A Bigger Child Tax Credit Gives Families Flexibility
By Katherine Michelmore | April 13, 2021
Katherine Michelmore is an assistant professor of public administration and international affairs at Syracuse University.
The “transformational potential” of the child allowance in the American Rescue Plan has been compared to the war on poverty under President Lyndon Johnson. As part of the pandemic relief bill signed by President Biden in March of 2021, most families will receive a $300 monthly check for each child younger than six ($3,600 per year), and a $250 monthly check for each child 6-17 years old ($3,000 per year) through an expansion of the child tax credit. This marks an historic moment for families in the United States, with some estimating that the reform will cut child poverty in half.
Before this reform was passed, parents with sufficient earnings could claim up to $2,000 per child per year through the child tax credit. But because of minimum earnings requirements in the tax code, the credit failed to reach millions of low-income families.
Before this reform was passed, 27 million children in the U.S. did not receive the full credit, and 6 million children were completely ineligible.
One-third of all children (27 million children) in the U.S. did not receive the full credit, and one in ten children (approximately 6 million children) were completely ineligible. The vast majority of these ineligible children live in poverty, many with single mothers, and many of whom are Black or Latinx.
The 2021 American Rescue Plan provision will lift millions of these children out of poverty, and will make millions more less poor. Currently, the reform will expire after one year, but many lawmakers and child poverty advocates are calling to make the reform permanent.
Mothers Unlikely to Quit Working Due to Expanded Tax Credit
By not requiring a minimum earnings threshold to claim the new child tax credit, some critics of the ARP argue that the reform will disincentivize single mothers from working. While it is difficult to predict how single mothers, and parents more broadly, might respond to such a monthly benefit, research from similar programs in the U.S. and in other developed countries provide some insights. In Canada, for instance, the expansion of a child benefit in 2016 led to significant declines in child poverty and increases in receipt of government transfers among single mothers, but did not lead to a decline in employment or hours worked.
In Canada, the expansion of a child benefit in 2016 led to significant declines in child poverty and increases in receipt of government transfers among single mothers, but did not lead to a decline in employment or hours worked.
In the U.S., Alaska residents receive an annual dividend from the Alaska Permanent Fund, created from oil revenues in the state. Alaskan adults and children alike receive an annual benefit that typically exceeds $1,000 per year. Research on this program also finds no evidence that the policy deters people from working, though some people (particularly women) are more likely to work part time. This suggests that the policy provides people with more freedom to work fewer hours, while maintaining employment.
Child Care Matters
Even if the expansion to the child tax credit does lead some women to cut back on their hours, or stop working altogether, this could be beneficial for families. The extra monthly income from the child tax credit could allow women to potentially spend more time with their children, and could reduce stress and improve mental health.
My research on the Earned Income Tax Credit, a similar tax credit targeted at lower-income working families (which was also expanded for childless workers under the ARP provision), suggests that mothers with children under age three are the most likely to go to work in response to the generosity of tax credits. Whether encouraging mothers with very young children to work is good for children is an open question. Studies have shown that increased maternal employment could lead to better outcomes for children if employment leads to higher income, but employment on its own—say, in a low-paying job—could be worse for kids than if their mothers didn’t work.
Studies have shown that increased maternal employment could lead to better outcomes for children if employment leads to higher income, but employment on its own—say, in a low-paying job—could be worse for kids than if their mothers didn’t work.
Much of this depends also on who takes care of the children when mothers go to work. Research on the EITC suggests that while children are more likely to enter some type of child care arrangement when their parents go to work, many of them enter into informal arrangements such as care from a friend or family member, rather than a high-quality child care center.
Extra Income = Flexibility to Choose
The COVID-19 pandemic has laid bare the gendered consequences of a lack of flexibility in work and child care. With daycare centers and schools shut down in the spring of 2020, millions of mothers left the labor force to care for their children, illustrating the vital role that reliable child care plays in enabling mothers to work.
A policy that provides an unconditional monthly cash benefit gives parents more flexibility to choose an arrangement that works best for their families. Some parents may choose to use the monthly benefit to help pay for high-quality child care, which could lead to better long-term outcomes for their children. Other parents may choose to use the monthly benefit to reduce their working hours and spend more time with their children.
A long line of research suggests that providing low-income families with extra income will benefit families and children in the long term through better education, higher earnings in the future, lower crime rates, and better health.
Regardless of which path families choose, a long line of research suggests that providing families, particularly low-income families, with extra income will benefit families and children in the long term through better education, higher earnings in the future, lower crime rates, and better health. Extending these reforms beyond just the 2021 calendar year is key to ensuring that these long-term benefits are realized.
Katherine Michelmore is an assistant professor of public administration and international affairs and a senior research associate in the Center for Policy Research at Syracuse University’s Maxwell School of Citizenship and Public Affairs.
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