Contact: Louisa Tavlas

WASHINGTON, D.C., August 2nd, 2021 — A new analysis from the Niskanen Center finds that the recent expansion of the Child Tax Credit will enable $27.6 billion in new household spending, support over half a million new jobs, and boost the economies of rural America, in particular.

The report, titled Measuring the Child Tax Credit’s Economic and Community Impact, derives novel estimates of the American Rescue Plan’s historic expansion of the Child Tax Credit (CTC). The CTC provides tax relief and income support to families in the form of an advanced refund, and began being paid monthly on July 15th, 2021, reaching nearly 60 million children in 39 million households. Most households now receive payments of $300 per month for each child below the age of 6, and $250 per month for children ages 6 through 17, with benefit amounts that phase-out at higher incomes.

While only enacted for one year, the expanded CTC is expected to reduce child poverty by 40% and support investments in children that promote family stability. Less appreciated, however, is how child benefits like the CTC can serve as a powerful economic stimulus for local communities given the greater consumption needs of households with children. The new Niskanen Center report puts numbers to that impact, with full estimates by state and congressional district available here.

The report uses modeling techniques to infer the likely impact of the CTC on state and local economies, including job growth and increases in sales tax revenue. In Florida, for example, the new portion of the CTC is expected to return $5.6 billion to Florida families, spur $1.6 billion in new household spending, generate $91 million in state and local sales tax revenue, and support the equivalent of 33 thousand full-time jobs at the state median wage.

Controlling for population size, the report finds that the structure of the CTC expansion provides larger net benefits for states with lower average incomes and larger average family sizes. The larger average family size found in Utah, for example, helps to bring the full value of the CTC up to $929 per capita or $2,826 per household in the state.

In terms of states’ gross domestic product, the CTC provides the largest relative benefit to rural states with lower economic output. For example, the total value of the CTC for households in Idaho is now equal to 1.8% of Idaho’s state GDP. In other words, for every $100 of gross income in Idaho, $1.8 now stems from the CTC. For households in Mississippi, merely the net increase in the CTC following the ARP’s reform represents just under 1% of Mississippi’s state GDP. 

Across the country, the total value of the CTC for rural households is now equal to 1.35% of non-metro GDP, compared to only 0.88% of GDP in metropolitan regions. As the report’s co-author, Samuel Hammond, noted in an exclusive interview with the Washington Post, “This suggests the CTC expansion will deliver a substantial boost to rural economies across the country.”

“If Social Security were abolished, no one doubts that rural America’s economy would collapse,” Hammond continued. “The expanded child tax credit runs that thought experiment in reverse.”