thrive. Dozens of guaranteed-income pilot programs administered throughout the country over the past few years, like the Stockton Economic Empowerment Demonstration, back these findings up.
Unfortunately, Congress let the child tax credit expansion expire at the end of 2021, leading to a second not-so-surprising finding: once the monthly payments stopped, child poverty increased again. Columbia University’s Center on Poverty and Social Policy calculated that 3.7 million more children were in poverty due to the expiration of the child tax credit payments in January 2022. Latinx and Black children faced the highest percentage-point increases in poverty.
CLASP and partners conducted another nationally representative survey of about 1,000 parents with low to moderate incomes in July 2022 to evaluate the impact of the end of the monthly payments and how families’ financial well-being had changed. The survey findings confirmed that when monthly payments ended, parents faced more difficulty affording essentials, greater food hardship, and increased financial stress.
Sixty percent of survey respondents who received the monthly payments said it has been more difficult for their family to pay their expenses. And some survey respondents reported increased difficulty affording more or higher-quality food, along with having visited food banks or food pantries more frequently.
Making the Case: The Child Tax Credit Works
So, why did Congress let this effective anti-poverty program end? Why did voters who received these payments let this happen? The answer is complicated: ARPA was passed during an acute stage of the COVID-19 pandemic. Some blame Republicans, or Senator Joe Manchin (D-WV), who torpedoed negotiations to extend the child tax credit expansion in the Build Back Better package, which passed the US House but failed in the Senate. Others say that monthly payments needed to be in place for longer than six months to build political will to support it for the long haul.
One of the main reasons Senator Manchin identified for not supporting the expanded child tax credit was its lack of a work requirement. He centered his opposition around a narrative about who is and isn’t “deserving” of financial support. Reading between the lines, the implication is that only parents who work should receive a child allowance. Manchin also stoked fears that parents would spend their payments on drugs and alcohol—a myth that research has refuted. Advocates must confront these false narratives.
Another key narrative for us to address is the fatalistic mentality that child poverty is an inevitable social ill, regardless of what policies we implement. People either assume children poverty is a sad fact of life or that poverty is deserved and results from a moral failing—parents aren’t “pulling themselves up by their bootstraps.”
These narratives aren’t true. The child tax credit expansion in 2021 proved that eliminating child poverty is possible. Endemic child poverty is a political choice, not a necessity.
Advocates must push back against the rhetoric that some children “deserve” to be in poverty due to their parents’ “failings.” This cruel line of reasoning uses children as pawns in a cynical ideological fight. As a society, it is clearly healthier to provide an allowance for all children, regardless of their parents’ actions, to support critical caregiving work and promote children’s well-being. Indeed, it is important to emphasize that caring for children is work—which parents should be compensated for.
A final barrier to passing a permanent expanded child tax credit is, of course, the cost. It’s easy for lawmakers and voters to see a policy’s short-term cost. Restoring the child tax credit to its 2021 level does cost money. But the cost of not having a child allowance policy is much more, for living in poverty negatively impacts a child’s health outcomes, educational success, and future earnings.
According to the Center on Poverty and Social Policy, restoring the expanded child tax credit would return $10 for each dollar spent. In other words, for the estimated cost to restore the child tax credit of $200 billion, communities would realize a return of $2 trillion.
The campaign to expand the child tax credit must continue. Advocates are encouraging lawmakers to tie any extension of corporate tax breaks to an extension of the child tax credit. Though control of the incoming Congress will be divided, it’s possible for a bipartisan coalition to pass a newly expanded credit, as such policy has historically enjoyed strong bipartisan support. Even in 2022, several Republican politicians, including Senators Mitt Romney (UT), Richard Burr (NC), Steve Daines (MT), Mike Lee (UT), and Marco Rubio (FL), have offered policy proposals for at least partially expanding the child tax credit, though with key differences compared to ARPA’s version of the credit.
If Congress does restore an expanded child tax credit, policymakers should extend eligibility for mixed-immigration-status families and families in Puerto Rico, while also providing simplified filing options so families who don’t normally file a tax return can more easily access the credit. State governments can also pass similar measures. To date, 10 states have done so.
The results of 2021’s expanded child tax credit offer irrefutable evidence that Congress can help facilitate the movement of millions of children of poverty. If there was any doubt that child poverty is a policy choice, data from both implementation of the expanded child tax credit and the credit’s termination are clear. But to act on that data, advocates must organize—and push our elected officials to make better choices.