Bigger Child Tax Credits Can Pay Dividends for U.S.

That the Covid-19 pandemic would bring a big decline in poverty in the U.S. is not something a lot of people were predicting back in March 2020. But that’s what seems to have happened, at least if you go by — as most poverty researchers do — the Supplemental Poverty Measure introduced by the Census Bureau in 2011 to take into account both government assistance programs and unavoidable expenses that are not reflected in the official poverty rate. The percentage of Americans below the SPM poverty line fell to a record low 9.1% in 2020 from 11.8% the year before, the Census Bureau reported in September, while the Urban Institute projected in July that the rate will drop to 7.7% in 2021.

The chief cause of this poverty drop was the unprecedented gusher of federal social spending that began with the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act of March 2020 and continued through the $1.9 trillion American Rescue Plan of March 2021. The success of all that spending in keeping the Covid-caused recession short and stimulating a quick recovery should hold lessons for government policy in future downturns, but as a way to fight poverty year in and year out, it’s probably not sustainable either economically or politically.

There is one line item, though, that might make sense to keep around. The March 2021 aid law included a one-year expansion of the child tax credit to as much as $3,600 per child, made this fully refundable — that is, those owing less than $3,600 in federal income taxes can still get the full amount — and provided for monthly advance payments of up to $360 that the Internal Revenue Service started sending to parents in July. Historically, children have usually faced higher poverty rates than working adults and senior citizens. In 2021, if the Urban Institute’s projections hold up, they were for the first time the least likely among the three groups to be poor.

Those are just projections, of course, but monthly estimates from Columbia University’s Center on Poverty and Social Policy, based on data from the Census Bureau’s Current Population Survey and other sources, show a similar if noisier trend (the monthly rates are higher than the annual ones in the first chart for several reasons, some of which you can read about on page 8 of this paper).