Let the Child Tax Credit work

Congress has a chance reduce child poverty by about A third By making permanent the Child Tax Credit (CTC) effective during 2021. Evidence suggests that the benefits of doing so far outweigh the costs.

Last year, the American rescue plan expanded the CTC, making it paid monthly, and making it fully refundable, meaning the full amount could be paid even to low-income families with little or no earnings. this change Reduction in Monthly Child Poverty Rate Keeping 3.7 million children off the poverty list by the end of the year, up nearly a third, with the first payment in July 2021. Food insecurity also fell for recipients 6.1 percentage points, more than the decline in food insecurity among non-recipients. But the extension and full refund eligibility ended at the end of 2021.

Congress is now considering making the 2021 changes permanent. Recently, during a the hearing Several Republican committee members on the House Select Committee on Economic Inequality and Fairness in Development criticized the expanded CTC, claiming it discouraged work.

This criticism is part of a paradoxical protest about women’s choices. When women with children stay at home, some stereotypes to criticize to make them not work. But when mothers work, other conservatives to criticize for not having them with their children. The correct response to those criticisms is that the CTC gives parents the resources to enable them to make the best choices for their family.

Furthermore, the focus on women’s labor supply is misleading for two reasons.

First and foremost, the focus of the children’s tax credit should be…children. Children born in poverty face social and economic conditions that are of no use to them.

Eliminating childhood poverty has lifelong consequences. a study found that the average one-time benefit of $1,300 for low-income families with infants also increased the income of those children into young adulthood. These benefits more than pay for themselves by increasing after-tax revenue.

a host other’s studies find that increasing government aid for young children increases high school graduation rates, college enrollment, wages and tax payments, while reducing the likelihood of being imprisoned or needing government aid as adults. The effects of being poor are so severe that children raised in poverty have little effect gray matter brain development compared to more fortunate children, leading to lasting differences in educational outcomes.

Another reason for discouragement for CTC discussions to be mis-focused work is that the effects are uncertain and likely to be small. There is little evidence that extended CTCs have led to a decline in women’s labor supply. One Recent NBER Working Papers No empirical evidence was found that parents who received CTC worked less in 2021, regardless of their income level. This study confirms a report good Our TPC colleague Alain Maag and other researchers at the Urban Institute found that there was no significant difference in employment between households who received and did not receive payments.

Instead, some data indicated that people stopped working only after not receiving monthly payments. After the extended CTC expires, drop in employment for recipients compared to non-recipients, suggesting that some families were using their checks to pay for childcare, leading to increased labor force participation rates among parents.

Many permanent cash assistance programs do not negatively impact labor force participation. The Alaska Permanent Fund provides annual dividends to all Alaska residents. So far research shows That, almost 40 years after that program was first implemented, the employment rate has remained unchanged. Any decline in incentives to work has been offset by increased demand by workers to produce the goods and services that residents buy from their additional income.

another study Looked at a wide range of cash assistance programs and program participation effectively did not reduce the employment rate. Even in the most liberal case, a negative income tax experiment where individuals received far more than any proposed CTC payment, employment declined only slightly.

Programs in other countries tell a similar story. For example, when Canada expanded and restructured its child allowance in 2015 and 2016, the poverty rate for mothers declined while employment remained stable,

In short, the evidence for declining labor force participation with expanded CTCs is weak and such arguments miss the larger point. When the cost of raising children in poverty is so high and the lifetime benefits of small cash allowances are so significant, expanding the CTC is a bargain.