Issue Brief: Extra Credit- How States Can Lead by Investing in Children and Families Utilizing Child Tax Credits

Amid the United States’ worst public health crisis in more than a century and subsequent sharp economic downturn, a brief silver lining appeared. Thanks to the March 2021 American Rescue Plan’s expansion of existing tax credit reforms enacted by the 2017 Tax Cuts and Jobs Act, the country made a significant step toward reducing childhood poverty and supporting the well-being of families. The American Rescue Plan Act (ARPA) increased the existing federal Child Tax Credit (CTC) from $2,000 per child to $3,000 per child older than six – an increase of 50 percent – and up to $3,600 for children younger than six – an 80 percent increase. Just as significantly, the bill made the credit fully refundable and paid out half of the CTC in six monthly installments, with the remainder paid upon filing. The measure also raised the age limit to 17 years old, up from 16, and lowered the household income requirements to $150,000 for a two-parent or $112,500 for a single-parent household. This once-in-a-lifetime expansion assisted more than 35 million families during the height of the COVID-19 pandemic with the much-needed financial support of an additional $250 to $300 in monthly payments.

Experts estimate this expanded benefit reduced monthly childhood poverty by almost 30 percent and kept nearly 4 million children out of poverty by providing families with additional funds to spend on childcare and other related familial expenses.

Conversely, only 10 months later, in December 2021, the expanded federal child tax credit expired. Eligible families received their last monthly payment on December 15, 2021. According to a report from Columbia University, post-expiration, nearly four million more children are living in poverty and the overall U.S. childhood poverty rate rose almost 41 percent. Polling from various institutions, including, but not limited to, Reuters/Ipsos (59 percent support) and Politico/Morning Consult (54 percent support), have demonstrated the appeal and support for this program. Despite this widespread and bipartisan appeal, Congress has failed to reach a consensus – whether by way of the proposed H.R. 5376 or an alternative measure, such as the Family Security Act – to make these or similar expanded benefits permanent.

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