Comment: The tax credit caused child poverty to drop to an all-time high in 2021

By Steven Pressman and Robert H. Scott III / For conversation

The U.S. government’s most accurate measure of child poverty fell to 5.2% in 2021, the lowest level on record and a drop of 4.5 percentage points from the previous year. This sharp reduction was due, in large part, to generous government benefits. Our research suggests that although policies reduced child poverty by nearly half in 2021, the decline would have been even greater if the government had made it easier for families to access these benefits.

One of the ways the federal government responded to the economic upheaval that accompanied the covid-19 pandemic was to increase the money Americans received in the form of benefits; and distribute these benefits to people who did not receive them before.

Starting in the spring of 2020, for example, most Americans received a series of economic relief payments. These funds had already helped reduce child poverty to 9.7% in 2020 from 12.6% in 2019, according to what is known as the “supplementary measure of poverty”.

The government data, released Sept. 13, confirms expectations we and other economists had based on previous research for the proportion of U.S. children living in poverty in 2021. A key policy change drove this drop: tax credit, increasing the income of almost all families with children.

We determined, however, that child poverty would have fallen much more had the government done a better job of ensuring that everyone who qualifies gets the credit.

Child tax credit: Unlike the official poverty rate, the Supplemental Poverty Measure takes into account government benefits, such as the Supplemental Nutrition Assistance Program, or SNAP, formerly known as food stamps.

The supplementary measure of poverty has been consistently lower for children than the official poverty rate since its launch in 2011.

One of the reasons is the child tax credit. It started in 1998, with a maximum possible credit of $400 per child. The amount families could get was limited by the income taxes they owed. Since low-income families pay no income tax or owe very little, this has done them little good. Subsequent reform measures increased the amount of the credit and made part of this benefit available to families who did not pay income tax.

A major federal spending package enacted in 2021 further increased the credit and made it available to all but the wealthiest families with children. Between July 2021 and June 2022, most received up to $3,600 for each child under age 6 and up to $3,000 for children ages 6 to 17. The Internal Revenue Service distributed half of that money in monthly payments between July and December 2021, and the rest at tax time in 2022.

3 million fewer poor children: Many economists predicted that this benefit would help millions of children escape poverty.

And, according to Census Bureau, 2.9 million fewer American children were living in poverty because of the Child Tax Credit, including its temporary expansion. This policy reduced child poverty by 4 percentage points.

But we believe the child poverty rate could have fallen further if the government had ensured that more eligible families received the expanded child tax credit last year.

As we explained in the Journal of Post-Keynesian Economicsan academic publication, we looked at detailed data from 2019 to estimate what would have happened to child poverty that year if all eligible families had received the 2021 tax credit expansion.

We estimated an additional child poverty rate of about 5.2%, which is what actually happened. But our modeling was based on a few assumptions, such as that the expansion would last for a full year and that there would be no other pandemic-related benefits. These two factors nearly balanced each other, resulting in an estimate of child poverty that was close to what was reported.

Based on our calculations, we believe that the additional child poverty rate could have fallen 2.2 percentage points more in 2021 than what the census found if every eligible family had gotten the tax credit for children. That would have lifted 1.6 million more children out of poverty.

Many low-income families did not file taxes in 2019 or 2020 because they did not owe federal income tax. To get monthly child tax credits from the IRS, these families had to file a return.

Alternatively, families can log on to the IRS website and apply for the child tax credit. This was difficult to do for many low income people who did not have internet access.

Unconscious: Investigations by a research team from Washington University in St. Louis support our theory. It found that 29% of low- and middle-income Americans knew little or nothing about the child tax credit expansion – or even that they were eligible to receive it.

Specifically, 78% of respondents who didn’t file a 2020 tax return didn’t know much about credit. Additionally, some reporters found that the IRS website that people must use to apply for benefits when they haven’t filed a tax return is not user-friendly and that there is no Spanish language version. was available.

These results, along with official child poverty statistics for 2021, show that expanding the Child Tax Credit can significantly reduce child poverty. They also point to the need for increased outreach efforts to ensure that all low-income Americans can get the benefits to which they are entitled.

And now that the Census Bureau has released its poverty statistics for 2021, we expect calls to permanently restore that advantage to spread.

Steven Pressman is a part-time faculty member at the New School for Social Research. Robert H. Scott III is a professor at Monmouth University. This article is republished from The conversation under Creative Commons license.


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