The pandemic has made it clear that American policy decisions over decades have not valued families. People who unexpectedly needed to look after their children or other family members quickly discovered that the American workplace doesn’t value caregiving: there simply are no comprehensive care policies in place to support families or the people who provide care, leading to the erosion of that sector. Furthermore, millions of American families facing sudden financial setbacks due to job loss are finding out that there is no net to catch them—forcing them to scramble to cover even the basic expenses of raising children, such as providing food and shelter. The conscious decision by policymakers to undervalue raising and caring for children—evident in decades of racist and sexist choices—has not served the nation well, leading to disastrous results for families, particularly women, and most particularly women of color.
Recent federal policy may indicate a turnaround on federal support for raising and caring for children, however. In the American Rescue Plan, President Biden proposed a comprehensive approach to the combined crises of the pandemic, the economic recession, and growing inequality in the United States. The plan, most of which has been included in the bills coming out of the House of Representatives, would be a significant achievement in providing families with child benefits in the form of the expanded Child Tax Credit (CTC), as well as with funding to stabilize the child care sector and support families who need the care. These dual investments in child care and family tax credit expansions are especially crucial, since the U.S. economy cannot build back better without women’s workforce participation and ability to spend money on necessities.
The Pandemic Has Exacerbated Economic Insecurity
COVID-19 and the ensuing economic collapse has created hardship for millions of American families as parents have lost their jobs, or lost income as they cut back their work hours, with women of color hit the hardest. The combination of high unemployment in female-dominated sectors (such as the service sector), and the lack of a comprehensive care system or workplace policies that support caregivers has led to the women’s labor force participation rate hitting a thirty-three-year low in January 2021. As income recedes for millions of people, economic insecurity is rising. The loss of women’s income means their families have fewer resources to pay for food, rent, and other household necessities. And lower-income families and families of color are especially at risk, as they are more likely to have the mother as the family breadwinner.
The toll of the pandemic on child wellbeing is staggering. Researchers at Columbia University’s Center on Poverty and Social Policy estimated that 1.3 million more children were living in poverty in September 2020 than in January 2020. Throughout the first month of 2021, one in six of all U.S. households with children reported facing food insecurity, while 26 percent of renters with children reported that they were not caught up on rent. This scarcity is not because the American economy isn’t producing, however: U.S. billionaires have seen their collective wealth increase by nearly 40 percent since the start of the pandemic, underscoring that the wealthy are experiencing the pandemic very differently than families on the lower end of the income scale.
Simply put, millions of families during the pandemic—from those struggling to make sure they have enough to eat and a roof over their heads to those who are struggling without school or child care—are still not okay. They need immediate and continuing economic assistance. And while ensuring their wellbeing alone is reason enough to act, we should not ignore the economic ripple effects on communities and the nation’s economy. If families can’t afford to pay rent or mortgage, pay for healthy food, or child care, then the landlords, retailers, and child care providers feel the impacts, too. If parents can’t rely on school and child care options to work and earn, they can’t provide for their families. The impact on the American economy is huge: it is at risk of losing $64.5 billion in economic activity over the course of a year from women’s aggregate lost wages alone due to the lack of child care. Everyone suffers when families suffer.
To support families through the ongoing crisis and beyond, we need dual investments: (1) putting cash in families’ pockets through an expansion of the Child Tax Credit into a child allowance, and (2) providing immediate funding for the child care sector to stabilize it today, and preparing to build a comprehensive child care and early education system tomorrow.
These dual policies will not only be key to rescuing the American economy, they will also help ensure the healthy development of children and support greater racial and gender equity. Study after study shows that children’s development is seriously impacted by whether they are supported by consistent resources and high quality, equitable child care. From better health to more successful school engagement and improved social emotional outcomes, both solutions are necessary for the wellbeing of children.
Putting more resources toward supporting families is also a crucial part of ensuring that public policies address the history of intersecting oppressions against women of color and their families. The Center on Budget and Policy Priorities found extending fully the current $2,000 CTC to low and middle income families would benefit 6 million women of color; 35 percent of the women who would benefit are Latina, and 21 percent are Black. Meanwhile, supporting the child care sector and options for parents would also support women of color and their families, as they are often both breadwinners and caregivers in their households and comprise a disproportionate percentage of the child care workforce.
The Child Tax Credit and Investments in Child Care Are Both Necessary
In its 2019 report, A Roadmap to Reducing Child Poverty, the National Academies of Sciences found that expanding child care investments would reduce child poverty, because child care is a crucial resource for parents to increase earnings for the household. The same report also found that adopting a child allowance policy—which could take the form of expanding the current CTC to include higher benefit amounts that are delivered regularly and are available to more families—would have the most significant impact on reducing child poverty in the United States.
An Improved Child Tax Credit Can Reduce Poverty
The most common policy tool globally to support children is a child allowance—a regularly delivered payment made to families to help them meet the cost of raising children. The closest thing the United States currently has to a child allowance is the Child Tax Credit. Unfortunately, the CTC currently leaves out one third of all children—likely even more now, because of the pandemic’s disruption of family earnings—because their parents don’t earn enough money to receive the full benefit. Furthermore, among the families who do receive the credit, the once-a-year refund payment arrives in the form of a lump sum during tax time, which is little help to families who may have found it difficult to cover monthly costs such as food or housing throughout the year.
House Democrats’ Child Tax Credit proposal, which has the support of President Biden, includes increasing the CTC to $3,600 for children under age 6 and $3,000 for those aged 6 to 17 for a year. The credit would also be made fully refundable, a crucial addition that will allow lower-income families who owe little or no federal income tax to receive the full credit. The proposal also directs Treasury Secretary Janet Yellen to deliver advance payments of the credit (up to a total of half of the benefits) on a monthly basis, if feasible, which is important so that families can incorporate the support into their monthly budgeting and bill paying.
Democrats in the House of Representatives have been trying to incorporate CTC reform into COVID-19 relief plans since the early days of the pandemic. In May 2020, the House of Representatives passed the HEROES Act, which included a one-year CTC expansion (which had been laid out originally in the American Family Act)—including full refundability, regular delivery of the benefits throughout the year, and increased benefits amounts of $3,600 for young children and $3,000 for older children.
Research shows that expanding the CTC into a child allowance with full refundability and higher benefit amounts would significantly cut child poverty. A January 2021 analysis found that President Biden’s proposal for economic relief, including the expanded CTC, SNAP benefit increases, a one-time $1,400 direct payment, Unemployment Insurance extensions, and an expanded EITC, would jointly cut poverty for all children under 18 years old by more than half. However, among all of the items in President Biden’s proposal, the CTC expansions alone would cut poverty and deep poverty for all children under 18 by almost 45 percent and 49 percent, respectively. Importantly, the analysis shows that an expanded CTC would have a particularly large impact on cutting poverty for Black and Hispanic children, whose poverty rates are already above 20 percent. Expanding the Child Tax Credit to deliver higher benefits to families on a monthly basis is a necessary step in addressing the child poverty crisis.
It is important to remember, however, that even the most generous tax credits can only go so far. A middle-income family spends an average of $12,350 to $13,900 a year to raise a child, for example, with the majority of that money going to housing, food, and child care. While an increased, regularly delivered CTC would allow families to build this additional cash into their budgets, it would only serve as a supplement to other investments in family economic security. Furthermore, while some of the funds from an improved CTC no doubt would go toward paying for child care, this infusion would be insufficient to shore up the collapsing child care sector.
Stabilizing Child Care Supports Children, Families, and Economic Growth
Child care is a crucial resource that supports mothers and other caregivers’ workforce participation, and their ability to increase earnings for their households. Unfortunately, the United States has not invested in a comprehensive, robust child care and early education system since the World War II program ended, and so the stresses introduced by the pandemic quickly caused this sector to shrink.
The pandemic’s damage to the child care sector has been severe. A November study by the National Association for the Education of Young Children (NAEYC) found that many child care and early education programs have closed. The sector lost more than 350,000 jobs in a single month at the beginning of the pandemic, and half of those jobs have not yet returned. The majority of child care programs that are still open have unavoidable increased costs from upgrading their safety and health protections, alongside decreased revenues from reduced enrollment (whether due to the need for smaller classes or parent fears of sending their children into group settings). Child care providers are being asked to do much more with much less, with many accruing personal debt and/or being forced into furloughs, pay cuts, and layoffs, as a result.
Congress so far has responded to these challenges with $3.5 billion in the CARES Act and $10 billion in the Consolidated Appropriations Act to support child care relief. The American Rescue Plan would go even farther, making child care more accessible and affordable for families and making jobs in the child care sector more stable and of better quality for workers by:
- Including $25 billion for a child care stabilization fund and an additional $15 billion to the Child Care Development Block Grant, to help the diverse range of child care providers pay for rent, utilities, and payroll, and increased costs associated with the pandemic like personal protective equipment, while supporting families and covering higher compensation for early educators.
- Included an additional $600 million toward setting the stage for the longer term transformation the child care sector needs as America builds back better.
These child care relief investments are necessary to stabilize the child care sector, create and support good child care and early education jobs, and support the ability of parents and other caregivers to both care and provide for their families.
In addition to providing child care sector funding, the American Rescue Plan would also:
- Increase the child and dependent care tax credit (CDCTC) and make it fully refundable. The CDCTC is a tax credit that reimburses costs associated with caring for children and older loved ones who rely on family for care and support. The proposal calls to increase the maximum credit rate to 50 percent (from its current maximum rate of 35 percent), and increase the credit to $4,000 and $8,000, as well as make it fully refundable so that more low-income families can qualify for benefits.
It is important to remember, however, that the CDCTC is helpful in offsetting only a fraction of child and dependent care costs. Furthermore, as a once-a-year credit that arrives only during tax season, it’s not a helpful tool for families that need to pay for child and dependent care up front. As such, an improved CDCTC should only be considered as a complementary policy that serves to reduce the tax burden of those paying for child and dependent care; for addressing the broader challenges facing the child care sector—ensuring its health and safety, fixing the low compensation for early educators, increasing the limited supply of quality care options, or addressing the flexibility families need—we must look to the other investments in child care relief included in the American Rescue Plan.
Long before the pandemic, women and families were struggling to cover the costs of living and raising children. The pandemic has presented America with a choice: continue as a nation where better health, great child care options, safe homes, and a better education is most available to those with wealth, or decide that economic security for all families is something worth investing in. The American Rescue Plan’s expansion of the Child Tax Credit and child care relief and stabilization funding work toward that second possibility, and are critical to support families now as immediate relief. Expanding monthly child tax credits and investing in child care and early education are good policy choices, not only for children and families, but our economic future. Moving forward, building on these relief initiatives with longer term transformative child allowances and comprehensive child care and education policies, are also a moral imperative to emerge from the pandemic recession with a more just and equitable economy.
The authors would like to thank Megan Curran, Amy Matsui, Elisa Minoff, Shana Bartley, Kate Gallagher Robbins and Jeff Madrick for their review and feedback.