The improvements that policymakers made to the federal Child Tax Credit (CTC) was one of the contributing factors to a sharp decline in child poverty even in the midst of the COVID-19 pandemic. Recent U.S. Census data show that from 2019 to 2021, child poverty fell a remarkable 59 percent.
Expansions increased the Child Tax Credit’s reach and impact
In 2021, policymakers temporarily improved the federal Child Tax Credit through the American Rescue Plan (ARP) pandemic response and economic recovery legislation. The Child Tax Credit has been a powerful tool against poverty since 1997, and the ARP substantially increased its poverty-fighting impact. The changes made included:
Families used the credit most often to pay for food, essential bills, children’s clothing, housing expenses, and other basic expenses
- Increasing the maximum size of the credit to $3,600 for eligible children under age 6 and to $3,000 for eligible children ages 6 to 17;
- Expanding the age range of eligible children to include children age 17;
- Making the full value of the credit available to the lowest-income families by making the credit fully refundable and eliminating the minimum earnings requirement to qualify; and
- Providing some of the Child Tax Credit on a monthly basis from July to December, as opposed to families having to wait until after they filed their income taxes to receive these additional resources.
that are necessary for their health and well-being.
Child Tax Credit changes contributed to a remarkable decline in child poverty
The expansion of the Child Tax Credit is estimated to have kept 5.3 million people out of poverty, including 2.9 million children. The supplemental poverty measure showed that the percentage of American children living below the poverty line dropped from 12.6 percent in 2019 to 5.2 percent in 2021.
The U.S. Census Supplemental Poverty Measure is an updated and more comprehensive way to measure poverty which includes the impact that public policies make in people’s everyday lives. The official poverty measure, originally developed in the early 1960s, is only based on the cost of food and a household’s cash income. In contrast, the Supplemental Poverty Measure takes into account the cost of necessary expenses like child care, medical bills, and taxes; as well as policies that reduce the cost of these expenses or increase the resources available to families, like tax credits, housing subsidies, heating assistance, and food support.
Improvements to the Child Tax Credit advanced racial, income, and geographic equity
The 59 percent decrease in childhood poverty over two years is enormous progress, and demonstrates what transformational investments and policy choices can do. Expanding the CTC not only reduced overall child poverty, but also aided in reducing systemic economic inequalities. Nationally, for Black and Hispanic children, the childhood poverty rate dropped by roughly 60 percent. For American Indian and Alaskan Native children, as well as Asian children, the poverty rate decreased by a little less than half.
The expanded Child Tax Credit also included essential provisions to ensure the lowest-income families could receive the full value of the credit. Unfortunately, we have reverted back to the old structure for the CTC, and an estimated 216,000 low-income Minnesotans under 17 now cannot qualify for the full value of the credit because their families’ incomes are too low.
The expanded CTC increased geographic equity by expanding access to the full value of the credit to cover 21 percent of rural Minnesota children.
Policymakers should make federal Child Tax Credit expansions permanent, act at state level
We have seen the incredible success that the expanded federal Child Tax Credit had on reducing child poverty and narrowing racial, income, and geographic disparities. But federal policymakers have failed to build on this success by making the expansion of the Child Tax Credit permanent. Hardship among children and families has begun to rise without its powerful impact.
It has fallen to the states to keep the momentum going in reducing child poverty. In 2023, Minnesota should become one of the growing number of states creating state-level Child Tax Credits built on the successes of the federal CTC expansion. The data is clear: this is a policy that works to reduce poverty and hardship for everyday families.