Imagine if Congress approved Social Security payments for America’s retirees one year at a time. In any given year, congressional gridlock and infighting would put the program at risk of not being renewed at all. Rather than provide seniors with a source of economic security and stability, our old-age retirement system would become a source of uncertainty and frustration, turning the concept of social insurance on its head.
This is more or less how Congress is treating the newly expanded Child Tax Credit (CTC) — a de facto “Social Security for kids” that, without action, is set to expire at the end of the month. With Build Back Better negotiations likely to extend into the new year, the CTC payment arriving today, December 15, now runs the risk of being the last.
The credit was expanded in early 2021 as part of the American Rescue Plan. It reached nearly 60 million children in 39 million households, including millions of low-income households that were previously denied the full credit. The reform also made the CTC a monthly payment to help families budget for routine household expenses. The expansion, however, only lasted one year.
In failing to extend the program before the end of the year, Congress will allow monthly payments to be disrupted, leading to uncertainty and hardship for millions of families.
How the Child Tax Credit Strengthens Families
Before the 2021 expansion of the CTC, roughly 27 million children did not receive the full credit, and a quarter of all ‘poverty spells’ in middle- and low-income families derived from having a child. In other words, we were living in an economy where simply having kids was a major risk factor for falling into poverty.
Advocates for the expanded CTC have stressed its many benefits, from its immediate 25 percent reduction in monthly child poverty rates, to power as a tool to reduce racial inequity. Here at Niskanen, we’ve also emphasized the pro-family benefits of the CTC expansion — which are largely driven by the household stability provided by a reliable, monthly source of financial security.
Household financial stability helps lower rates of divorce and internal domestic conflict, resulting in lower rates of child abuse and neglect. Less stress means less need for stress relievers like alcohol and tobacco, which explains why consumption of both falls when child benefits expand. And as a cash benefit, households can use the CTC to afford home, church, and family-based child care, with none of the bureaucracy or value impositions that come with government-subsidized daycare.
International and U.S. data confirm that investing in children pays off. In fact, at $100 billion per year, the direct budgetary cost of the CTC is offset by $865 billion in annual monetary and non-monetary benefits–largely due to improved child health and education outcomes.
While every household need is diverse, the monthly CTC payment gives families the confidence to invest in their children and budget efficiently for their specific needs.
A Generational Investment
The stability of child benefits also supports the economy as a whole. In a previous report, we found that the 2021 CTC expansion boosted consumer spending by at least $27 billion, generating $1.9 billion in state and local sales tax revenues, and supports the equivalent of over 500,000 thousand full-time jobs at the median wage. The CTC expansion provided the most significant boost in relative purchasing power in red states and more rural regions — demand that flows right back into local communities. Yet consistency is key for that boost in consumer demand to translate into family-friendly business investment.
The IRS has warned lawmakers that if Congress delays the expansion past December 28th, they will not guarantee January’s payments on time. This would be a shame, as it would risk squandering all the recent effort put into recipient outreach and program administration. The CTC expansion has the potential to be one of the Biden administration’s lasting legacies. That’s all the more reason for Congress to act sooner rather than later, and give the program the robust extension it deserves.
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