This January marks sixty years since Lyndon Johnson declared an “unconditional war on poverty” in his first State of the Union address. Johnson aimed to eliminate the urgent financial needs of Americans of all ages, but he went on to highlight the negative impacts of child poverty, including limited opportunities to acquire “skills needed for a complex society” and a “growing sense of hopelessness, It drains them of their energy.” Initiative, ambition and energy. “
Research conducted over the past half century supports Johnson’s view. People who grow up in poverty tend to have lower education levels, higher dropout rates, lower incomes, and more physical and mental health problems. Of course, there are people who emerge from childhood poverty and live very successful lives. But overall, as was the case in Johnson’s time, poverty is associated with human suffering and the closing of “doors of opportunity.”
The good news is that we now know how to drastically reduce child poverty, and it’s not very complicated: provide more financial resources to poor families with children. The bad news is that we’ve also learned how to dramatically increase child poverty: by undoing previously effective poverty reduction efforts. The effectiveness of both approaches has been demonstrated by dramatic policy reversals over the past three years.
When the Biden administration and congressional Democrats passed the $1.9 trillion American Rescue Plan in early 2021 without Republican votes, they expanded the child tax credit, a benefit that had long existed in a limited form. Tax relief for families. The Rescue Act not only increases the maximum tax credit from $2,000 to $3,000 per child in a family ($3,600 for children under six), but also makes the tax credit available to low-income families who previously were unable to qualify. the credit. Qualify because they pay little or no federal income tax. The bill also converts part of the credit that households can claim from the IRS at the end of the tax year into monthly cash payments from the government.
The expansion of the child tax credit continues until the end of 2021. Then it expired when Democrats were unable to get 50 votes in the Senate to pass Biden’s “Build Back Better” plan, which would have extended the child tax credit. In August 2022, when passage of the Inflation Reduction Act saved some of Biden’s domestic agenda, another expansion of the child tax credit was left out, and Democratic efforts to include it in subsequent spending bills failed. Therefore, the policy did not exist in 2020, took effect in early 2021, and was canceled in 2022. This unusually clear timeline provides officials and researchers with a unique opportunity to assess the policy’s effects.
How did things turn out? The child poverty rate was 9.7% in 2020, according to the Census Bureau’s supplemental poverty measure (which, unlike the regular poverty measure, includes the impact of government tax and spending programs). In 2021, the rate dropped to 5.2%, a drop of nearly half. In 2022, that number surged to 12.4%, the largest one-year increase on record for the metric. In terms of raw data, the shift is equally striking. The number of children living in families below the poverty line increased from 7.2 million in 2020 to 3.8 million in 2021 to 9 million in 2022.
The Census Bureau was careful to note when it released 2022 child poverty data earlier this week that the huge increase cannot be entirely attributed to the end of the expanded child tax credit. There were other policy changes last year that affected poverty rates, including the expiration of pandemic-era stimulus payments and changes to the Earned Income Tax Credit, another program designed to help low-income people. But despite this warning, the bureau highlighted the impact of eliminating the expanded child tax credit: “In 2021, the fully refundable child tax credit lifted more people out of poverty (5.3 million). More than twice as much” in 2022. “
The bureau did not specify how the policy reversal would affect child poverty. speed, but the Center on Budget and Policy Priorities, a liberal think tank, did the calculations. Sharon Parrott, the center’s president, wrote in a statement that if last year’s 2021 expansion remained in effect, “approximately 3 million children would be lifted out of poverty” and “the child poverty rate would be approximately 8.4% Instead of 12.4%.” That’s a huge difference.
Many of the victims of the U-turn are children in families who did not earn enough to qualify for the credit before 2021, were later able to qualify for the credit for a year, and now are ineligible. Researchers at Columbia University’s Center on Poverty and Social Policy found that “those who remain are disproportionately children of color, young children, and children in single-parent households, large families, and in rural areas.” While the expansion took effect, “households used credit to buy food, pay bills, and invest in child-related goods and services, including education and child care,” the researchers added. Now, many of those gains are being reversed.
To be sure, a year-long expansion doesn’t come cheap. It cost taxpayers $109.5 billion, according to the Joint Committee on Taxation. That’s a lot of money, but the federal budget is filled with big money, including about $1.2 trillion this year for Social Security, $1.1 trillion for defense, and more than $30 billion for the nation’s 2.6 million farmers and ranchers of subsidies. (By comparison, there are more than 70 million Americans under the age of 18.)
Additionally, if Congress does expand the child tax credit again, it may take some steps to reduce costs. For example, earlier this year, economists Wendy Edelberg and Melissa Kearney published a proposal that would cut taxes on people with no taxable income or extremely low income. credit for households with low taxable income and begins phasing out the credit at lower household income levels. Economists said the plan would “reduce child poverty almost as much as permanently extending similar policies to the 2021 CTC” but would add nearly $90 billion in additional costs each year.
With the budget deficit now exceeding $1.5 trillion and interest payments on the national debt totaling more than $650 billion this year, according to the Congressional Budget Office, permanently expanding the child tax credit will create political pressure for spending cuts in other areas, but that shouldn’t rule it out as an option. The essence of a functioning political system is to set priorities and make policy choices that reflect those priorities. For a variety of reasons, including the fact that people under the age of eighteen cannot vote, the U.S. government did not place a high priority on achieving Johnson’s goal of drastically reducing child poverty. What has happened since 2020 shows that this is entirely possible if the political will is there. Of course, this is a big assumption. ❖
