Portsmouth, NH
5:14 am8:04 pm EDT
63°F / 50°F
75°F / 63°F
84°F / 64°F

National News

Child Poverty Dropped to a Record Low Last Year. A New Report Shows How to Keep It That Way.

Credit: iStock

by Casey Quinlan, New Hampshire Bulletin

The expanded child tax credit that families received in 2021 helped reduce child poverty across the country, but particularly in the South where families lack a sufficient safety net, according to a paper released on Wednesday. The report by the Hamilton Project, the Brookings Institution’s economic policy initiative, comes as some Democrats appear ready to attempt another deal to revive the credit.

The analysis looked at the effects of the expanded child tax credit by grouping states together by factors such as their cost of living and poverty levels. Researchers found that the smallest reductions in child poverty came in states that had a high cost of living and low poverty rates even before tax liabilities and income sources such as SNAP, SSI, and unemployment insurance were considered. But even in those states, child poverty rates were reduced 40 percent after the expansion of the child tax credit.

The credit, which was part of the American Rescue Plan Act, not only boosted the amount of money families received (from $2,000 to $3,600 per child under age 6 and to $3,000 for all others) but also extended the age of qualifying children to 17. It also called for the credit to go to families with little or no income – people who previously did not earn enough money to qualify for a child tax credit. 

It’s been credited with helping to bring the country’s child poverty rate down to a record low of 5.2 percent last year. If Congress hadn’t approved the expanded child tax credit in 2021, another 2.1 million children would have been in poverty that year, according to the Center for Budget and Policy Priorities. 

“The poverty reductions [across the U.S.] were still pretty widespread and meaningful,” said Bradley Hardy, a nonresident senior fellow in Economic Studies at the Brookings Institution and associate professor at Georgetown University, one of the authors of the paper.

Last year, Democrats tried to reach a deal to keep the expanded child tax credit by tying it to support of the extension of a business tax credit for research and development spending, but did not succeed. Now they appear to be regrouping.

CNBC reported last month that members in both the House and Senate were planning to introduce R&D tax legislation, which could give lawmakers an opportunity to push for some kind of expanded child tax credit. 

Roman Rodriguez, the press secretary for Rep. Ron Estes, a Republican from Kansas, confirmed that Estes plans to introduce a bill on the R&D tax credit but did not provide a timeline.

“This R&D provision is critical for American jobs and our economy, and I am actively working with my colleagues to ensure this legislation can be introduced with bipartisan support soon,” Estes said in a statement to States Newsroom. 

New Hampshire Sen. Maggie Hassan, a Democrat, is also reported to be working on a draft bill.

Researchers said that the expanded child tax credit “yielded widespread reductions in poverty across states” in 2021. Every category of states analyzed had significant falls in child poverty:

States with a high cost of living and low poverty experienced a 40 percent reduction in child poverty, and included Illinois, Maine, Minnesota, Oregon, and Washington.
States with a high cost of living and high poverty rates saw child poverty fall 41 percent. Those states included California, Florida, Nevada, New York, and Texas.
States with a lower cost of living and low poverty rates had a 47 percent drop in child poverty. Many midwest and mountain states – Idaho, Iowa, Kansas, Montana, and Wisconsin – fell into this category.
The largest drop – 51 percent  – was in 16 states that have a lower cost of living and high rates of poverty, including Alabama, Arkansas, Georgia, Kentucky, Louisiana, and Tennessee. 

“You do have relatively higher poverty reductions in these sorts of states, with families that were previously left behind, or states with higher poverty and relatively lower costs,” said Hardy, with the Brookings Institution. 

“There’s other evidence to show these are the states that typically have the weakest safety net protections,” Hardy said. “ … I think it amplifies the importance of some federal level programs that can be implemented.”

The authors said that the biggest drops in child poverty tended to be in states with a lack of generous policies that benefit moderate and low-income people, such as a dearth of state earned income tax credits and higher minimum wages as well as states where Temporary Assistance for Needy Families reaches far fewer families. Sixteen out of 20 states that haven’t raised the minimum wage higher than the federal minimum wage of $7.25 have a child poverty rate above 12 percent.

Groups of children that did not benefit as much from the policies before the expansion of the child tax credit were children in larger families, children in rural areas, Black children, and children in families with unmarried mothers, according to research from Columbia University’s Center on Poverty & Social Policy. 

“The results confirm that child poverty reductions related to the CTC are larger in states with a higher proportion of children who were left behind,” according to the Hamilton Project. “The most striking differences are in states with a higher proportion of unmarried mothers, rural households, and large families; in those states, child poverty reduction hovered around 50 percent.”

A potential compromise

Authors of a separate Hamilton Project paper also released on Wednesday have proposed a possible compromise on the child tax credit that they said would address some of policymakers’ criticisms, such as the argument that a fully refundable child tax credit for parents with no earnings would shrink the labor supply. Sen. Joe Manchin (D-W.Va.) pushed for a work requirement and $60,000 family income cap in 2021 and last year, Sen. Mitt Romney (R-Utah) proposed his own version of an expanded child tax credit that wouldn’t allow families without earnings to receive any credit. The Center for Budget and Policies Priorities’ 2022 analysis on the Romney approach criticized that plan because some research has suggested that making the full credit available to parents would not have a large effect on their work participation. 

Under the proposal outlined by the Hamilton Project, an enhanced child tax credit would again offer $3,600 for each child under 6 years old and $3,000 for children 6 to 17 years old but families with no earnings would receive only half the full credit amount per child. There would also be a faster phase-in rate than current law provides so that “for each additional $100 of taxable income, tax filers are refunded an additional $30 per child eligible for the tax credit.” 

“Withholding the credit amount completely for children whose parents have no qualifying earnings would mean prioritizing labor supply incentives over the urgent needs around child well-being,” the authors of the paper wrote. “That choice is counter-productive, given the well-documented benefits – including greater educational attainment and earnings – that are associated with delivering additional income to children from low-income families.”

This story was written by Casey Quinlan, a reporter at States Newsroom and contributor to the New Hampshire Bulletin, where this story first appeared.

New Hampshire Bulletin is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. New Hampshire Bulletin maintains editorial independence. Contact Editor Dana Wormald for questions: info@newhampshirebulletin.com. Follow New Hampshire Bulletin on Facebook and Twitter.