The expansion of the Child Tax Credit (CTC) this year under President Biden was a momentous occasion, marking a new commitment to children, especially low-income children, by providing families with fully refundable monthly payments. However, this expansion was only temporary for 2021, and if Congress does not pass the Build Back Better Act by the end of the year, millions of families will lose out as the Child Tax Credit reverts to its less effective and more restrictive form. If that happens, December 15 will have been the last monthly payment families receive.
The American Rescue Plan Act (ARPA), which was passed earlier this year, expanded the Child Tax Credit by raising it from $2,000 per child to $3,000 per child for children age 6 and over, and from $2,000 to $3,600 for children under the age of 6. The act made the Child Tax Credit fully refundable, making it available to families with low or no earnings. This change allowed 27 million children to receive the full amount. Previously, they were only able to receive a partial credit, because their family’s income was too low. The act also raised the age limit from age 16 to 17. The expansion also allowed the CTC to be delivered in monthly payments of $300 for children under age 6 or $250 for children age 6 and over beginning on July 15.
If passed, the Build Back Better Act would maintain the increased CTC benefit amounts through 2022 and continue monthly payments for the full year. It would also make the credit fully refundable, permanently. If it does not pass, the maximum credit per child would decrease by $1,000 for school age children and $1,600 for young children. This would vary per family, but the decrease would be even larger for low-income children. Given the long road to making the Child Tax Credit refundable in America, this may be Congress’ last chance to make the tax credit truly serve the families who need it the most, those with low or no income.
Successes of the Expanded Child Tax Credit
Ninety percent of all children in the United States have the opportunity to benefit from the expanded Child Tax Credit. Its impact on poverty reduction was significant. According to researchers at the Columbia Center on Poverty and Social Poverty, the second CTC monthly payment contributed to a 29 percent (4.7 percentage point) reduction in child poverty in August compared to the projected rate in August without it. The November payment of the Child Tax Credit reached 61.3 million children and kept 3.8 million children from poverty.
Build Back Better Act’s Child Tax Credit expansion is expected to reduce child poverty by more than 40 percent compared to the credit without the expansion, according to the Center on Budget and Policy Priorities (CBPP). The full refundability drives 87 percent of this anti-poverty impact, which would be made permanent if the bill passes.
An Urban Institute study said that if the expanded CTC was made fully permanent, 4.3 million fewer children would be in poverty. Child poverty would decline by 50 percent or more in eleven states and would be below 10 percent in most states.
How Is the Expanded Child Tax Credit Being Used?
The monthly delivery of payments under ARPA also assisted families, as the refundable CTC was modeled similar to a child allowance. The more-frequent refund payments allowed families to better use the CTC to cover expenses that come up regularly throughout the year, such as rent and food, which is much more helpful than a lump sum payment once a year. Several studies demonstrate that parents used the CTC to meet essential needs for their families and build wealth through saving or education.
According to a Brookings survey of CTC eligible parents, building emergency savings was the most commonly planned use (75 percent of families). This was followed by paying for routine expenses (67 percent), buying essential items for children (58 percent), purchasing more or better food (49 percent), and starting or growing a college fund (42 percent). They found that the results demonstrated the CTC would likely have the “intended effect of alleviating child poverty” and would “likely increase social mobility both for families and their children.”
A study from the Urban Institute found that about half of adults (51 percent) reported spending the credit on food. The next most common purchases included clothing (30 percent), utilities (29 percent), and schoolbooks and supplies (25 percent). Data from the Census Bureau’s Household Pulse Survey also shows that the number of adults living with children who reported that their household didn’t have enough to eat fell by 3.3 million or nearly one-third in the month and a half after the first CTC payments. This drop in food scarcity was likely driven by the transition to monthly payments and the full refundability of the credit, which allowed millions of families with the lowest of incomes to receive payments.
Who Will Lose Out if the Build Back Better Act Doesn’t Pass?
If the Child Tax Credit expansion isn’t maintained by passage of the Build Back Better Act, and the nation reverts to the old CTC, the children with the lowest incomes are the ones who would be severely harmed. With the expanded CTC, 27 million children—who previously received only a partial credit or no credit at all because their family’s income was too low—were able to receive the full credit. Of these children, over 50 percent are in U.S. Census categories of Black, non-Hispanic and Hispanic, compared to 23 percent of White, non-Hispanic children. Nearly one-in-five or 20 percent of Black, non-Hispanic children were previously not able to receive any credit at all, since their family’s income was too low.
While nearly all families with children would lose out if the Build Back Better Act doesn’t pass, the loss would be worse for these low-income children. According to an example from the CBPP, a full-time working mother with two children, one child under age 6 and one child over age 6, earning the federal minimum wage currently receives $6,600 a year from the CTC. If the Build Back Better Act doesn’t pass, this could fall by $4,800, to just $1,800 a year—a drop of about 73 percent.
The Build Back Better Act would also restore access to children with Individual Taxpayer Identification Numbers, undoing the Tax Cuts and Jobs Act of 2017, which required those receiving the credit to have Social Security Numbers. Just this aspect of the plan has the potential to reach around 1 million undocumented immigrant children and families with the expanded CTC.
If the Build Back Better Act is not passed, according to the Center on Budget and Policy Priorities, an estimated 9.9 million children are at risk of falling back below the poverty line or into deeper poverty. The poverty reductions of the past year would be lost, and the progress toward a renewed commitment to Americas’ youngest would be reversed. Congress must pass the Build Back Better Act to fulfill its promise to the most vulnerable children who would serve to benefit the most. Children deserve happy and healthy childhoods without the stress and hardship of poverty. We commend the House of Representatives for passing the Build Back Better Act, and we urge the Senate to do so as well. Congress now has the ability to determine the quality of life for millions of children, and we urge them to vote for the expanded Child Tax Credit and its historic reductions in child poverty.
header image: Local residents, Cara Baldari and her nine-month-old daughter Evie (L) and Sarah Orrin-Vipond and her eight-month-old son Otto (R), join a rally in front of the U.S. Capitol in Washington, DC. Source: Alex Wong/Getty Images