America Can Fight Child Poverty: It Chooses Not To
Written by Ella Barry and Data Visualisation by Hazel Nicholson
America likes to pride itself on being the land of freedom and opportunity. A promised ground where parents can create a better future for their child. As images of happy and prosperous American children dominate the media, a seedy underbelly lies below the surface.
Among the 34 OECD nations, America ranks fourth in the highest child income poverty rate. When the U.S. Census of Bureau released their annual report on poverty for 2022 back in September, a terrible picture emerged. Child poverty had more than doubled from 5.2% in 2021 to 12.4% in 2022, the steepest rise in the country’s history. During this period, over five million children were thrown back into poverty. Yet for anyone keeping up with American politics at the time, this spike was unsurprising. The fate of America’s children had already been determined in Congress just a year earlier.
An American Rescue
In March of 2021, President Joe Biden signed into law the American Rescue Plan, a $1.9 trillion economic stimulus bill meant to help the country recover from the pandemic and ongoing recession. A key facet of the bill was that it expanded the Child Tax Credit (CTC), a tax benefit given to all American taxpayers with qualifying children under the age of 18, for a year. The expanded CTC increased benefits from $2,000 per child over the age of six to $3,000, and from $2,000 to $3,600 for children under the age of six.
Perhaps even more importantly, the new CTC became fully refundable, meaning families with no earnings could receive benefits. Previously, the structure provided no credit to families with earnings less than $2,500 and then would slowly phase in benefits as income increased. To receive the maximum credit, a single parent household needed an income of about $28,000, while married filers needed about $35,000. The boundary was a major issue considering around 23.3% of American households make under $35,000 and are thus excluded from full CTC benefits. This upside down structure seemingly defies the natural logic of providing more welfare for those in more dire poverty situations rather than more middle-class families. The political explanation was that phase-ins were intended to incentivize the poorest Americans to find jobs. However, the result was 19 million children not receiving full benefits. The American Rescue Plan changed that, with full benefits now going to any single parent households with income under $112,500 and any couples with combined income under $150,000, no phase-in included.
The effects of the expanded CTC were both obvious and immediate. The U.S. Census’s 2021 report revealed that the child supplemental poverty measure (SPM) dropped from 9.7% in 2020 to 5.2% in 2021, the lowest rate on record. Whereas over half of Black and Hispanic children had previously been excluded from full CTC benefits, 2021 saw SPM rates for Black and Hispanic children at a record low with the abolishment of phase-ins. For all the fuss detractors kicked up that the expanded credit would discourage work among Americans, that fear never came to fruition. Researchers at Washington University of St. Louis and Appalachian State University found “no difference in employment trends between parents and non-parents before and after Child Tax Credit payments started going out.” 2021 served as a real-world experiment for the feasibility of an extended CTC, and it succeeded. The continuation of the program should have been a no-brainer.
Five Steps Back
On November 14th 2021, the House passed the Build Back Better Act (BBBA) which would extend the expanded CTC to 2022, and permanently make the credit fully refundable beginning in 2023. The greater challenge emerged as Democrats tried to pass the BBBA with a simple majority vote in the 50-50 Senate. However, on December 19, Democratic Sen. Joe Manchin (W.Va.) dashed all hopes by reversing his opinion and announcing that he would no longer back the bill. Publicly, he cited concerns about inflation and the national debt as reasoning for his opposition. Privately however, he told fellow Democrats that he thought that parents would waste their monthly CTC payments on drugs instead of trying to provide for their children. This was despite data showing that 91% of low-income families were using their CTC payments for either basic household necessities like food, shelter, and water, or for education.
The last of expanded CTC payments were sent out on December 15th 2021, before the credit reverted to the old structure. Starting from the new year, millions of families would go without full benefits as politicians decided that cost concerns took precedence over pulling children out of poverty. Unsurprisingly, America’s child poverty rate shot skyward in 2022. Whereas 2021 had seen a record 46% decrease in child poverty from 2020, America faced a very different kind of record in 2022 with a 139% rise. Research found that 3 million children would have been kept out of poverty in 2022 if the expanded CTC had been renewed by Congress.
A State vs. National Burden
After failure to revive the programme on the federal level, states in increasing numbers are starting to provide their own variations of the CTC. In 2021, only seven states had a permanent CTC. Meanwhile, heading into 2024, the amount has doubled with 14 states now providing CTC benefits. Of those 14 states, 11 of them are additionally fully refundable with no phase-ins. With numerous families being left out of benefits under the federal plan, states are now taking on the burden to fill the gap for those children left behind.
However, relying on states to create their own CTC should not be America’s long-term solution. States have a lower level of funding than found at a national level, resulting in a lower maximum credit they can send out to families. Only five states are able to offer refundable credits above $1,000 per qualifying child, with Colorado having the largest at $1,200 per child. Combined with the current federal CTC, that means the maximum payment a family could receive is $3,200. Considering that a large portion of families are unable to qualify for maximum benefits under the federal plan, that number is a stretch for the majority. Compared to the American Rescue Plan’s expanded CTC of either $3,000 or $3,600 per child, state-level plans are just never going to be able to reach the same breadth of scope as federal bills.
As great as it is that 14 states have their own CTC, that still leaves 36 states without one. Comparing different states’ poverty levels calculated by SPM shows the need for the return of the federally expanded CTC. Out of the top ten states with the highest poverty rates, only two of them, California and New York, have implemented their own state-level CTC. That leaves families living in states with some of the highest rates of poverty reliant on the credit received from the federal government, if they receive any at all. Sen. Joe Manchin’s own home state of West Virginia is one without a state-level CTC. It saw over a 20% increase in child poverty from 2021 to 2022 as families were left dependent on the shrunken federal CTC. Despite that, Manchin stated that he had no regrets about voting down the expanded CTC because “the federal government can’t run everything.” However, considering a large number of states have made no indication of creating their own CTC, if America wants to truly fight child poverty, it needs to turn to federal action.
By placing the burden on states to provide CTC, millions of children are left out from potential benefits that could lift them out of poverty and into improved situations. Whether or not to slash child poverty should not be a partisan debate but rather a common united goal across the political aisle. America knows how to fight child poverty; the solution is right there with a federally expanded CTC. From a greater budget to reaching children in all states, not just a select few, the federally expanded CTC has already been tested and proven to help American children. All that matters now is putting words into law.