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Expanding the Child Tax Credit Would Reduce Child Poverty to Less Than 10% in Most States, Study Finds

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In just a few months, the new child tax credit featuring advance monthly payments has relieved financial instability and lowered food insecurity for many families with children.

Continuing the expanded credit beyond 2021 would slash child poverty even further, reducing it to about 8.4% from 14.2%, a fall of roughly 40%, according to a recent study by Gregory Acs, vice president for income and benefits policy at the Urban Institute, and Kevin Werner, a research analyst in the income and benefits policy center at the Washington, D.C., think tank.  

In 2021, a family of four making $26,500 or less is considered to live in poverty, according to guidelines from the U.S. Department of Health and Human Services. The median national household income was $68,703 in 2019, according to the most recent data from the Census Bureau.

"Even after the pandemic ends, we will still have a child poverty rate that's typically a little bit over 14%," said Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center. "But if we were to keep this child tax credit, we could drop that down closer to 8%."

Child Tax Credit Details

In March, the federal government's American Rescue Plan expanded the existing child tax credit to $3,000 from $2,000 for children up to age 17, with an additional $600 for children under the age of 6. Many families are receiving half of the credit in advance monthly payments, with a maximum of $250 each month for children aged 6 to 17 and $300 per month for those under the age of 6.

The American Rescue Plan also made the child tax credit fully refundable, meaning that families can get it as a refund even if they don't have any tax liability. This ensures that children in the poorest families aren't left out.

In a typical year — meaning one that isn't marked by a pandemic — the expanded child tax credit would lift some 4.3 million children out of poverty, according to the study.

In all but three states — California, Florida and Texas — the benefit would bring the child poverty level below 10%. In 11 states, a continued child tax credit would reduce child poverty by 50%.

The states that have more children living near the poverty line would see the largest declines, such as New Mexico, Louisiana and Mississippi, as well as Washington, D.C.

And, the credit would have a significant impact even in states where the child poverty level doesn't fall below 10%. In California, for example, expanding the benefit would cut child poverty to 13.7% from about 20% and bring more than 600,000 kids above the poverty line, more than in any other state.

"The child tax credit is powerful because it goes to almost all families with children," said Maag.

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What's Next for the Child Tax Credit

While families are waiting on further advance payments and the second half of the credit when they file their 2021 tax returns, lawmakers are trying to continue the expanded benefit.

Democrats included an expansion of the credit in their $3.5 trillion budget plan, which lawmakers are currently debating and writing legislation to be voted on. Because Democrats plan to use a fast-track process known as reconciliation to pass the bill, the party must be in complete agreement to have enough votes to push it through.

That means that the format of the credit and how long it could be expanded may change — the Biden administration had proposed continuing it through 2025, while other Democrats argued for making it permanent.

"If you care about child poverty, the most important change to the child tax credit that you can keep is keeping the credit fully refundable," said Maag, adding that this ensures that the lowest-income families are able to get the aid.

If the child tax credit is not expanded beyond 2021, the reductions seen in poverty and food instability would likely reverse. The child poverty level would only be below 10% in 13 states, according to the Urban Institute's report.

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