The Cruel, Untimely, and Much Too Quiet Death of the Expanded Child Tax Credit

I’ve been reading a number of thought provoking substack critiques of current American capitalism, including by

Hamilton Nolan

and

The Ivy Exile

I have a post of my own on the subject coming this Saturday, based on a cultural work.

This post captures the type of reform to our system I’d like to see. Begins below.

In March 2021, Democrats in Congress passed the American Rescue Plan, which included an expanded Child Tax Credit (“CTC”).  The pre-existing CTC was paid annually at $2,000 per child and was structured as a tax credit, or refund, which generally meant that a parent or guardian had to be working and filing tax returns in order to receive it.

The new and expanded 2021 CTC was far more generous. It provided $3,600 per younger child (under six) and $3,000 per older child (between six and sixteen.)  Crucially, the payments were NOT structured as refunds, but rather as payments households could receive even if their income was zero. As well, the payments were made on a monthly basis to better correspond to the cadence of household needs.

Those are the simplified highlights; I’ve skipped over a lot of details.

The expanded 2021 CTC recognized that most American households with children deserved help, starting with the lowest income bracket up to an income phaseout at $75,000 for single parents, doubled to $150,000 for two parents. In effect, this had the important and vastly underrated effect of removing from these payments any stigma. Thus, it was not a handout, but a recognition that, for the vast majority of American families, taking care of children is a financial burden. I should add (and not just because my children read my posts) that the psychic and emotional payoff of being a parent can be immense.

The wonderful result of the 2021 CTC is that it lifted around 3.7 million American children from poverty, a reduction of about one-third. ¹ But when the 2021 CTC expired without replacement at the end of 2021, child poverty snapped right back to where it had been before.

In its rate of child poverty, America sits atop the leaderboard of wealthy countries as it does with incarceration. The two are clearly linked. Poverty leads to crime. Both the perpetrators and victims of crime are disproportionately poor.

The costs of child poverty can be divided into two categories.

The first is financial. Common sense and countless studies show that, among other things, children growing up in poverty earn far lower lifetime incomes, are far more likely to commit or be victimized by crimes, are far more likely to be jailed, and have greater needs for lifetime government assistance, particularly healthcare. Estimates of the annual cost of American childhood poverty range as high as one trillion dollars, or about 5% of our GNP. I think the costs are very tricky to measure, and I wouldn’t hang my hat on that blockbuster trillion-dollar number. ²

That said, having played with the statistics, I’m confident that, at worst, the expanded CTC, which cost about $100 billion a year, had and would have continued to have a positive financial impact on the American economy at least equal if not much greater than its cost. It’s rare to find that prevention is not far more effective than a cure.

The second category of child poverty costs is even more important to me. And that has to do with suffering as well as the dignity and morality of our country. How do we measure improving the health of our most vulnerable children (and lowering the stresses of their parents?) What is the moral value of reduced crime, fewer victims, fewer Americans locked up in cages? How many more children, having escaped poverty, would grow up to be doctors, nurses, scientists, teachers, inventors?

Why did the expanded CTC end?

I’m not suggesting that the expanded CTC and the associated reduction in child poverty is the answer to all our problems. I am saying that it is a policy that worked and had great payback along both financial and moral dimensions. So why has the topic of its sudden death seemed to have slipped away so quietly from the conversation?

Well, as a bumper sticker issue, the CTC doesn’t grip the imagination. Helping millions of children and their families over the long term is measured in statistics. Behind the statistics are millions of missed opportunities, but statistics and missed opportunities don’t naturally or easily attract our attention. Not like a war with heroes and villains and pictures of dead civilians in the street. Not like inflation. Not like a slap at the Oscars.

The other obstacle is that many Americans (skewed to the political Right) believe that it is wrong to give a “handout” to people who are not working. That point is often followed by the unproven contention that the expanded 2021 CTC, by not requiring work, discouraged work.

And behind these views is the pernicious and longstanding American myth that the poor are poor from choice rather than contingent circumstances.

We can hope that some version of the expanded CTC can be brought back to life. Perhaps it needs to be done without great fanfare so as not to ignite the debate over what the poor “deserve.”

This is a topic that deeply frustrates me because, simply put, the expanded CTC was the right thing to do. Almost four million kids lifted out of poverty. And the poverty busting effects may very well have had cumulative effects, growing over time.

I mourn the 2021 CTC’s passing. It leaves behind more needless future suffering and hardship than we can possibly fathom.

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1. Center on Poverty and Social Policy at Columbia University.

2. From 2018, “Estimating the Economic Cost of Childhood Poverty in the United States,” by Michael McLaughlin and Mark Rank. The authors cite a 2006 study that estimated annual costs of $500 billion or at that time 3.8% of GNP.