It was heralded as a game-changer for America's social safety net. It dramatically reduced child poverty. But, last month, the enhanced Child Tax Credit — a kind of "Social Security for kids" — expired, and millions of American children sank back into poverty.
In March 2021, President Biden and congressional Democrats revamped the Child Tax Credit as part of the American Rescue Plan. They restructured it, so that parents could get a monthly check from the government. They increased the credit's size, allowing parents to claim as much as $3,600 a year per child, or $300 a month. And they made the credit fully refundable, so that even super-low-income families who don't pay much — or anything — in federal taxes could get it.
For those primarily concerned with ending child poverty, these changes were a resounding success. Scholars at Columbia University found they reduced child poverty by about 30%. Another study found the enhanced program cut household food insufficiency by 26%.
But President Biden's efforts to renew the credit have been thwarted by opposition from Sen. Joe Manchin (D-W.Va.) and congressional Republicans. They disliked how much the program cost and how generous it was, and they worried that it would encourage parents to stop working because it did not have a work requirement.
According to the Tax Policy Center, the beefed-up Child Tax Credit would cost around $225 billion per year (about $100 billion more per year than the original version, which is now back in effect). For context, that's less than a quarter of the annual cost of Social Security, about a third of the cost of Medicare, and about the same as the budget for the Department of Agriculture. A report from the Urban Institute finds that even with the enhanced Child Tax Credit, America spent only about 7% of its federal budget on kids in 2021 — and that is now projected to decline.
As for how many parents stopped working as a result of the enhanced Child Tax Credit, estimates range from about 300,000 to 1.5 million. There are about 50 million working parents in the United States, so even if we accept only the highest estimate, more than 97% of parents continued working after receiving the payments. That makes sense because 300 bucks a month is hardly enough for most families to live on.
The failure of Washington to renew the enhanced Child Tax Credit continues a long tradition in America: Our welfare system has long spent generously on the old, but it has consistently skimped on the young. While America spends about as much, or even more on the elderly than many other rich nations, it spends significantly less on kids. Among the almost 40 countries in the OECD, only Turkey spends less per child as a percentage of their GDP. It's a big reason why the United States has a much higher rate of child poverty than most other affluent countries — and even has a higher rate of child poverty than some not-so-affluent countries.
In a new paper, the economists Anna Aizer, Hilary W. Hoynes, and Adriana Lleras-Muney explore the reasons why the United States is such an outlier when it comes to fighting child poverty. While they acknowledge the reasons are varied and complex, they focus their analysis on one factor: American policymakers, influenced by economists, have dwelled much more on the costs of social programs than their benefits. TO FIND OUT THE COST OF FOCUSING JUST ON COSTS, CLICK HERE...
