Table of Content
- What is the Child Tax Credit (CTC)?
- Child Tax Credit Overview
- What is the American Rescue Plan?
- Impact of the Child Tax Credit
- Alleviating Structural Challenges Through the Child Tax Credit
- Critically Analyzing the CTC
- Conclusion
What is the Child Tax Credit (CTC)?
The CTC “provides tax relief to low and middle-income families to offset the costs of raising children, which (…) has been shown to lift millions of children out of poverty.” (Rostad et al. 3, 2019).
Child Tax Credit Overview
According to The National Conference of State Legislatures, The Child Tax Credit (CTC) is offered by The Federal Government and 15 states that try to enhance the economic security of families with children.
The initiative of these states takes special care of those in lower- to middle-income brackets. The way the tax credit amount is determined depends primarily on income level, marital status, and number of dependent children. It is estimated that the federal child tax credit lifts nearly 2 million children out of poverty each year.
To understand the importance of advocating and researching the possible impacts of the Child Tax Credit (CTC), it is imperative to consider the already existing literature on the topic. Before getting into the intricate functioning and impact of the policy itself, a definition and contextual description of the Child Tax Credit (CTC) is pertinent. Rostad et. al. define the Child Tax Credit as a “socioeconomic policy with [the] potential to improve household financial security and family and child well-being.” (Rostad et al. 3, 2019) They indicate that the CTC “provides tax relief to low and middle-income families to offset the costs of raising children, which (…) has been shown to lift millions of children out of poverty.” (Rostad et al. 3, 2019). Data analysis by Col
lyer et. al and Parolin et. al. both provide deeper insights into the prediction and analysis of already-existing results regarding the number of children who have been lifted out of poverty. For instance, during the CTC expansion months as per the 2021 American Rescue Plan, this tax credit was able to move “more than three million children out of poverty,” (Collyer 224, 2023) demonstrating its reach and effectiveness.
What is the American Rescue Plan?
The American Rescue Plan (ARP) was a relief project introduced by the Biden administration in 2021, in the midst of the COVID-19 pandemic. Its initial purpose was to “provide direct relief to Americans, contain COVID-19, and rescue the economy.” (The White House)
As part of the ARP alleviating measures, it was mandated that residents who fill taxes would receive additional Child Tax Credit support for their children. This expansion of the Child Tax Credit consisted of an additional $3000 tax credit per child for children 6 and over, and an additional $3600 tax credit per child for children under 6 years old. (The White House)
Impact of the Child Tax Credit
In order to grasp the full scope of how the CTC, a form of financial assistance, positively influences and addresses the needs of its recipients in a comprehensive manner, it is essential to examine its connections to various socioeconomic factors. Parolin et. al’s work argues that poverty rates should be analyzed by accounting for family expenditures on taxes, health care, community, and childcare as well. By considering this set of aspects through their examination of the Supplemental Poverty Measure (SPM), the authors were able to determine that the impact of the Child Tax Credit on families’ well-being could be predicted to reach 59.3 million children, which constitute around 80% of all children in the United States (Parolin et. al. 2, 2021). Acknowledging that the CTC is a form of assistance to families that alleviates their needs and spending to a further extent -one that caters assistance towards the reduction of intersectional layers affecting socioeconomic and financial mobility- has been crucial to this research.
Alleviating Structural Challenges Through the Child Tax Credit
Various studies have demonstrated that elevated levels of poverty can be attributed to the substantial financial burdens faced by working families in providing for their children across multiple domains. Research conducted by Mattingly, Schaefer, and Carson, J., in 2016, reveals that based on nationwide data approximately one in four families with young children, incurring childcare expenses, are “burdened” by these costs, expending more than 10% of their family income on childcare. Such financial strain extends to other essential needs such as nutrition and healthcare, wherein the child tax credit has exhibited notable benefits for these families across distinct levels. Bovell-Ammon et al’s investigation into the initially missed child tax credit advance of 2022 illustrates a significant correlation, wherein the absence of these advance payments was associated with a 25% rise in food insufficiency among households with children, potentially exacerbating health-related concerns for such households reliant on these credits. Conversely, Rook, J. et al’s cross-sectional study uncovered that eligibility for the expanded child tax credit was linked to improved adult health and reduced household food insecurity. Initiatives like the new American Rescue Plan, alongside ongoing tax initiatives, may have contributed to mitigating food insecurity among affected populations. The Child Tax Credit benefits have also extended to health, especially seen through the increase in food sufficiency and reduction of behavioral problems in children whose families have received the CTC. Shafer et. al’s work focuses on determining the effect of the 2021 American Rescue Plan’s temporary expansion of the Child Tax Credit on households that were (previously) food-insufficient. Non-shockingly, it reveals a 25-9% reduction in food insufficiency in CTC-recipient households. Similarly, Van Ryzin et. al’s study reflects how the CTC extension for families whose income is below $10 000 has reductive effects on children’s injuries and behavioral problems.
Among the studies examining tax credit initiatives, researchers have discovered multifaceted benefits beyond their direct economic effects. For instance, Rostad, W. et al, in collaboration with the Division of Violence Prevention at the National Center for Injury Prevention and Control, conducted a study in 2016 investigating the impact of Earned Income Tax Credits (EITCs) on the number of children entering foster care. Upon analyzing the data, they concluded that refundable state-level EITCs are associated with a reduction in the number of children entering foster care, suggesting that such tax credit measures may serve as effective strategies for preventing cases of child abuse and neglect that necessitate the removal of the child from their home environment. This underscores the broader societal significance of tax credit initiatives, as they alleviate economic stressors that can otherwise impede effective interpersonal management within families and their communities. By empowering families to assume greater control over their lives and fostering healthier environments, such initiatives contribute to a deeper level of community development. Furthermore, tax credit programs like the Child Tax Credit (CTC) address not only economic stress but also broader socio-structural issues. For example, a study conducted by Hamad, R., & Rehkopf, D. H. in 2016 examined the impact of the Earned Income Tax Credit on children’s development, revealing positive effects on children’s behavioral outcomes overall. This suggests that the economic stability provided by government interventions can ameliorate the challenges faced by children living in poverty or lacking sufficient resources during critical developmental stages.
Critically Analyzing the CTC
It is possible to perceive how The Child Tax Credit (CTC) has faced various criticisms regarding its limitations in truly aiding families. Lucy Smart, in her article “Debunking Arguments Against the Advanced Child Tax Credit,” highlights the challenge of contrasting the benefits of the CTC due to insufficient data analysis. One common assumption is that the Advanced Child Tax Credit (ACTC) discourages work. Certain policymakers advocate for a work requirement for ACTC recipients, suggesting that the monthly expanded CTC might dissuade people from seeking employment and foster dependence on government assistance. However, Smart’s analysis reveals that the ACTC payments in 2021 did not deter workforce participation. Despite concerns, national unemployment rates declined steadily during the distribution of ACTC payments, from 5.9% in June 2021 to 3.9% by the year’s end. This data contradicts the notion that monthly CTC payments inhibit employment, as unemployment only began to rise after monthly payments ceased in January 2022. Thus, there is no evidence supporting the claim that parents are disincentivized from working due to the advanced credit. Similarly, opponents of the ACTC argue that families receiving the credit will spend the payments “inappropriately,” with claims that parents might use the monthly CTC payments on drugs. Like work requirements, assumptions that recipients of government assistance will spend funds on vice goods are nothing new, with several states even mandating drug tests to determine eligibility for public benefit programs. However, no evidence exists to support these claims. Families overwhelmingly report spending monthly ACTC payments on basic needs, including housing, utilities, car expenses, and food, as well as child-specific expenses like childcare and educational costs. Moreover, funds are directed towards investments in family economic stability, such as education, debt repayment, and savings. This data underscores the responsible utilization of ACTC payments by families, disproving the notion of inappropriate spending.
Nevertheless, it is also crucial to recognize existing limitations and gaps in the literature that have been produced regarding the CTC. While the CTC is not the only existing social policy or welfare program that could contribute to reducing child poverty and increasing family well-being, it is the one that is often paid the most attention. This might difficult the research other types of social assistance that are equally as important as the CTC. Moreover, while Collyer et. al. suggest that implementing CTCs could potentially cut child poverty rates in half (Collyer 235), neither this study nor Shafer’s discuss potential challenges to implementing state-level CTCs, or the practical implications of such policies on a broader scale. Gaining insights into what a state-level CTC could entail was a motivator for the Family Finance Project Team to establish a research partnership with United Way of Connecticut. This non-governmental organization advocates for the CTC extension through its ALICE (Asset Limited, Income Constrained, Employed) Program, which seeks to support families whose earnings “exceed the Federal Poverty Level (FPL) but fall short of a basic cost of living threshold.” (United Way of Connecticut) This alliance has not only allowed familiarity with what the public advocacy for a CTC extension looks like, but it has directly put the team research into conversation with structural obstacles that civil society encounters during said process.
Conclusion
Tax credits have been shown to improve circumstances that may otherwise limit the mobility and general well-being of their beneficiaries. The benefits of the Child Tax Credit are as extensive, including favorable reductive impacts on household food insecurity, child poverty, and behavioral issue reductions in children. While the CTC has a noticeable impact right now, it is crucial to take into account the significant potential for future socioeconomic development that the tax credit offers. It makes it feasible for upcoming generations to access resources that will improve their mobility and opportunities. This overlapping nature—which improves socioeconomic conditions—as well as earlier research showing the CTC’s quantitative impact on bringing millions of children out of poverty, provide compelling arguments in favor of the program’s continuation.