The COVID-19 pandemic has precipitated simultaneous public health and economic crises in the United States on a scale not seen before. Columbia University Center on Poverty and Social Policy projections indicate that COVID-19-related unemployment could see U.S. poverty rates rise to the highest levels in half a century. Child poverty, in particular, risks a significant increase. If the national unemployment rate rises to 30 percent, child poverty could increase by 54 percent—with more than one in five children living below the poverty line. Hunger is already pervasive: a new survey finds that since the pandemic hit, one in five households with young children are now food insecure. Family economic insecurity is compounded by children’s more immediate losses of parents and loved ones—with a disproportionate toll taken on the Black community and other minority groups.
Emergency relief passed to date, including the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is critical to mitigate this impact. But the federal response has not focused on children. Existing policy tools can be mobilized to help. In particular, the Child Tax Credit—one of the largest federal programs for children—can be made more generous, reach the one-third of children who are currently left out, and be delivered on a monthly basis to support children and families through the immediate crisis period and until the economy recovers.
Families with Children Need More COVID-19 Economic Relief
The nation’s unemployment insurance system has been a first line of defense against the economic impact of the virus. The value of the unemployment insurance payment, however, varies widely by state and does not necessarily take account of dependents in the home. Access also remains an unsolved issue. The Economic Policy Institute found that, as of mid-April, only half of the total potential unemployment insurance claimants were actually receiving benefits.
The emergency cash payment being sent to households under the CARES Act, also known as the recovery rebate or stimulus check, offers a critical one-time infusion of cash. But the structure of the payment works to the disadvantage of children and their families. Households receive a payment of only $500 for each child, which is less than half the value of the $1,200 payment for each adult. As a result, a family of two adults with no children receives more than a single parent with two children under age 16 ($2,400 versus $2,200). Teenagers and young adults aged 17 to 24 who are still claimed on their parents’ tax return and older dependents with serious health issues receive no emergency aid at all. Nor do immigrant families—including close to 5 million children, the vast majority of whom are U.S. citizens—if one adult files with an Individual Taxpayer Identification Number (ITIN), rather than a Social Security Number.
Cash support for children is critical. Research has documented the ill effects of insufficient family income on children, from poor health to poor earnings outcomes later in life. Poverty also takes a toll on the economy. Even before the crisis, child poverty cost the U.S. economy between $800 billion and $1.1 trillion annually. A failure to stem a rise in child poverty now will slow any future recovery. To protect children and strengthen both families and the economy, additional action is required.
A newly proposed COVID-19 relief package for further family economic support by Speaker Pelosi and House Democrats, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, does more for children. Specifically, it provides for a second round of cash stimulus payments that delivers equal payments to children and adults ($1,200 each, up to a maximum of three dependents) and includes dependents aged 17 and over who were left out of the initial payment. It also includes an improved and advanced Child Tax Credit for 2020 to deliver monthly resources specifically to meet children’s needs. These are critical improvements to the current federal response. Congress can do more for children by ensuring the cash stimulus payment does not cap the number of dependents who can access it; larger families are already at higher risk of poverty and less well-supported by family tax benefits than smaller families. To ensure monthly support remains in place through the duration of the pandemic and beyond, Congress can lock in Child Tax Credit improvements for additional years. They can also make the Child Tax Credit improvements retroactive, so that families with low earnings who miss out on the credit normally, can access cash now.
Improving—and Advancing—the Child Tax Credit Can Help
Together with the Earned Income Tax Credit, the Child Tax Credit kept 5 million children from poverty in 2018, as measured by the Supplemental Poverty Measure, and reduced the severity of poverty for millions who remain below the poverty line. Currently, the Child Tax Credit provides an annual tax credit up to $2,000 per qualifying child for those who meet the income requirements. But its effectiveness is hampered by drawbacks in its design. One-third of all children in the United States are currently excluded from the full Child Tax Credit because their families earn too little to receive it. Disproportionately missing out are Black and Hispanic children, young children, children in single-parent households, children in rural areas, and children living in the South, Southwest, and part of the Appalachian region. Families who do receive the payment receive it just once a year, at tax time.
Transforming the Child Tax Credit to reach more children and provide regular support—in the form of monthly payments—is key. It is also feasible. Under its current structure, an annual Child Tax Credit cannot help families meet recurring bills or unexpected expenses. To weather the worst of the current crisis, families need to be able to make their rent, mortgage, and utility payments, buy enough groceries to feed everyone in the home, keep up their health insurance premiums and prescription medicines, stay connected to the internet so their children can learn, and cover an emergency situation, should it arise. The continued loss of jobs across all sectors of the economy threatens the ability of families to do so on their own. For families with children, a monthly Child Tax Credit will help significantly.
Widespread unemployment, furloughs, reductions in work hours, and salary cuts and freezes present a double financial hit to families with children: the loss of income now, and the loss of family tax credits in the future, should their income dip below the current thresholds required to access child-related credits. As Congress considers the next round of family economic relief, it should build on the recent HEROES Act proposal and improve the Child Tax Credit in the following ways:
- Make the Child Tax Credit fully refundable. Eliminating the minimum earnings requirement will make the Child Tax Credit fully refundable and ensure that families whose incomes are too low to access the full credit can do so. This will also help families who normally earn enough to receive the full Child Tax Credit each year, but—due to COVID-19-related income loss—may lose the full or partial credit they usually receive and rely on.
- Advance the Child Tax Credit and pay it out in monthly installments. Time is of the essence in responding to increased need across the country and staving off the worst effects of the COVID-19 economic crisis. Families need additional cash support delivered quickly; rather than waiting until tax time, the Child Tax Credit should, starting now, be advanced and paid out in monthly installments.
- Increase benefit amounts to support children and families through the economic downturn. The unprecedented speed and scale of the COVID-19-induced contraction in economic activity—with tens of millions of job losses to date and escalating child hunger—necessitates an increased commitment of public resources to see families through both the immediate crisis and the duration of the economic downturn. Increasing the Child Tax Credit by 50 percent (to a maximum of $3,000 per qualifying child) for this year and next would provide families with critical support through the worst of the economic recession. A higher boost (a maximum of $3,600 per qualifying child under the age of 6) can go to young children, for whom poverty poses the greatest risk of delayed development, and for whom evidence suggests returns to investment in human capital are the highest.
- Lock in improvements until the economy recovers and make changes retroactive to deliver cash quickly to children and families who need it most. Improvements to the Child Tax Credit should be locked in for this year and beyond to see children and families through the worst of the economic downturn. This action can also be coupled with the ability of families to make a one-year retroactive claim for the improved version of the credit. With a new maximum Child Tax Credit benefit of $3,000, a family who received $2,000 for their qualifying child on their 2019 federal tax return would be eligible for an additional $1,000 now. A family whose 2019 earnings were so low that they missed out on the Child Tax Credit entirely would be eligible for the full $3,000 now. Critically, this would deliver resources to the one-third of children who currently miss out, but need support the most. It would also provide particular support to states where children and families are currently excluded from the Child Tax Credit at the highest rates, including Mississippi, New Mexico, Louisiana, Arkansas, and Alabama.
Bipartisan political support is already in place for many of these fundamental principles. Recent years have seen a number of proposals to make the Child Tax Credit fully refundable—including the American Family Act (S.690/H.R.1560), the Working Families Tax Relief Act (S.1138/H.R.3157), the Economic Mobility Act (H.R.3300), and the Bennet-Romney child allowance proposal in the 116th Congress. Of these proposals, the American Family Act offers an effective example of how to advance the credit and pay it out in monthly installments. These policies were crafted to support families in normal times; the current crisis makes the need for an advanced and fully refundable Child Tax Credit all the more urgent.
Since the COVID-19 pandemic struck, there has also been bipartisan support for ensuring that cash relief reaches those on the lowest incomes and that it is paid out as regular assistance long enough to see families through the worst of the economic downturn. Examples include Senator Hawley’s Emergency Family Relief Act (S.3516) and the Monthly Economic Crisis Support Act proposed by Senators Harris, Sanders, and Markey. A pre-CARES Act proposal released by House Democrats, the Take Responsibility for Workers and Families Act, would make access to a temporarily expanded Child Tax Credit available for five years.
There is strong evidence that an improved and advanced Child Tax Credit can support children as well as the economy. Even before the pandemic, a removal of the earnings requirement alone would have moved 4 million children out of poverty. The Bernard L. Schwartz Rediscovering Government Initiative of The Century Foundation and the Columbia University Center on Poverty and Social Policy found that a Child Tax Credit that reaches children on the lowest incomes ultimately costs less than a Child Tax Credit that phases-in with earnings, due to the significant reduction in child poverty it would achieve. And a 2019 landmark study by the National Academy of Science identified an improved Child Tax Credit—one that is fully refundable, with an increased maximum benefit level, and paid out regularly—as the single most effective policy tool to reduce child poverty in the United States.
The speed and depth of the current economic contraction and family economic loss has outpaced the Great Recession. The impact on children—including rising hunger and severely disrupted education—is unprecedented. Children were already the poorest Americans. Protecting them from the worst economic effects of this crisis and beyond can begin to reverse that.
This research is supported by the Bernard L. Schwartz Rediscovering Government Initiative.
header photo: A boy wears a face mask as food is delivered to his truck at a Food Bank distribution for those in need as the coronavirus pandemic continues on April 9, 2020 in Van Nuys, California. Source: Mario Tama/Getty Images