After the expanded child tax credit expired, America’s child poverty
rate doubled. Why was that policy so successful, and what can be done to
fill the gap?
Last year, according to a new report
from the U.S. Census Bureau, child poverty in America more than
doubled. This steep increase, which was accompanied by a general rise in
poverty among all age groups, was preceded by two years of declining
poverty rates, which were largely attributed to support offered by the
federal government during the pandemic. In the case of child poverty,
the most important driver of the 2022 jump was the expiration of the
expanded child tax credit, which the Biden Administration and
congressional Democrats were unable to renew last year, thanks to the
opposition of Senate Republicans and Joe Manchin.
To
talk about the report, I recently spoke by phone with Christopher
Wimer, the director of the Center on Poverty and Social Policy at the
Columbia University School of Social Work. During our conversation,
which has been edited for length and clarity, we discussed why the child
tax credit has been so successful at reducing poverty, whether states
can fill the gap left by the federal government, and what lessons should
be drawn from pandemic-era expansions of the social safety net.
What did this report tell us, and how did it reach its conclusions about the child poverty rate in the past year?
It
showed what a lot of people were expecting—namely, that using the
supplemental poverty measure, which is a more robust measure of income
poverty than the United States’ official measure, and counts a lot of
the income that the official measure ignores, such as tax credits and
in-kind benefits, showed a major rise in poverty from 2021 to 2022. As I
said, that was widely expected given that we knew a lot of the
pandemic-era policy support to people’s incomes had expired by 2022. For
children, the major thing that expired was the 2021 expansion to the
child tax credit.That wasn’t the only thing driving the increase in
child poverty, and poverty over all from 2021 to 2022, but for children
it was a major part of the story.
Do we have some sense of how much a part of the story it was?
Yeah,
the child poverty rate was 5.2 per cent in 2021, and that increased to
12.4 per cent in 2022, so it more than doubled. We put out a piece last
week where we showed that if an expanded child tax credit had still been
in place in 2022, the child poverty rate would have been about 8.1 per
cent, so much less than the 12.4 per cent that the census saw. Poverty
still would have gone up for children. But there were other parts to the
story. In 2021, we had the third round of stimulus payments, or
“economic impact payments,” as they’re called. There was also the
continuation of some other expansions to the safety net such as
emergency allotments in the Supplemental Nutrition Assistance Program (SNAP).
So, from what we can tell, slightly more than half the increase in child poverty was due to the expiration of the credit.
Correct.
Your center wrote a report
in the beginning of 2022, looking at just the jump from December, 2021,
to January, 2022, after the expiration of the expanded credit, and you
found an even bigger increase in child poverty than the recent census
report showed. Could this have been even worse?
I
think it’s important to understand that the numbers we released in 2022
came from our estimation of monthly poverty rates. So it’s a method
that we developed to try to understand the poverty rates in the
population in advance of the annual statistics that come out each year
from the Census Bureau. One important and key difference between the two
measures is that our monthly series is really trying to capture the
inflow of income in a given month compared with the poverty rate in a
given month, whereas an annual poverty measure is aggregating income
across the calendar year.
Our monthly series would
ask how much the monthly payment in July, for example, reduced the
child poverty rate in July, whereas the census numbers that came out
last week are asking how all the income pooled across the calendar
compared with an annual poverty measure. But, despite the differences,
both show that the expiration of the expanded child tax credit threw a
lot more children into poverty after keeping a lot of children out of
poverty while those payments were in place.
Can you talk a little bit about how the child tax credit works and why you think it has been so successful?
The child tax credit has been around for about
twenty-six years and historically has operated as part of people’s tax
filing and tax refunds. It’s been what the I.R.S. calls partially
refundable so that, for upper-income families, the credit can reduce the
amount of taxes that people owe at tax time. And then, for lower- and
more moderate-income families, they can get a partial credit as a refund
at tax time. Before the 2021 expansion, the maximum credit that one
could be eligible for was two thousand dollars per child. And not
everyone got that. The maximum that people could get as a refund, for
example, was only fourteen hundred dollars per child.
There’s
an earnings floor, essentially, before you get anything. And then the
credit would phase in as earnings increase. Our research at the center
has shown that in the pre-expansion form of the credit, a lot of
children were left out or left behind by that credit structure,
particularly the children in the lowest-income families. A lot of people
got only a partial credit, and some families with children got no
credit at all. You needed substantial levels of earnings to get the full
credit that was available to middle- and upper-middle-class families.
In 2021, the American Rescue Plan expanded the credit for that year and
basically made three big changes. One change was that it increased the
maximum size of the benefit levels, from two thousand to three thousand
dollars per child for older children, six and above, and thirty-six
hundred dollars per child for younger children, ages zero to five. The
second major change is that it made the credit fully refundable and
available to all families with children at the lower end of the income
distribution and no longer tied to the earnings levels of their parents.
The third major change was that the credit was delivered monthly in the
last six months of 2021. So half of the credit was delivered to most
families in July through December, in the middle of the month, and then
the second half of the credit was delivered when families filed their
taxes in early 2022. Those are the three major changes. They were in
existence only for that year. And, as of 2022, the law reverted to its
pre-pandemic form.
This year, after we found out that the federal expansion was not
going to be permanent, a number of states have stepped in and tried to
increase their own child tax credits. What do we know about those
efforts, and is it too early to see what effect they might be having?
How much hope do you have that, if the federal government doesn’t step
in, some of the uptick in poverty rates that we’ve seen can be
mitigated?
It’s been exciting to see the momentum on this issue
at the state level. The federal earned-income tax credit has been around
since 1975, but in recent decades a lot of states have adopted a
state-level earned-income tax credit. Usually those are pegged as a
certain percentage of the federal one, but there really weren’t that
many state-level child tax credits before the federal expansion. So,
like you said, a number of states have pursued or created or expanded
state-level child tax credits in the past year or two, and it is a
little too soon to look at all their impacts because they’re going into
effect at different times, and not all of them were fully in effect in
2022, which is the most recent data we have from the Census Bureau.
The
other thing I would note about them is that they tend to be much
smaller than the 2021 expanded federal credit. They vary a lot in terms
of size, and the degree to which they’re fully refundable, like the
federal expanded credit was. In some states, they’re more like rebates.
They also vary in terms of whether they’re permanent or temporary. But
it’s exciting to see, and we’ll learn a lot more as more states put them
into practice. And, of course, states have to balance their budgets
every year as opposed to the federal government. So often they have less
money to create and institute such a credit.
Has it been mostly blue states that have
tried to put in some sort of expansion recently, or has it been
bipartisan? In part because this was a tax credit and not a government
program, there was hope that the credit would be a bipartisan thing
going forward. Have you seen that on the state level?
They
have tended to be blue states. New York had one before the pandemic and
expanded it after the pandemic. The state had a credit that was only
for children age five and above, and they extended the eligibility to
younger children. California had one and has one still. A lot of the
states that have been creating new ones tended to be the bluer states,
like Maryland and Minnesota.
The report says that the biggest increase in
child poverty was in the South. Do we know much about regional
distinctions? It seems that state-level efforts to fill in for the
federal government are less likely to happen there, which would mean
less help for the places with the worst child poverty.
We
showed in a report last year that the impacts of the credit on the
reduction in poverty in 2021 were largest in the states that had a lower
cost of living. The supplemental measure will have a higher poverty
line in more expensive places, such as California and Washington, D.C.
Sometimes there’s a lower poverty line in places in the South where
housing costs are much lower. So the credit, which doesn’t vary
regionally, is the same amount in Mississippi as it is in California,
but essentially can do more anti-poverty impact when the poverty line is
lower to begin with. Part of what might be going on is that the
Southern states might be losing more in relative terms because of the
size of the benefit relative to their poverty line.
There’s been some talk about further federal
expansions, and what we hear from politicians who seem more skeptical
than most Democrats is that it would have to be bundled with work
requirements. What exactly would a work requirement be, and how would
that function in practice?
So the way the
child tax credit works, or worked before the pandemic, and how it works
again now is it does have essentially what you would call a work
requirement. You receive any amount of dollars from the credit only if
you meet this earnings threshold, which is a few thousand dollars. In a
sense, you have to work to get anything from it. And, to qualify for the
full credit, you have to have pretty substantial earnings. As your
earnings rise, you would get a larger credit, and then that plateaus for
a while. And then, as your earnings get really quite substantial, the
credit would again begin to phase out and become smaller. There are some
people whose families have too much earnings to get anything from the
credit, but that’s a small fraction of families. That’s usually what
people are talking about when they’re talking about instituting a work
requirement: preserving that earnings floor and that phase-in with
earnings as earnings increase
But I think it’s really important that all children
are able to benefit from this program, and that it not be just a
middle-class subsidy. We’ve shown the importance that investments in
children’s family incomes can have for their long-term well-being and
development. Kids who are not in poverty go on to earn more in the labor
market, be healthier, all sorts of things that we want as a society.
The other point that I often make to people is that incomes aren’t a
fixed characteristic. So, when you actually take a longer view, a lot
more American families with children will experience a period of hard
times and a period of low income. Having a robust child tax credit
provides a bit of insurance against the risk of hard times.
And it could even affect non-parental caregivers, such as grandparents, correct?
Yeah, absolutely. The expanded credit was for all
children, except, of course, some of the highest-earning families’
children. Whoever was claiming the child on their taxes would be the
person receiving that money.
I don’t want
to slight the scale of what happened, but when you look at a chart of
child poverty in the United States, which obviously is embarrassing,
child poverty is still significantly below what it was a decade ago or
even a couple decades ago. Why is that? And, even if what we saw in 2022
was horrific, what lessons can we learn from the longer-term trend of
declining child poverty?
At Columbia, we
actually created a version of the supplemental poverty measure that I
described earlier, going all the way back to 1967. It tries to capture
in a consistent way the definition of income that includes not just cash
income but these in-kind benefits and tax credits and the like. When we
look at that over the long term, we do see that poverty has come down
pretty dramatically over the past five-plus decades. A lot of that
progress has come from policy alone. So that’s a success story, but it’s
also a story that the labor market and all the economic progress and
gains that we’ve had in the past five decades haven’t necessarily
translated into reductions in poverty unless you count the resources
from government policies and programs.
One lesson that we take from the recent expansion is
that policy matters a lot, and policy can reduce child poverty and
reduce need in this country as long as we have sustained effort behind
it. But unfortunately it was just one year where we conducted this
experiment in social policy. The second lesson is that unfortunately we
still need policy to be doing this work as opposed to our normal labor
market and other institutions.
When
you say that this episode shows that policies work, what specifically
with regard to children are we talking about in addition to the child
tax credit?
Policies tend to work
together, but it’s not just the child tax credit by any means. So you
have the earned-income tax credit, which was expanded periodically since
it was created, in 1975. It was originally a pretty small program.
Especially in the nineties, it was expanded pretty dramatically under
the Clinton Administration. That’s become increasingly important. The SNAP
program as well has become increasingly important in recent years,
especially after cash welfare was largely dismantled in the
mid-nineties. There are smaller programs, such as the National School
Lunch Program, which provide important support. Social Security and its
expansion in the seventies were a huge driver of reduction in elderly
poverty. So it depends which subpopulation you’re talking about, but
it’s not just the child tax credit that matters by any means. ♦
