These days, many Americans are engaged in their own form of March Madness, gathering their various tax related documents needed to submit their taxes to the IRS on time for the April 18 deadline. But, not all Americans realize that tax time has become the most critical part of the year for low-income families struggling to cope with the high costs of raising young kids.
The Century Foundation provided research on the Child Tax Credit as part of an important new white paper released by the U.S. Child Poverty Action Group today in Washington, D.C. on family tax policy. The U.S. Child Poverty Action Group is a new joint effort patterned on a successful campaign in Britain to enact a multi-year, research-based effort to bring down child poverty. With children more vulnerable to poverty than any other group of Americans, and U.S. child poverty worse than all but four of thirty-seven major industrialized nations, the time is certainly now for action on child poverty.
Here’s how the Child Tax Credit works. Tax filers are eligible for up to $1,000 per child, and the credit is partially refundable, meaning that even workers who do not owe any taxes to the federal government can receive funds back from the government. TCF’s research has found that the child tax credit alone lifts 1.7 million children out of poverty. The Child Tax Credit works in tandem with the Earned Income Tax Credit (which provides a credit of as much as $5,548 to working families with two children). Together these credits for working families lifted 5.1 million children out of poverty in 2014. Families now receive more aid from these tax credits than they receive from welfare or food stamps.
It is simple math that additional cash from refundable tax credits immediately lifts children out of poverty by boosting their families’ balance sheets. What’s more striking is that these relatively modest amounts of cash lead to long-term benefits, starting with lower incidence of low birth weight, and continuing with increasing test scores in elementary and middle school, and higher graduation rates from high school. Part of the impact comes from the ability of tax credits to reduce family stress that can be literally toxic to the vulnerable and fast developing bodies of young children, in addition to allowing families to afford child rearing essentials like child care and diapers.
Our research for the white paper found that the main limitation of the Child Tax Credit is that it could do more for low-income families.
Our research for the white paper found that the main limitation of the Child Tax Credit is that it could do more for low-income families. For example, families need to earn $3,000 per year to get any help from the Child Tax Credit, and then only get 15 cents for each additional dollar they earn. As a result, the credit pays little to the very poorest families and has little impact on deep poverty (families earning less than half the poverty rate). Proposals in Congress would rectify these failings, which could have a particular impact on families with young children. Our collaborators on the paper outlined similar reforms to child care, dependent care and children’s saving counts. The real question is when Congress will seriously look at these proposals.
On this point, I am frequently asked whether the tax code is the logical place to tackle the problem of child poverty. The truth is that the tax code is a central way that we express national priorities, such as supporting home ownership. The president and key leaders in the 115th Congress have made tax reform a priority. And, it’s no surprise that other national priorities, such as the goal of encouraging reshoring of American jobs through a border-adjusted tax, are coloring that debate. It’s hard to think of as an urgent national investment as the development of children. In fact, the last several major tax deals including the Bush tax cut of 2001 and the Bipartisan Budget Act passed in 2015 included expansions of working family tax credits.
But in the end, this shouldn’t be a partisan issue.
To date, the congressional leadership appears set to use budget reconciliation to advance tax reform, which requires only a majority vote and won’t necessitate a bipartisan approach. In this scenario, Republicans wouldn’t need to include working family credit improvements to woo Democratic votes in the Senate. To date, the most robust discussion has been around child care, as a result of Ivanka Trump’s passion for the issue. But at least as it was structured as a campaign proposals, Trump’s approach to child care would, in the words of the bipartisan Tax Policy Center, mostly benefit high-income families who need government child care subsidies the least.
But in the end, this shouldn’t be a partisan issue. If there is a serious effort on tax reform, it’s in the national interest to strengthen the tax code as a tool to give our most precious and vulnerable resources the greatest chance to develop.
Tags: eitc, child tax, Earned Income Tax Credit, child poverty, child tax credit
What Do Taxes Have to Do with Child Poverty?
These days, many Americans are engaged in their own form of March Madness, gathering their various tax related documents needed to submit their taxes to the IRS on time for the April 18 deadline. But, not all Americans realize that tax time has become the most critical part of the year for low-income families struggling to cope with the high costs of raising young kids.
The Century Foundation provided research on the Child Tax Credit as part of an important new white paper released by the U.S. Child Poverty Action Group today in Washington, D.C. on family tax policy. The U.S. Child Poverty Action Group is a new joint effort patterned on a successful campaign in Britain to enact a multi-year, research-based effort to bring down child poverty. With children more vulnerable to poverty than any other group of Americans, and U.S. child poverty worse than all but four of thirty-seven major industrialized nations, the time is certainly now for action on child poverty.
Here’s how the Child Tax Credit works. Tax filers are eligible for up to $1,000 per child, and the credit is partially refundable, meaning that even workers who do not owe any taxes to the federal government can receive funds back from the government. TCF’s research has found that the child tax credit alone lifts 1.7 million children out of poverty. The Child Tax Credit works in tandem with the Earned Income Tax Credit (which provides a credit of as much as $5,548 to working families with two children). Together these credits for working families lifted 5.1 million children out of poverty in 2014. Families now receive more aid from these tax credits than they receive from welfare or food stamps.1
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It is simple math that additional cash from refundable tax credits immediately lifts children out of poverty by boosting their families’ balance sheets. What’s more striking is that these relatively modest amounts of cash lead to long-term benefits, starting with lower incidence of low birth weight, and continuing with increasing test scores in elementary and middle school, and higher graduation rates from high school. Part of the impact comes from the ability of tax credits to reduce family stress that can be literally toxic to the vulnerable and fast developing bodies of young children, in addition to allowing families to afford child rearing essentials like child care and diapers.
Our research for the white paper found that the main limitation of the Child Tax Credit is that it could do more for low-income families. For example, families need to earn $3,000 per year to get any help from the Child Tax Credit, and then only get 15 cents for each additional dollar they earn. As a result, the credit pays little to the very poorest families and has little impact on deep poverty (families earning less than half the poverty rate). Proposals in Congress would rectify these failings, which could have a particular impact on families with young children. Our collaborators on the paper outlined similar reforms to child care, dependent care and children’s saving counts. The real question is when Congress will seriously look at these proposals.
On this point, I am frequently asked whether the tax code is the logical place to tackle the problem of child poverty. The truth is that the tax code is a central way that we express national priorities, such as supporting home ownership. The president and key leaders in the 115th Congress have made tax reform a priority. And, it’s no surprise that other national priorities, such as the goal of encouraging reshoring of American jobs through a border-adjusted tax, are coloring that debate. It’s hard to think of as an urgent national investment as the development of children. In fact, the last several major tax deals including the Bush tax cut of 2001 and the Bipartisan Budget Act passed in 2015 included expansions of working family tax credits.
To date, the congressional leadership appears set to use budget reconciliation to advance tax reform, which requires only a majority vote and won’t necessitate a bipartisan approach. In this scenario, Republicans wouldn’t need to include working family credit improvements to woo Democratic votes in the Senate. To date, the most robust discussion has been around child care, as a result of Ivanka Trump’s passion for the issue. But at least as it was structured as a campaign proposals, Trump’s approach to child care would, in the words of the bipartisan Tax Policy Center, mostly benefit high-income families who need government child care subsidies the least.
But in the end, this shouldn’t be a partisan issue. If there is a serious effort on tax reform, it’s in the national interest to strengthen the tax code as a tool to give our most precious and vulnerable resources the greatest chance to develop.
Notes
Tags: eitc, child tax, Earned Income Tax Credit, child poverty, child tax credit