As the lame-duck session comes to an end and the new year brings a divided legislature, Democrats are rushing to prepare a final package they can confidently push through Congress. From aiding Dreamers to cannabis legislation, advocates and policymakers have an incredibly narrow window of time to find common ground and possibly determine the future of our country. But, no policy has ever been more critical and more impactful than the Child Tax Credit (CTC).
The 2021 expansion of the CTC was a six-month program rolled out during the pandemic that gave families monthly checks of up to $300 per child. It has since expired, but its impact in such a short time period will be written about for decades to come.
Allowing this program to be a relic of the past would be one of the biggest policy blunders of our lifetime. According to the U.S. Census Bureau, this credit reduced child poverty to a historically low level of 5.2% and had a substantial impact on Black and Hispanic households. Additionally, 2.1 million children were lifted out of poverty due to the 2021 expansions of the credit.
Natasha Pilkauskas, associate professor of Public Policy at the Ford School of Public Policy, also noted the significance of the credit. “Since I’ve been studying child poverty in grad school back in 2002, the child poverty rate was around 20%, and it’s basically always been at that rate,” Pilkauskas said. “And all of sudden (with the CTC) we can really be doing something to move that needle, and that has long-term consequences.”
Dr. Pilkauskas has broad expertise and a wealth of published research on social safety nets, economic well-being and security and cash transfer policies such as the 2021 Child Tax Credit. Her research on the CTC has been critical in informing recent debates over the policy’s effectiveness.
For example, Michael Strain, an economist and scholar at the American Enterprise Institute, was quoted in a recent New York Times article saying, “There was a meaningful reduction in material hardship, but the reduction has been exaggerated.” Another critique came from Scott Winship, a poverty researcher also at AEI, who argued that given the unusual conditions that surrounded the program (a pandemic, the short time period, other aid, etc.), the 2021 CTC doesn’t give us much information about future welfare programs.
But these perspectives don’t sway Dr. Pilkauskas’ stance that this program was incredibly effective. She notes that researchers ultimately study different kinds of hardships, different populations and look at different outcomes. “Each study is going to shed light on a different kind of hardship, and every researcher is looking at a slightly different population with different outcomes. A clear theme across most of the studies that have been done so far is that we’ve seen a reduction in food insecurity and an improvement in a family’s ability to meet their basic needs,” Dr. Pilkauskas said.
It shouldn’t be all that surprising that this program has an uneven impact across all hardships given that people use money differently. But Dr. Pilkauskas also notes that “monthly checks tend to be used for more immediate expenses like food and bills, whereas a one-time lump sum such as the Earned Income Tax Credit might allow for something different.”
She also pushes against the idea that the program doesn’t give us a lot of information simply because of the extreme conditions in 2021. She says “I would tend to think that our estimates should be biased downwards. In the absence of say, inflation, we might expect the money we give people to do more. We would expect bigger effects. Were it longer lasting, I would also expect bigger effects. That could be across the board — I might also expect bigger effects on employment, which is the thing that many policymakers are concerned about.”
Of course, impacts on employment are front and center for policymakers and researchers on both sides of the aisle, including Democratic Senator Joe Manchin and AEI President Robert Doar. Historically, welfare payments and tax credits have been given only to the employed because of the fear that people would take advantage of the system by not working if the government freely handed out money.
There is also a deep-rooted sentiment that only working adults deserve assistance. In many ways, the idea of a work requirement feels paternalistic. The Child Tax Credit has a simple mission: to help parents defray the costs of having children. What this credit does is allow parents and caregivers the opportunity to make choices that are best for their children.
Dr. Pilkauskas added her input on labor market effects as well. She told me, “we tend to focus really myopically on the employment effect, but there may be reasons people choose to remove themselves from the labor force that are beneficial to their children. Perhaps people might cut back on their work hours to spend more time with their kids, especially if they are under five and not in school. That’s not very clearly a negative outcome.”
There is also little evidence that it affected employment, outside of a study that found that aid coincided with an employment decline of two percentage points. It could be that with an extended and permanent CTC, we might begin to see more negative impacts on employment, but that’s not necessarily a bad thing.
When looking at younger generations, there is a very different perspective on the role of work, especially as income support policies gain more traction. People are beginning to move away from the idea that your employment determines who you are and should determine your access to basic needs. “There’s a much larger interest in thinking about the quality of work. I don’t think there is a lot of evidence that people don’t want to work. I think people just don’t want to work in terrible conditions. And to go back to the purpose of the CTC — the money provided by this program is not enough to live off of,” Dr. Pilkauskas said.
The CTC was overwhelmingly popular, and in just six months it had a wealth of positive impacts, especially on the poorest families. So where do we go from here?
There is often a zero-sum mindset in policymaking; that is, if we fund one program, we can’t do anything else. And yet, this is exactly the kind of program that needs to be bundled with other kinds of social safety nets and family-focused policies. The purpose of aid isn’t to give people a living, and the idea that people are sitting at home trying to exploit the government for every dollar they can is a tired trope that is costing children a decent shot at a healthy life. Never mind that there is little evidence to back it up. If anything, the people doing the most fraudulent activity in terms of scamming the government during the pandemic were business owners stealing Paycheck Protection Program loans that were supposed to go to small businesses.
Moving forward, if the CTC expansion is reinstated, much more thought needs to go into how we can ensure that everyone who qualifies for this program can receive it. Implementation of a policy is often much harder than passing it through the Hill. But Dr. Pilkauskas gives the IRS a lot of praise for how they handled the 2021 CTC, saying “To be very fair on the IRS they did an amazing job, putting this place as fast as they did, because this is not what they do. I think the biggest reason people didn’t get this credit is because it went through our tax system and many people don’t file taxes — they don’t have to because their income is too low.”
Dr. Pilkauskas said that if she had the power, she would have given the responsibility to the Social Security Administration because they do this kind of work already. So, in the future, if the IRS stays in charge of the program, they need a lot more funding for this to work well.
Even if the IRS is better funded, there are other issues, such as Dr. Pilkauskas’ point that some people simply don’t file because they don’t make enough money — how do we get them their credit? Who gets to claim the child and does that child have a stable address to use? While administrative questions remain, the reality could not be any clearer: this policy works and it works well. Investing in our children now means saving money in our future: because healthy, well-nourished, and supported children become healthy and engaged adults. This policy is a win for everyone.
Elina Morrison is an Opinion Columnist who can be reached at elinamo@umich.edu