The Promise and Potential of the Child Tax Credit (CTC) January 23rd,

The Promise and Potential of the Child Tax Credit (CTC) January 23rd, 2023 1

A sampling of NCCP’s areas of focus Early Childhood: Early intervention for infant and early childhood mental health and Medicaid Expulsion prevention interventions Impacts of direct cash transfers on homeless youth Improving participation of foster children in high-quality EC nccp.org Family Economic Security: Promoting the economic wellbeing of immigrant families State-by-state social safety-net policy analysis Supporting Paid Family Medical Leave legislation Family resource simulators and benefit cliff analysis 2

What led up to the Expansion of the CTC? Right from the start of the pandemic, those who could least afford it were hit more quickly and harder. Employment loss was one measure of this. Share experiencing at least a spell of unemployment in 2020 28.2% 13.8% 7.8% Low-income adults Middle-income adults Upper-income adults 3

Similarly, low-income, Black, and Latino families began to experience disproportionate levels of material hardship as soon as March and April of 2020 All parents By family income Above 250% FPL Below 250% FPL By race/ethnicity Non-Hispanic white Non-Hispanic black Hispanic Share whose families cut back spending on food 31.0% 20.5% 41.4% 24.4% 36.4% 45.9% 4

Challenges particularly challenged single parents right from the start of the pandemic, and those challenges continued Related challenges continued for these parents throughout the pandemic: In April 2020, one in four single parents was unemployed. Unemployment rates recovered more slowly for single parents throughout 2021, perhaps in part due to their unequal exposure to school and childcare closures. Levels of worrying among single parents continued to worsen throughout 2021. 5

Provisions of the Expanded Child Tax Credit (within the American Rescue Plan) Under the provisions of the ARP: Beginning in July 2021 and through December for 2021, parents of children from 0 to 6 received 300/month, or 1800/per young child per month, even those earning no income. Parents of children from 7 to 17 received 250/month, or 1500/per older child. In tax season in early 2022, parents who filed their taxes and claimed it would receive an additional “lump sum” amount of 1800/child or 1500/child, depending on the age of their children. There was no income requirement to receive the credit, although there were caps on families with higher incomes.* The total CTC was “fully refundable.” Parents could claim all of the credit even if they didn’t owe any taxes, no matter what their income level. 6

Expanded Child Tax Credit had many positive effects for low-income children The monthly cash benefits were responsible for moving more than three million children out of poverty across the country. Later analysis of transactional data from bank accounts and credit cards from several partner financial institutions during that time showed that recipients of the CTC: Increased spending on groceries, education, and healthcare; Spent more money reducing debt, and incurred fewer overdraft fees; Were not significantly likely to leave the workforce. In fact, some studies found that the CTC supported work participation by paying for childcare. 7

The Expanded CTC made a bigger difference in some states than in others Reductions in child poverty were greatest in states with relatively lower costs of living and higher pre-tax and transfer poverty rates. Examples: Without the CTC, Louisiana’s child poverty rate would have been 15.7% in 2021; with it, it was 6.9%, reflecting a 56.2% decrease. Without the CTC, Michigan’s child poverty rate would have been 11.8% in 2021; with it, it was 6.3%, reflecting a 46.9% decrease. Without the CTC, Alaska’s child poverty rate would have been 9.9% in 2021; with it, it was 6.1%, reflecting a 37.8% decrease. 8

Why was the Expansion not renewed? Senator Manchin of WV was central to discussions around not continuing the CTC. Framing included: Concerns around inflation, work participation, drug abuse; Claims (that were false) that grandparents who were caregivers for their children could not receive the CTC. In late summer, 2022, the Inflation Reduction Act was passed instead of Build Back Better, and it precluded continuation of the Expansion of the CTC. 9

Some reporters documented the losses families would experience without the continued Expansion using the words of caregivers. This piece in the Washington Post from October, 2021 by Yeganeh Torbati and Kyle Swenson highlighted the CTC Expansion’s value beautifully through stories about real parents (and their words). Included the story of caregiver-grandparents who were able to claim the credit. Emphasized how the Expansion supported stayat-home parenting for some. Stressed, how, with inflation, it was hard for even the “upper-class poor” to make ends meet. Quoted Manchin on why he opposed the Expansion: “There’s no work requirements .there’s no education requirements for better skill sets. Don’t you think, if we’re going to help the children, that the people should make some effort?” 10

The federal Child Tax Credit had not been constructed to serve as an anti-poverty policy The CTC program was established in 1997, with just 500/child available to families earning more than 10,000, and it was not at all refundable – meaning that if the value of the credit for a family’s income and size exceeded their tax liability, they did not receive a refund for the difference. 11

Revisions of the federal Child Tax Credit Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) increased the maximum amount of the CTC to 1,000/child and made the credit partially refundable. This meant that if the value of the credit (for a family’s income and size) exceeded their tax liability, they could receive a partial refund for the remaining value at tax time. The refund was capped at 15 percent of their earned income above the earnings requirement of 10,000 – so this clearly benefited higher-earner parents far more than low-earning parents. American Recovery and Reinvestment Act (ARRA) of 2009. Families needed to earn only 3,000, and could receive a refund that was capped at 15% of their earnings above 3,000. 12

Pre-pandemic provisions of the federal Child Tax Credit Tax Cuts and Jobs Act (TCJA) of 2017. 1. To qualify, families had to earn at least 2,500 (decreased from 3,000). 2. The maximum credit was increased from 1,000 to 2,000 per child. 3. The refundable part of the credit was set to a maximum value of 1,400 per child.* 4. Eligibility was expanded to families with higher incomes by increasing the credit’s phase-out thresholds to 200,000 for single filers and 400,000 for joint filers, compared to the prior laws’ thresholds of 75,000 for single filers and 110,000 for joint filers. 5. The new law required that qualifying children have a Social Security number (under previous law, children with an Individual Tax Identification Number (ITIN) were eligible for the credit) – implications for children of immigrants. 13

In its current form, the amount of a CTC that a family can receive is determined by family size and family earnings In 2020, roughly one in three children were ineligible for the full CTC because of its dependence on family income: 11% were completely ineligible, and 22% were eligible for only a portion of the full credit. Two adults working full time at the federal minimum wage take home 25,375 in earnings and therefore would not qualify for the full refund at any family size. A two-parent, two-child family needs to earn more than 36,000 to qualify for the full refund ( 2,000/child). If they added a third child to the family, they would need close to 20% more in earnings to continue receiving the full CTC refund, and a family with four children would need to earn even more. 14

Which children were ineligible for child tax credits, or eligible for only a partial credit? Share of children ineligible for the CTC (before 2021) 32% 32% 22% 18% 14% 14% 11% 7% All families Black Share ineligible for the credit Latino White Share eligible for partial credit 15

Which children were ineligible for child tax credits, or eligible for only a partial credit? Share of children ineligible for the CTC (before 2021) 40% 24% 22% 15% 11% 24% 14% 2% All families Dual parent family Share ineligible for the credit Single parent (male) family Single parent (female) family Share eligible for partial credit 16

Which children were ineligible for child tax credits, or eligible for only a partial credit? Share of children ineligible for the CTC (before 2021) 31% 25% 22% 11% 18% 9% All families 17% 12% 10% Families without Families with younger young children children Share ineligible for the credit Families with one or two children 11% Families with three or more children Share eligible for partial credit 17

Where are children ineligible for the full CTC most likely to live? 18

New(ish) book on the “poverty of place” Really helpful book identifying areas of the country where poverty – not just child poverty – is particularly challenging to overcome, and where economic mobility is especially limited. It features exploration of historical context for areas the authors identify as particularly “disadvantaged” including Appalachia, South Texas, the ”Cotton Belt” and many (not all) predominantly Native American communities. 19

After the 2021 Expansion: back to normal Once again, regulations around the CTC mean the amount a family can claim depends on their income and family size. The maximum tax credit is again set at 2,000 per child per year. Only families earning more than 2,500 could claim the credit. Families can now receive up to 1,600 per child as a cash refund at tax time (if the tax they owe is less than that and they earn enough to obtain the “refundable portion”). As a result, roughly one in three children is again ineligible for the full CTC because their families had low or moderate incomes. Predictably, there was a significant increase in child poverty in 2022, from from 5.2% in 2021 to 12.4% a year later. 20

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Excellent news stories last fall illustrated the reality of the Expanded CTC’s expiration. “As a doctor, can you tell us specifically what you tend to see more of when families struggle to meet kids' basic needs?” - Ari Shapiro of NPR “ .What we're starting to see is kids flatlining, kids who should be growing, should be gaining weight, should be, frankly, growing the brain that they need for the rest of their lives. And we're seeing kids not grow. We're seeing kids lose weight, which when you're 3 or 4 years old, that is a medical emergency. What's going on? And a lot of times when we really dig deeper, it's simply because people can't afford enough food and are stretching beyond what they can deal with.” – Megan Sandel, pediatrician 22

After the Expanded Child Tax Credit some effects on NYC families: SHARP Impact Study The Settlement House American Reconciliation Plan Impact Study. A mixedmethod study of 1,000 parents who were program participants and/or staff members at NYC settlement houses. Included two waves – first was during 2021 and the second began in late 2022, after the CTC expansion expired. Interviews for the second wave continued into 2023. We asked questions about families’ material hardship, food security, housing security, employment, debt, and, importantly, whether they received the CTC and how they used it. With about 50 participants in each wave, we conducted hour-long interviews in which interviewers asked questions about many of these topics and invited more expansive responses, using the native language of the participants. 23

After the Expanded Child Tax Credit some effects on NYC families in need: SHARP Impact Study Many of the participants in the Study had never before been eligible to receive the Child Tax Credit, but they were all eligible to receive the Expanded Child Tax Credit (i.e., they had children under 17 who were born in the US. Some characteristics of the sample of parents in wave 2: 57.7% had been born outside of the U.S. (with at least one child born in the U.S.) 47.4% reported income 25,000 /year 24.4% had not completed high school 40.7% participated the Study in either Spanish or Mandarin 57.5% had at least one child under 6 years old More than one in four (26.4%) families of parents surveyed included at least one family member with a disability, including over 20% with disabled children. 24

Findings in the second wave revealed increased levels of material hardship, food and housing insecurity, and related rates of anxiety and depression In late 2022, almost 1/4 of respondents (23.0%) reported at least three hardships out of six included in the survey (food, housing, utilities, childcare, healthcare, and “other”). Almost one in three (32.8%) parents had visited a food bank in the last seven days, and almost three in four (71.4%) provided a positive response to at least one question measuring food insecurity. More than two in five respondents (42.3%) reported owing back rent. Almost one in three (30%) of parents reported higher levels of debt than a year ago. Almost 1/5 (18.5%) of parents screened positive for at least moderate anxiety and/or depression, and this outcome was strongly related to the number of material hardships they reported. It was especially high for parents of very young children. 25

After the Expanded Child Tax Credit Some effects on NYC families in need: SHARP Impact Study Many parents spoke of the challenges of budgeting money for basic needs after the Expanded CTC in a time of inflation: “If we could have that CTC money every month again, it would be a really big help to our family. But there is no money, so you have to save on groceries. But we don’t have much, so we have to eat only a couple of things, and usually just steam or boil them. This is partly due to the desire to save on gas costs.” - Mei, mother of two living with three-generation family on one income 26

After the Expanded Child Tax Credit Some effects on NYC families in need: SHARP Impact Study Some parents reported working multiple jobs to make ends meet, but were still unable to afford basic needs: “It’s like no matter how hard you work or how much you make, you can never catch up. I literally work four jobs to feed my kids. I’m a delivery person, I’m a security guard, I’m a part-time cook, and I’m schedule coordinator for a moving company. Just to be able to manage.” - Shelley, mother of one, living with her children “doubled up” with relatives after losing her home in the first year of the pandemic 27

After the Expanded Child Tax Credit Some effects on NYC families in need: SHARP Impact Study Quite a few parents who were interviewed spoke of using whatever money they earned to pay for rent and medical bills while visiting multiple food pantries every week to acquire food for their families: “It’s not embarrassing. It’s more embarrassing that they could catch me stealing than to go to a pantry. But if I go to pantry twice, they don’t give me anything. They tell me, ‘No.’ They tell me, ‘You have to wait until it’s your turn again.’” - Isabella, mother of two disabled teens 28

Generous provisions in state-level CTCs across the country would reduce poverty dramatically “In almost all states, a refundable state Child Tax Credit of 2,000 or less – with a 20% credit boost for young children under 6 – would achieve a 25% reduction (or more) in the child poverty rate. Most states would see a child poverty reduction of 25 percent with a base credit value between 1,200 and 1,800.” “To cut child poverty rates by half, the majority of states would require a base credit value of between 3,000 and 4,500 per child plus a 20 percent boost for young children. If the federal Child Tax Credit expansion is reinstated, the same goals could be achieved through smaller state credits.” 29

State-level CTCs are now seen as an answer to child poverty by many Fourteen states now provide permanent Child Tax Credits: The eleven states with fully refundable Child Tax Credits in 2024 are California, Colorado, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oregon, and Vermont. Idaho, Oklahoma, and Utah offer nonrefundable credits. Three of these states created their new CTC programs in 2023: Minnesota, Oregon, and Utah. 30

Legislative provisions of Child Tax Credits that are critical to reducing poverty levels This provision: Means that: Fully refundable The full amount of the credit can be refunded to families who do not have tax liabilities, regardless of their income. Available without minimum income requirement Families with low income, or no income, are eligible to receive the credit. (Requires full refundability.) Size of the credit More generous credits are more effective in reducing child poverty. Maximum credit amount per child rather than per household Support larger families equitably. Advance payments Smaller monthly cash payments; very helpful in meeting basic needs and alleviating family stress. 31

Legislative provisions of Minnesota’s new Child Tax Credit This provision: Under Minnesota’s CTC: Fully refundable The full amount of the credit can be refunded to all families who do not have tax liabilities, regardless of their income. Available without minimum income requirement No minimum income requirements. (The credit phases out if income is over 29,500, or 35,000 for Married Filing Jointly). Size of the credit 1,750 per child. A maximum amount per child rather than per household Available for every dependent child in the family who is under 18. Advanced payments No, although state administrators hope to begin providing these in another year. 32

Legislative provisions of Oregon’s new Child Tax Credit This provision: Under Oregon’s CTC: Fully refundable Yes. Available without minimum income requirement Yes. (Above a modified AGI of 25,000 the credit is reduced and is completely phased out ( 0) at a modified AGI of 30,000.) Size of the credit 1,000 per child A maximum amount per child rather than per household Available for every child in the family who is from 0-5 years of age, for up to five dependent children. Advanced payments No. 33

Legislative provisions of Utah’s new Child Tax Credit This provision: Under Utah’s CTC: Fully refundable No. It can only be used to reduce the family’s taxes. Available without minimum income requirement Size of the credit No. Since the credit is non-refundable, families must earn income. (The credit available phases out with income above 43,000, or 53,00 for a couple.) 1,000 per child. A maximum amount per child rather than per household Advanced payments Available for every dependent child in the family who is from 1-3 years of age. n/a 34

What stories do we need to move forward with poverty reduction through Child Tax Credit(s)? Policy details matter a lot: Is it fully refundable? Are there minimum income requirements? Will families with young children receive help? Will families with more children receive more help? How many low-income parents and children will receive help, and by how much will the poverty rate will be reduced through this program? 35

Montana’s failed CTC from last year. In an interesting case last year, Democrats in the state legislature in Montana did not support a CTC proposed by the Governor. This article quoted one Democrat mentioning that an income was required for families to gain the credit, and that this provision was a stumbling block. 36

A CTC-related story idea At tax time: talk to families living in poverty who are in Minnesota, for example, and to similar families in South Dakota and North Dakota (which have no state-level CTC). When families living in states with generous CTC programs get a “lump sum” refund, even if they have very little or no income, it is an important time for them, and could be contrasted to great effect with the same time in other states. 37

A CTC-related story idea There is a new bill now in Congress to bring provisions from the Expansion to the existing federal CTC. It could be valuable to hear from: Parents, asking them “If you received the CTC monthly payments again today, what would they spend them on?” Legislators or their staffers, especially those who voted against BBB, to ask them “In view of research substantiating how low-income parents spent their monthly payments in 2021, are you likely to review your position on this policy?” 38

More about stories to move us forward. 39

What stories do we need to move forward with poverty reduction? Any story that emphasizes the dignity of low-income parents*: 1. 2. 3. 4. 5. What is it like for a parent to access the social safety net today in their state? Do they have the benefits to which they are entitled, and if not why not? How much debt are they carrying today, and do they have an emergency fund or savings right now? Is the family able to maintain a checking or savings account? How much money do they have left at the end of each month? What bills are going unpaid right now? For families who are not extremely food-insecure: What does having enough to eat look like these days for their children? For themselves? What strategies do they use right now to feed everyone in the family? * In the context of any policy. 40

Thank you for listening, and thank you for the work you do. Karen Chatfield, Director of Family Economic Security [email protected] 41