Permanently Expanding the Child Tax Credit Can Make Generational Change

Originally published on The Brink.

In 2021, Congress used the American Rescue Plan Act to dramatically expand the Child Tax Credit (CTC), which provides tax credits based on income level and the number of children per household. One goal was to blunt the economic consequences of the COVID-19 pandemic–fueled recession. The expansion broadened eligibility to households with low or no income, increased credit amounts generally, and gave even larger credits to families with younger children, recognizing the extra expense needed to care for them.

Importantly, half of the CTC was delivered as monthly advance payments from July to December 2021, with the rest received after filing taxes in early 2022—but all of these changes only lasted for one year.

Unfortunately, the changes to the CTC were allowed to expire, returning it to its original structure for 2022 with lower credit amounts, no advance payments, and excluding those with the lowest incomes. As public health researchers who study social safety nets and their relationship to health for families and children, we investigated how those changes impacted families, even in that short time. And our findings make a strong case for bringing the expansions back—something Congress may soon have the chance to make progress toward.

In a new study published in Health Affairs Scholar, we found that the monthly advance payments included in the expanded CTC especially benefited families facing economic shocks, like missing work during the COVID-19 pandemic because of illness, or being furloughed or laid off. Our findings are crucial evidence of the CTC’s ability to help protect families with children during global health, climate, or economic crises.

Our findings are crucial evidence of the Child Tax Credit’s ability to help protect families with children during global health, climate, or economic crises.
Nicole McCann, Paul Shafer, and Stephanie Ettinger de Cuba

Our paper is part of a growing body of research on the introduction and expiration of the CTC monthly payments. One study found that over 90 percent of low-income households used the CTC monthly payments on necessities, such as food, clothing, shelter, utilities, and education. Families reported being able to catch up on rent, and parents’ mental and physical health improved. Several studies, including some by our research team, have found that the CTC monthly payments decreased food insufficiency, which subsequently rebounded when the policy expired. According to Census Bureau Data, child poverty was cut in half while the CTC monthly payments were active and then doubled after they expired. The expansion also led to more equitable eligibility for the credit, but racial and ethnic disparities based on income returned after it expired. These studies have led to calls to reinstitute an expanded Child Tax Credit.

We are in a moment of great potential. Congress is considering a middle ground between what we have now and what we had in 2021, and state governments are simultaneously considering—and some are instituting—their own CTCs.

In January, Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.) announced a $78 billion bipartisan tax proposal, which passed in the House and is now under consideration by the Senate. The proposed changes include expanding eligibility for low-income families, with an option for households to choose current or prior year earnings for determining eligibility—to help smooth income and eligibility changes—and tying credit amounts to inflation so they don’t degrade in their impact over time.

The proposal falls short of the 2021 expansion—it does not include monthly payments and leaves out the lowest income families, key features of the expired CTC that had measurable benefits to families and children. But it is an important step in the right direction. The Center on Budget and Policy Priorities estimates that this proposal would benefit 16 million children and lift 400,000 children out of poverty in 2024, and over 500,000 by the end of 2025.

In our new study, we aimed to expand understanding about the effects of the CTC monthly payments to inform the ongoing policy debate. We are particularly interested in this because low-income, Black, and Hispanic people were most likely to miss work during COVID and least likely to have paid sick leave. These inequities are driven by discrimination and structural racism, forces which have led to disparities in employment, income, and wealth. As such, these groups disproportionately faced economic shocks because of the COVID-19 pandemic, and, in a similar way, are more likely to be exposed to them in the future.

Families making less than $35,000 per year were 150 percent more likely to experience economic shocks than higher-income families, while Black and Hispanic households were around 60 percent more likely than white households to experience them. These economic shocks were, in turn, associated with an 80 percent increase in food insufficiency, which is defined as sometimes or often not having enough to eat in the last seven days, putting children’s health and educational achievement at risk. We found that the CTC monthly payments reduced food insufficiency among all families with children, but even more so for those facing shocks—finding an 11 percent decrease in food insufficiency in families with children experiencing economic shocks, relative to those not facing shocks and to families without children.

We believe that permanently expanding the CTC, including the lowest-income families and returning to advanced monthly payments, could create greater resilience to economic shocks during disease outbreaks, climate disasters, recessions, and other crises for families with children across the country. State legislatures can also make a difference by expanding state-level CTCs, as Massachusetts and Minnesota have recently done. Policymakers have the opportunity now to make generational change, advancing health and economic equity.

Nicole McCann (SPH’28) is a third-year doctoral candidate in the health services and policy research program at Boston University School of Public Health. Paul Shafer is an SPH assistant professor of health law, policy, and management and codirector of the BU Medicaid Policy Lab. Stephanie Ettinger de Cuba is an SPH research associate professor of health law, policy, and management and serves as executive director of Boston Medical Center’s Children’s HealthWatch.