    [Senate Hearing 118-678]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-678

                       ANTI-POVERTY AND FAMILY SUPPORT
                         PROVISIONS IN THE TAX CODE

    =======================================================================

                                    HEARING

                                   BEFORE THE

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 14, 2023

                                   __________

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                Printed for the use of the Committee on Finance

                                    __________

                       U.S. GOVERNMENT PUBLISHING OFFICE
    60-759 PDF                  WASHINGTON : 2025

    -----------------------------------------------------------------------------------

                              COMMITTEE ON FINANCE

                          RON WYDEN, Oregon, Chairman

    DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
    MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
    ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
    THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
    BENJAMIN L. CARDIN, Maryland         TIM SCOTT, South Carolina
    SHERROD BROWN, Ohio                  BILL CASSIDY, Louisiana
    MICHAEL F. BENNET, Colorado          JAMES LANKFORD, Oklahoma
    ROBERT P. CASEY, Jr., Pennsylvania   STEVE DAINES, Montana
    MARK R. WARNER, Virginia             TODD YOUNG, Indiana
    SHELDON WHITEHOUSE, Rhode Island     JOHN BARRASSO, Wyoming
    MAGGIE HASSAN, New Hampshire         RON JOHNSON, Wisconsin
    CATHERINE CORTEZ MASTO, Nevada       THOM TILLIS, North Carolina
    ELIZABETH WARREN, Massachusetts      MARSHA BLACKBURN, Tennessee

                        Joshua Sheinkman, Staff Director

                    Gregg Richard, Republican Staff Director

                                      (II)

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
      on Finance.....................................................     1
    Crapo, Hon. Mike, a U.S. Senator from Idaho......................     3

                                   WITNESSES

    Matsui, Amy K., director of income security and senior counsel,
      National Women's Law Center, Washington, DC....................     7
    Lester, Melissa, resident, Galloway, OH..........................     8
    Meyer, Bruce D., Ph.D., McCormick Foundation Professor, Harris
      School of Public Policy, University of Chicago, Chicago, IL;
      and nonresident fellow, American Enterprise Institute,
      Washington, DC.................................................    10
    Collins, Grant, senior vice president for workforce development
      and president, Fedcap, Inc., New York, NY......................    11

                   ALPHABETICAL LISTING AND APPENDIX MATERIAL

    Bennet, Hon. Michael F.:
        Submissions for the record...................................    43
    Collins, Grant:
        Testimony....................................................    11
        Prepared statement...........................................    91
        Responses to questions from committee members................    93
    Crapo, Hon. Mike:
        Opening statement............................................     3
        Prepared statement...........................................    94
    Lester, Melissa:
        Testimony....................................................     8
        Prepared statement...........................................    95
    Matsui, Amy K.:
        Testimony....................................................     7
        Prepared statement...........................................    96
        Responses to questions from committee members................   108
    Meyer, Bruce D., Ph.D.:
        Testimony....................................................    10
        Prepared statement...........................................   109
    Wyden, Hon. Ron:
        Opening statement............................................     1
        Prepared statement...........................................   120

                                 Communications

    Center for Fiscal Equity.........................................   123
    Center for Law and Social Policy.................................   127
    Children's HealthWatch...........................................   129
    Opportunity Solutions Project....................................   131
    Scholars Strategy Network........................................   133

                                     (III)

           ANTI-POVERTY AND FAMILY SUPPORT PROVISIONS IN THE TAX CODE

                                  ----------

                            WEDNESDAY, JUNE 14, 2023

                                           U.S. Senate,
                                          Committee on Finance,
                                                        Washington, DC.
        The hearing was convened, pursuant to notice, at 10:05
    a.m., in Room SD-215, Dirksen Senate Office Building, Hon. Ron
    Wyden (chairman of the committee) presiding.
        Present: Senators Menendez, Cardin, Brown, Bennet, Casey,
    Warner, Whitehouse, Hassan, Cortez Masto, Warren, Crapo,
    Grassley, Thune, Lankford, Young, Barrasso, Johnson, Tillis,
    and Blackburn.
        Also present: Democratic staff: Grace Enda, Tax Policy
    Advisor; Rachael Kauss, Senior Tax Policy Advisor; Sarah
    Schaefer, Chief Tax Advisor; Joshua Sheinkman, Staff Director;
    and Tiffany Smith, Deputy Staff Director and Chief Counsel.
    Republican staff: Gregg Richard, Staff Director; and Don
    Snyder, Senior Tax Counsel.

       OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
                 OREGON, CHAIRMAN, COMMITTEE ON FINANCE

        The Chairman. The Finance Committee will come to order.
    Today, the committee meets to talk about tax policy that helps
    children and families climb the economic ladder to economic
    security. There are a lot of policy issues here. In my view, it
    comes down to one basic proposition.
        Congress has a proven strategy for lifting millions of
    American kids out of poverty and ensuring their families have a
    stronger opportunity to get ahead. So, the question really
    becomes, are you willing to act on it? And in my view, that
    ought to be an easy call.
        The reality is, helping more Americans get ahead and
    encouraging people to work are not mutually exclusive. These
    are priorities that go hand in hand. We are going to hear that
    today.
        Now a little bit of recent history. In 2021, as part of the
    American Rescue Plan, Democrats in Congress passed landmark
    expansions of significant sources of financial help for low-
    income families. The Child Tax Credit got the biggest
    expansion. Previously, it was worth $2,000 per child each year,
    and lower-income families who needed more help actually got
    less than higher-income families.
        After the expansion, the Child Tax Credit gave families
    $3,600 for each child up to age 5, and $3,000 up to age 17. For
    the first time, Democrats made it fully refundable. And what
    that means--in a way that is not Washington word salad--it
    means the lowest-income taxpayers get the full value of the
    credit. No more discriminating against the most vulnerable
    people.
        Democrats also modernized the system to pay out much of the
    credit in monthly installments rather than all at once during
    the tax filing season. That gave families a more reliable boost
    to their monthly take-home pay. The American Rescue Plan also
    expanded the Earned Income Tax Credit to encourage even more
    people to work. It boosted the tax credit for child and
    dependent care.
        Let's talk for a second about the effect of the expansion.
    According to researchers at Columbia University, expanding the
    Child Tax Credit lifted 3.7 million American kids out of
    poverty. Child hunger fell by nearly a quarter. Other research
    shows that when families escape poverty, kids are healthier,
    they do better in school, and their earnings are higher as
    adults.
        A couple of stories from Oregon. A single mother in Myrtle
    Creek wrote that she was finally able to save up enough to move
    her three kids out of a rundown apartment into a better home. A
    single mom in Portland wrote that she was relieved to be able
    to cover the bills and actually would be in a position to have
    a little bit of a nice Christmas with the kids. Another mom in
    Eugene, who lives with extended family, wrote that she was
    finally able to save up for a place where she and her son could
    live on their own.
        Millions of Americans had stories like this. The fact is,
    for the first time in a long time, they felt some real
    financial relief. Unfortunately, these landmark enhancements to
    the tax code expired at the end of 2021.
        Congress has not been able to agree on it. In fact, a
    couple of times, I just went to the floor of the United States
    Senate and asked unanimous consent to extend it as we go
    forward with longer-term kind of efforts. We were not able to
    get that done, and we are just going to continue to push to
    keep kids out of poverty and help families get ahead.
        Today, I especially want to thank my colleagues, Senator
    Brown and Senator Bennet. They have been real champs--along
    with Senator Casey, who is also a member of this committee--of
    tax policy supporting kids and families. Today, they are
    introducing the Working Families Tax Relief Act, and I am
    pleased to be one of their cosponsors.
        It would make the 2021 expansions to the Child Tax Credit
    and the Earned Income Tax Credit permanent. Today, there are 19
    million kids whose families do not get the full Child Tax
    Credit, and they are disproportionately Black and Latino
    families. Under the Brown-Bennet proposal, those families would
    no longer get shortchanged.
        So their legislation--and I see Senator Casey has arrived.
    He has also been a great champ of kids. These three Senators
    are offering ideas consistently that are pro-family and pro-
    opportunity, and I very much appreciate that. I think it ought
    to be of interest to a lot of Senators.
        Now, sometimes we hear from folks on the other side of the
    aisle that these kinds of initiatives discourage work. That
    claim just does not get reliable research backing it up.
    Hundreds of economists have looked into this issue in the last
    4 years. The Federal Reserve recently did.
        The overwhelming majority of experts agree that the Child
    Tax Credit expansion did not hurt employment in any meaningful
    way. In fact, in some cases it actually helped more parents
    enter the labor force, because it helped them pay for
    essentials--essentials like child care and transportation--that
    are absolutely key to being able to hold a job.
        In July 2021, when the first payments under the expanded
    Child Tax Credit went out, the unemployment rate was 5.4
    percent. In December of that year, after six monthly payments
    had gone out, the unemployment rate was 3.9 percent. So it is
    pretty hard to see how you make a case that the Child Tax
    Credit is keeping people out of the workforce. It was certainly
    not the case in 2021.
        And I think there is something of a double standard at the
    heart of what has been a Republican argument, that the tax
    system being less generous to low-income Americans encourages
    work and productivity. Why doesn't the same logic apply to the
    wealthy? The reality is that all Americans want to work hard
    and provide for families. That is part of what makes our
    country and our economy dynamic.
        This Republican double standard that punishes low-income
    Americans and favors the folks at the top, the wealthy, in the
    long run, in my view, just limits opportunity, makes it harder
    for lots of people to get ahead. So I think this is an issue
    that ought to have bipartisan support for a change, one that
    gives everybody in America the chance to get ahead.
        We have lots to discuss today. We look forward to our
    questions.
        Senator Crapo?
        [The prepared statement of Chairman Wyden appears in the
    appendix.]

                 OPENING STATEMENT OF HON. MIKE CRAPO,
                       A U.S. SENATOR FROM IDAHO

        Senator Crapo. Thank you very much, Mr. Chairman.
        Today we focus on anti-poverty and family support
    provisions of the tax code. It is important to have a
    conversation about existing provisions, what has worked in the
    past, and what more can be done.
        If there is one message to distill today, it is that if
    America is serious about reducing poverty and supporting
    families, work works. Without work, there is no chance society
    will achieve either aim. Successes here will be grounded in
    those from the past.
        In 1996, I joined a bipartisan, bicameral group of
    colleagues, including some in this room today, in voting to
    pass the welfare reform bill. In the decades since, this
    landmark legislation's reforms have led to undeniable
    intergenerational success.
        One of the welfare reform's key changes was to replace an
    ineffective cash handout system with one focused on
    incentivizing work, job training, and self-sufficiency. One of
    our witnesses, Bruce Meyer, has written extensively about the
    lessons of welfare reform and parallels for today. Another,
    Grant Collins, has extensive practical experience with pro-
    work, anti-poverty interventions.
        The decisive transformational results of welfare reform
    speak for themselves, including marked increases in work and
    earnings for single mothers, almost doubling for some cohorts;
    sharp poverty reductions, with consumption poverty declining by
    more than 70 percent since 1996 to just 3.7 percent in 2018;
    and broad declines in benefit dependence, including a fivefold
    reduction in those needing temporary assistance.
        As President Biden--who, as a Senator, voted in favor of
    this welfare reform--said at that time, ``I think everyone here
    believes that work should be the premise of our welfare
    system.'' Not surprisingly, recent polling from May shows that
    nearly two-thirds of Americans support work requirements for
    recipients of government benefits.
        Welfare reform proves that we can exercise common sense and
    be compassionate and fiscally responsible all at the same time.
    These lessons were applied, for example, when Republicans first
    proposed the Child Tax Credit in the Contract with America, and
    were retained when they enacted the credit in 1997, expanded it
    in 2001 and in 2009, and doubled it in the momentous 2017 tax
    reform bill.
        In 2017, Republicans also doubled the standard deduction,
    lowered tax rates for the hundreds of millions of lower- and
    middle-income Americans, and stretched those lower rates
    further through expanded tax brackets. All of these changes put
    money back into the pockets of working families, and it is no
    surprise that after the bill's enactment, Americans' disposable
    personal income jumped nearly 87 percent in the first quarter
    of 2018 over the last quarter of 2017.
        I look forward to hearing more from today's witnesses on
    the key lessons learned from these successes in reducing
    poverty and supporting working families. In recent years, some
    have seemed to have forgotten what previously worked, and have
    pushed for changes to government assistance that appear to be
    generous, but in the end will certainly not solve poverty or
    even just child poverty.
        The direct cost for these ideas is enormous. Indirectly,
    data show that they actually become an impediment to
    intergenerational growth and upward mobility. Just this past
    February, for example, results of a cash allowance program
    being piloted in Spain have arrived. The program has already
    had sizeable and adverse employment effects, with aid
    recipients being 20 percent less likely to work, and families
    receiving benefits 14 percent less likely to have any family
    member working.
        As another example, in October 2022, the nonpartisan JCT
    evaluated Democrats' partisan, temporary changes to the Child
    Tax Credit, and they reached two critical conclusions. First,
    they estimated a staggering cost to continue them, more than
    $1.2 trillion in the budget window, to say nothing of years
    beyond. Second, they confirmed that the provision
    disincentivizes work, with a ``dynamic'' cost estimate
    factoring in work and growth that approached $1.4 trillion--
    more than its headline estimate.
        Evidence is sometimes worked to manufacture contrary
    conclusions. But Professor Meyer and Mr. Collins will tell us
    that an honest accounting of the data is clear. Unconditional,
    direct transfer policies simply do not achieve their aim of
    actually reducing poverty and dependency, even if they are
    called a tax credit.
        There are many thoughtful, compassionate, and prudent ideas
    worth considering to ensure that our social safety net is
    strong for those who need it the most. What makes no sense is
    to undo the good that has already been done through harmful
    policies, whether in the name of equity, morality, or anything
    else.
        Progress requires building upon yesterday's gains, not
    tearing them down.
        Thank you, Mr. Chairman.
        [The prepared statement of Senator Crapo appears in the
    appendix.]
        The Chairman. I thank my colleague.
        And I started smiling last night when I realized that we
    would have a Matsui in the house today, and Amy Matsui is the
    director of income security and senior counsel at the National
    Women's Law Center. She works on a broad range of economic
    issues, where she is an advocate for low- and moderate-income
    people. She is also the daughter-in-law of two people who have
    been very, very special in the Wyden household: the
    Congresswoman, Doris Matsui--you're the daughter-in-law, I
    believe--and the late Congressman Bob Matsui. I think some of
    my colleagues remember.
        There have been in public service few advocates for public
    service that resemble what Bob Matsui has done over the years
    to advocate for low-income people. He has just been remarkable,
    remarkable in what he did for our country, as a member of the
    Ways and Means Committee.
        We will continue to miss his service, and we so appreciate
    having Ms. Matsui here today. And it helps us remember the
    contributions of the late Bob Matsui, recognize what Doris has
    done in the House, and we are just thrilled to have you. And I
    think advocating for low-income people just runs in the Matsui
    DNA. We thank you for it.
        Senator Brown is going to introduce our next witness,
    Melissa Lester.
        Senator Brown. Thank you, Mr. Chairman, Ranking Member
    Crapo, and I echo--the chair is always kind and generous
    towards people, and I had great admiration for both Matsuis. I
    knew Bob intimately, working on different parts of trade
    agreements, and we just had such respect for him. So, thank
    you.
        As we listened to my friend Senator Crapo talk about work
    and the importance of work, something I wanted to point out is,
    in the first 29 months of the Biden administration, more jobs
    have been created in this country than any 4-year period in
    American history, any 4-year presidency term in American
    history, and I think that is important to remember.
        Thanks for holding today's hearing, and I appreciate that,
    Mr. Chairman. I am honored to introduce Melissa Lester from
    Galloway, OH. She is here with us to share what the expansion
    of the Child Tax Credit meant to her and her family a couple of
    years ago.
        I would point out that, as a graduate of Mansfield Senior
    High School, she was a graduate of our archrival Marion Harding
    High School, named after one of Ohio's many, many Presidents,
    Warren Harding, who grew up not too far from where she grew up.
        She is a licensed social worker. She is a public servant.
    She and her partner live outside Columbus. They have two
    daughters: Olivia, who is three, and Emma, who is one. Like so
    many Americans, Ms. Lester knows firsthand that raising
    children is work. Our tax code should reflect that. We will
    hear from Ms. Lester about her experience as a working mother,
    all the costs that come with raising children that just keep
    coming and coming and coming, something she has to look forward
    to, and we need to help.
        The expanded Child Tax Credit has helped her family afford
    the essentials: child care, infant formula, clothes for growing
    daughters. It gave them the peace of mind when it came to
    spending a little on gifts for holidays and birthdays. She and
    her partner both work full-time, in addition to the full-time
    work as parents.
        Like so many Americans, this hard work does not pay off
    like it should. The end of the expanded Child Tax Credit has
    made it much harder for them to keep up with the rising cost of
    living and added to the already immense mental load of raising
    a family that millions of families' face.
        Her story is a story of so many in our country. That is why
    bringing back this tax cut, the largest tax cut for working
    families ever, is so essential. Data shows, as the chairman
    said, the expanded Child Tax Credit meant more money in the
    pockets of 90 percent of Ohio families and dramatically reduced
    poverty.
        That is why today, as the chairman said, along with Senator
    Bennet, Senator Wyden, Senators Cortez Masto, Casey, Stabenow,
    all of them are cosponsors--we are introducing our Working
    Families Tax Relief Act to make the CTC expansion permanent.
        Thank you for your willingness, Ms. Lester, to share your
    story of the real parents behind these numbers, the story of so
    many families, with the committee today. I look forward to
    working with you, working with this committee. I may have to
    leave before your testimony, but I will be back to ask
    questions in about an hour or so.
        Thank you very much, Mr. Chairman. Thank you for allowing
    me to do this.
        The Chairman. I thank my colleague.
        Ms. Lester, you should know that Senator Brown persistently
    speaks up for the Child Tax Credit, and we are glad he does,
    and we are glad to have you.
        Our next witness will be Bruce Meyer, the McCormick
    Foundation Professor at the University of Chicago Harris School
    of Public Policy. He has been teaching there since 2004.
        The fourth witness, Grant Collins, is the president of
    Fedcap, a nonprofit group. He leads the group's efforts on
    workforce development and a variety of employment service
    contracts, which he is part of through governments in the
    Northeast and Mid-Atlantic States, as well as the UK and
    Canada. We welcome you.
        Thanks to all our witnesses. What is customary is that your
    prepared statements will be automatically put in the record.
    So, if you want to take a few minutes to summarize. And again,
    Ms. Matsui, seeing you at the witness table, I just remember
    Bob being on Ways and Means and I was on Commerce, and he would
    just walk up to me and say, ``Here is what we need to do,'' and
    I said, ``Tell me what to do.''
        Thank you. Glad you are here.

      STATEMENT OF AMY K. MATSUI, DIRECTOR OF INCOME SECURITY AND
      SENIOR COUNSEL, NATIONAL WOMEN'S LAW CENTER, WASHINGTON, DC

        Ms. Matsui. Thank you very much, Senator, for that warm
    welcome on behalf of myself and my family. Chairman Wyden,
    Ranking Member Crapo, and members of the committee, thank you
    for the opportunity to testify today.
        My testimony will address how refundable tax credits reduce
    poverty and support families. Refundable tax credits like the
    Earned Income Tax Credit and the Child Tax Credit have a long
    track record of boosting families' incomes, thereby narrowing
    wage disparities, reducing poverty, and supporting family well-
    being.
        These credits especially benefit households headed by
    women, households of color, and families with low incomes,
    helping to mitigate the harsh economic effects of gender and
    racial discrimination; stagnant wages; and rising costs for
    food, housing, and child care.
        The additional income provided by these credits improves
    children's health, educational outcomes, and future earnings.
    Their benefits are especially important for young children and
    Black and Latinx children. The American Rescue Plan Act made
    temporary expansions to the CTC, the EITC for low-paid workers
    not claiming children, and the Child and Dependent Care Credit.
        These expansions helped millions of families put food on
    the table, keep a roof over their heads, and afford child care
    in 2021 and early 2022. For example, families used their
    advance CTC payments to buy groceries, catch up on bills, and
    pay for necessities like rent and clothing for their children.
        In addition to meeting basic needs, families said they used
    their payments for things like back-to-school supplies,
    tutoring or enrichment activities for their children, and
    saving for emergencies. Many families reported that the
    payments enabled them to work more hours by allowing them to
    pay for child care and transportation costs, reduced their
    financial stress, and made it easier to budget month to month.
        Families eligible for the CTC reported they were less
    likely to resort to payday loans or selling blood plasma to pay
    their bills. The CTC in particular dramatically reduced poverty
    rates for children, especially Black and Latinx children.
        Child poverty dropped nearly 30 percent during the months
    that families received the advance payments. Overall, the three
    expanded credits boosted nearly 9.7 million people out of
    Supplemental Poverty Measure poverty in 2021, including nearly
    2.9 million adult women and over 4.9 million children.
        In short, the 2021 expansions to the CTC, EITC, and CDCC
    worked. They helped families afford the basics, build a
    financial cushion, and make the decisions that worked best for
    their families. They improved families' lives in myriad and
    tangible ways, and slashed poverty rates.
        Notwithstanding these impacts, the ARPA's expansions were
    allowed to expire in December 2021. The impact on women and
    families was immediate and severe, with increases in poverty,
    food insecurity, and families reporting more difficulty meeting
    their basic expenses in early 2022 and beyond.
        This reflects the fact that, while the recession is
    officially over, the pandemic laid bare and exacerbated
    existing inequalities. Moreover, the recovery has been uneven
    for many women, households of color, and families with low
    incomes, many of whom are experiencing lingering health and
    economic effects from the pandemic.
        The ARPA's expansions through refundable tax credits were a
    powerful and effective tool to fight poverty and bolster
    families' finances during the pandemic. But families continue
    to need expanded, refundable tax credits now and going forward
    because women and families of color continue to face deep
    inequities in our economy, made deeper still by the pandemic.
        Restoring the American Rescue Plan Act's expansions to the
    Child Tax Credit, Earned Income Tax Credit, and Child and
    Dependent Care Credit would help support the children and
    families who need it the most, which then benefits our
    communities and our economy as a whole.
        Thank you for the opportunity to testify today, and I look
    forward to answering your questions.
        [The prepared statement of Ms. Matsui appears in the
    appendix.]
        The Chairman. Thank you very much, Ms. Matsui.
        Ms. Lester?

                     STATEMENT OF MELISSA LESTER,
                         RESIDENT, GALLOWAY, OH

        Ms. Lester. Thank you for the chance to testify here today.
    My name is Melissa Lester. I am from Columbus, OH. I live in a
    section called Galloway. I am the mom of two girls: Olivia, 3,
    and Emma, 1. I am also a licensed social worker working for the
    State of Ohio for over 8 years now, and I am a very proud
    member of MomsRising.
        I am here to talk about the Child Tax Credit, which was a
    godsend for my family. Even with two working parents, making
    ends meet is a real struggle for us. The child care has long
    been our biggest expense. The cost is astronomical.
        Every family I know struggles to pay for child care. Even
    before our second child was born, we were paying considerably
    more for child care than our mortgage. Today with two little
    ones, child care costs us $2,504 per month. Our family's child
    care costs more than a 1-year tuition at the Ohio State
    University, and the cost just keeps rising.
        I see child care as a crisis in this country. There are
    fewer licensed programs. As expensive as our center is, the
    program is not everything that I would like. Staff turnover is
    high, but wait lists and costs at higher-rated centers make it
    impossible to leave. One center told us that it would be 14
    months before our second daughter could have a spot there.
        Moms like me face impossible choices. Do I keep my job and
    leave my children in a program that is not all that it could
    be, or do I leave the workforce entirely, risking hardships for
    my family? In 2021, a lot of those problems fell away and life
    became much more manageable when we were receiving the monthly
    Child Tax Credit payments for our oldest daughter.
        The $300 monthly checks were an enormous help. We used them
    to cover basic needs, and they gave us a little bit of
    breathing room. Each month, I was able to use the payments to
    help with various things like my daughter's second birthday
    party and holiday gifts. And when we took our first-ever family
    vacation to Kitty Hawk, I was able to use the $300 towards some
    of those expenses.
        It helped relieve the constant stress over finances, and it
    was an amazing relief. We were even able to save a little in
    anticipation of the birth of our second daughter, since much of
    my maternity leave was unpaid. But then Congress ended those
    payments for us. They ended when prices began to skyrocket.
        My family struggled terribly with the formula shortage. It
    is not possible to budget when you have to buy whatever formula
    you can find, whatever the cost. I keep all my first daughter's
    clothes, toys, and furniture for her baby sister to help cut
    expenses. I fear a very modest vacation is completely out of
    reach. Even though my family is considered middle class by
    government standards, growing up I did not experience family
    vacations. I came from a working, low-middle-class family, and
    I want better for my children.
        Continuing the expanded Child Tax Credit and the Child and
    Dependent Care Credit helped my family so much. The current
    credit amounts to a few hundred dollars, when we spend
    thousands on care. We need more family-friendly policies. My
    employer's maternity benefits are grossly inadequate.
        By the birth of my second daughter, I had long drained all
    my paid leave, mostly due to COVID-related child-care closures.
    The first 2 weeks following my delivery, I received no income,
    and then I received 4 weeks of pay at 70 percent. The next 6
    weeks were unpaid. As we all know, bills do not stop with a
    birth; they multiply. I am still making payments for my second
    delivery a year later.
        I firmly believe that our failure to adopt family-friendly
    policies hurts families and hurts our country. The Child Tax
    Credit expansion was a glimmer of hope. It made moms like me
    feel like maybe, just maybe, it is possible for things to get
    better.
        If the child care tax payments were reinstated, it would be
    huge for parents. It would give us just a little bit of space
    in our budgets so that we can breathe. Data shows that the
    expanded tax credit dramatically reduced child poverty. I do
    not understand why Congress let it end. Certainly, they were
    not looking out for families.
        Hardworking families like mine should matter to all of you.
    We need family-friendly policies like the expanded Child Tax
    Credit; affordable, quality child care; and paid leave, and we
    need them now.
        Thank you.
        [The prepared statement of Ms. Lester appears in the
    appendix.]
        The Chairman. Thank you very much, Ms. Lester. And you are
    certainly introducing the Finance Committee to the human face
    of what this is all about, and we very much appreciate your
    testimony.
        Dr. Meyer?

       STATEMENT OF BRUCE D. MEYER, Ph.D., McCORMICK FOUNDATION
       PROFESSOR, HARRIS SCHOOL OF PUBLIC POLICY, UNIVERSITY OF
        CHICAGO, CHICAGO, IL; AND NONRESIDENT FELLOW, AMERICAN
                  ENTERPRISE INSTITUTE, WASHINGTON, DC

        Dr. Meyer. Chairman Wyden, Ranking Member Crapo, and
    distinguished members of the committee, thank you for the
    opportunity to testify. While I am testifying for the
    Republican minority, I am not partisan. My approach is to see
    what the facts say. I was pleased when President Clinton used
    my research and when he signed bipartisan legislation to
    convert a broken welfare system into one that promoted work,
    reduced poverty, and encouraged two-parent families.
        Congress is now considering changes that would reverse
    these reforms. A Child Tax Credit paid to those who do not work
    is a child allowance, essentially a cash welfare program
    administered by the IRS, rather than a credit against taxes
    conditioned on work and paying taxes.
        Such a credit is likely to reverse past progress on work,
    poverty, and family formation, and today I will argue that the
    case for a child allowance has been based on faulty evidence.
    In my view, the best evidence on the likely effects of proposed
    tax and benefit changes comes from large, similar historical
    changes affecting the same group.
        In the 1990s, we restricted access to cash welfare, made it
    work-focused, and expanded the EITC and CTC. Research has
    identified at least three significant impacts of these changes.
    Employment sharply rose in the 1990s, while it was relatively
    stable before and after, as shown in Figure 1 of my testimony.
        What single mothers could afford in terms of housing, food,
    clothing, and other goods, their consumption rose sharply. It
    rose for low-educated single mothers over time, in absolute
    terms, and relative to more educated women, those without
    children and married mothers. Even those with the fewest
    resources fared better.
        The decline in poverty for single mothers due to their
    increased connection to work is one of the most pronounced
    successes in poverty reduction over the last 50 years. We
    learned in the 1990s that more people could work than many
    thought possible.
        Furthermore, the share of children with a single parent
    stabilized and then started to fall after welfare reform,
    reversing the more than 30-year trend. While the causal
    evidence here is not definitive, the time pattern is strongly
    suggestive. Given the much worse outcomes on average in single-
    parent families, this may be the biggest issue of the day.
        By decreasing the return to work by eliminating the CTC
    work subsidy and providing widely available, unconditional cash
    aid, the proposed replacement of the CTC with a child allowance
    would discourage work. As I detail in my written testimony, the
    real level of payments to the nonworking would be much greater
    from the child allowance and would be available to a much
    larger group of recipients than under the former AFDC program.
        The change to a child allowance could be expected to
    reverse most or all of the employment and poverty gains in the
    1990s. Not everyone should be expected to work, but targeted
    benefits are the answer. We have 1.9 million people still on
    TANF, 8.5 million receiving SSI, and over 41 million receiving
    the less well-targeted SNAP benefits.
        I would also like to emphasize that the case for a child
    allowance has been based on faulty evidence. Much work has
    pointed to a National Academy of Sciences report that predicted
    minimal employment effects from the policy change. However,
    that report omitted the effects on employment and poverty of
    eliminating the work incentives of the CTC, even though the
    report concluded that there would be a large employment
    response from expanding the EITC for the same population.
        Relying on values of the responsiveness to taxes used by
    the NAS, CBO, and in academic surveys, I have estimated that
    the decreased return to work from replacing the CTC with the
    child allowance would lead about 800,000 single mothers and
    nearly 1.5 million working parents in total to stop working.
    Just these corrections would eliminate much of the child
    allowance poverty reduction.
        Furthermore, evidence from the COVID years' advance CTC is
    not likely to be a reliable guide to long-term effects. The
    Census Bureau's estimate of poverty reduction is overstated
    because of the methods used to calculate poverty. The evidence
    of other changes in well-being is mixed, though on net does
    show improvements.
        This result is expected when you spend an additional $100
    billion a year, but the money is poorly targeted. Such funds
    might be better spent improving administration of existing
    programs that performed poorly in the pandemic.
        I conclude by emphasizing that a child allowance has been
    oversold. We are in danger of discouraging work as we did with
    AFDC, which is not a long-run solution to poverty, and we risk
    encouraging the formation of family units that cannot support
    their children.
        Thank you, and I welcome your questions.
        [The prepared statement of Dr. Meyer appears in the
    appendix.]
        The Chairman. Doctor, thank you.
        Mr. Collins, welcome.

    STATEMENT OF GRANT COLLINS, SENIOR VICE PRESIDENT FOR WORKFORCE
         DEVELOPMENT AND PRESIDENT, FEDCAP, INC., NEW YORK, NY

        Mr. Collins. Thank you, Chairman Wyden, Ranking Member
    Crapo, and distinguished members of the Senate Finance
    Committee, for inviting me to testify on anti-poverty and
    family support provisions in the tax code. I lead workforce
    development for the Fedcap Group, a for-impact 501(c)(3)
    dedicated to improving the economic well-being of those with
    barriers to work.
        I wish to offer insights from my current role and my former
    role as Deputy Director of the Office of Family Assistance, the
    Federal agency that oversees the Temporary Assistance for Needy
    Families program. Earlier this year, I appeared before the
    House Committee on Ways and Means to testify on restoring the
    work requirement to lift Americans out of poverty.
        Among my recommendations, I testified that TANF
    maintenance-of-effort spending can be more directly tied to
    strategies that reward work and job retention. Work and wages
    are critical to families and children, and are a step towards
    reducing intergenerational poverty.
        Bipartisan welfare reform has been successful in improving
    incomes and reducing poverty through work. The Earned Income
    Tax Credit, or EITC, is one such work-focused incentive
    designed to assist workers with limited means. Those who work
    are able to boost their income through the credit. Thirty-one
    States currently offer a State or local EITC. Added to the
    Federal EITC, State and local credits serve as important tools
    to further reward work and improve real-life chances for
    children and parents.
        A National Institutes of Health report in March of 2022
    detailed the following: multiple studies have investigated the
    impacts of the income supplements like the EITC for family
    well-being. Higher disbursements from the EITC have been linked
    to improved child achievement; increased likelihood of college
    enrollment; positive effects on adults', particularly mothers',
    physical and mental health; and receipt of the EITC during
    childhood has sustained, positive effects on long-term
    educational attainment and economic outcomes.
        The EITC has been associated with increased workforce
    participation of single mothers. I would like to share several
    examples of States that used TANF funds to provide State EITC.
    In Louisiana, a strategic collaboration among government
    agencies following Hurricane Katrina resulted in over $8
    million in EITC payments and nearly another $3 million in Child
    Tax Credits.
        Our success was due to an intensive and effective EITC
    campaign aimed at reaching the many displaced residents, some
    of whom were plunged into poverty due to job and other losses
    following the hurricane. While at HHS, we continued our State
    efforts to drive higher uptake rates for those employed to help
    more enter and sustain work. We supported local efforts like
    the one in Benton Harbor, MI, where locals went door to door to
    raise awareness about EITC, and increased the uptake rate for
    TANF adults from 48 percent to 84 percent.
        More recently, States have chosen to implement additional
    credits or tax relief to eligible low-income families during
    times of extra hardship, such as many working families
    experienced as a result of the COVID-19 pandemic.
        In New York State for example, in 2021 the State enacted a
    relief package to provide an additional average of $270 per
    recipient. These efforts were paired with free tax preparation
    services to ensure that those who were eligible obtained the
    credits at no additional cost.
        In my role at the Fedcap Group, we have demonstrated that
    it is possible to remove barriers to employment for people who
    have not had a clear path, including people with physical or
    intellectual disabilities, people with mental health issues or
    who are in recovery from substance use disorders, and people
    with previous justice system involvement.
        Over the past decade, we have placed almost 170,000 people
    in jobs, affording them the dignity that only work provides.
    When government supports hardworking Americans through the tax
    code by rewarding work for lower-income earners that can help
    springboard them out of poverty, the individuals, their
    communities, and our Nation benefit.
        Thank you, Chairman Wyden, Ranking Member Crapo, and
    distinguished members of the Senate Finance Committee, for the
    opportunity to testify. I look forward to answering any
    questions you might have.
        [The prepared statement of Mr. Collins appears in the
    appendix.]
        The Chairman. Thank you, Mr. Collins.
        And let us get at this issue right out of the gate, that
    somehow the Child Tax Credit is discouraging work. Because I
    think encouraging work and giving families an opportunity to
    get ahead, they are not mutually exclusive. They go hand in
    hand. And I really appreciate your coming, Ms. Lester, because
    you are the face of a lot of families in Columbus, OH. And as
    we have been talking about, some of my Republican colleagues
    believe, for example, that people would stop working if the
    expanded Child Tax Credit were to become permanent.
        That is really one of the key issues in this debate right
    now. So, a couple of questions for you to start us off. When
    you were receiving monthly Child Tax Credit payments in 2021,
    did leaving your job because of those payments--did that ever
    cross your mind?
        Ms. Lester. No, absolutely not. It never crossed my mind.
    In fact, I would never see that as an option. In 2020, or late
    2019 I should say, my partner actually was laid off. In much of
    2020, he was unemployed. So in 2021, when we were receiving
    those payments, his employment to me was still unstable,
    working a job not in his field and then taking a contract job.
        So to me, I was the person working with the most secure,
    permanent employment, and with that comes benefits like health
    care that my children are on. There are other benefits with my
    employer that cannot be replaced by a few thousand dollars. A
    few thousand dollars of course helps us make ends meet, helps
    us pay for child care to go to work, but it certainly is not
    going to replace someone's income, in my opinion.
        The Chairman. Okay. So let me kind of maybe put a little
    bit of a finer point on it. You have two kids under six. So,
    under the bill that I am pleased to be cosponsoring with my
    colleagues, you would get an additional $7,200 per year. Is
    that enough money for you to quit your job and still pay all of
    the bills while managing the expenses of raising a family?
        Ms. Lester. I do not believe so at all. I do not think that
    would cover much of anything if I just quit my job and we went
    to a one-income household; no.
        The Chairman. I hope my colleagues have kind of picked up
    on Ms. Lester's point, because this is right at the heart of
    the debate. What we want to do is, we want to encourage work in
    this country. Your Senator always talks about the dignity of
    work. At the same time, we want to give people a chance to get
    ahead, and I think that is what the Child Tax Credit has really
    been all about.
        Now, Ms. Matsui, I think it would be good to transition to
    you, because Ms. Lester has kind of given us an example of what
    things are like in Columbus, OH, and I think that mirrors what
    a lot of other people have said. But you have done a lot of
    research, and I think you have an assessment of this, of what
    the 2021 effort meant in terms of being fully refundable, the
    extra Child Tax Credit for work, and why full refundability is
    so important.
        Ms. Matsui. Thank you, Senator. With respect, most of the
    studies that were conducted of the 2021 expanded credits showed
    no impact on work, no discernible decline in employment, and in
    fact, that is consistent with findings that a study that the
    National Women's Law Center and a number of other organizations
    conducted with researchers from Berkeley through the IGS
    polling firm, where parents said in that in fact, many of them
    were able to work more hours because they were able to afford
    child care and transportation.
        So, the bulk of the research certainly shows that in 2021,
    there was not an impact on employment. The Child Tax Credit
    payments did not cause parents to work less.
        The Chairman. And given what you found in light of this
    evidence, it strikes me as not making much sense that you have
    a tax credit designed to support kids that leaves the lowest-
    income kids out. Do you share that view?
        Ms. Matsui. Thank you, Senator. So in fact, as you know, 19
    million children right now live in families whose incomes are
    too low to fully benefit from the Child Tax Credit. Those are
    families that are disproportionately children of color.
        So these are children who do not have access to the
    benefits of the Child Tax Credit, where their family income
    increases, their families are better able to provide them with
    food and more nutritious food, and they can have the basics and
    what they need to support their healthy development and their
    well-being.
        The Chairman. Great; thank you.
        Senator Crapo?
        Senator Crapo. Well, thank you very much. And I would like
    to go to Dr. Meyer and Dr. Collins with the very question that
    Senator Wyden has just raised, because it seems to me we are
    having the same debate we had back in 1996, as to whether or
    not we should have work incentivized in our welfare programs,
    or whether we should just revert to cash payments to those who
    need assistance.
        Dr. Meyer and Mr. Collins, what do you say about this
    argument that the ARPA Child Tax Credit changes had no impact
    at all on work or reducing poverty and that we should stop
    focusing on the need for work in our efforts to try to help
    those who need the assistance?
        Dr. Meyer. Do you want me to just start?
        Senator Crapo. Sure.
        Dr. Meyer. So first, I want to emphasize that I am in favor
    of the Child Tax Credit. The current Child Tax Credit
    incentivizes work. The proposal in Build Back Better and what
    was implemented in ARPA would discourage work, because it would
    eliminate the existing CTC and replace it essentially with cash
    welfare paid out by the IRS.
        So, what the evidence from the last year says, I do not
    think is that informative because there were so many other
    policies that were implemented during the pandemic, and because
    it was temporary, and I do not think it was particularly well
    understood.
        I do not think it was even well understood by the authors
    of the two most well-known studies, I think, looking at the
    effects of the ARPA changes on work, because they got the
    timing wrong. The incentives to work changed when the bill was
    passed, not when the payments actually went out, because it was
    the elimination of the incentives under the old CTC, or the
    current one that we now have, that was the change in the return
    to work, because it is not when you get the payments that
    matters; it is when the change in the incentive to work happens
    because, for example, we know that most people get the payments
    the following year. But the incentive to work occurs in the tax
    year where you are incentivized.
        Senator Crapo. Thank you.
        Mr. Collins? Let's leave the rest of the time then for Mr.
    Collins.
        Mr. Collins. Sure. So, I am just thinking of all of the
    reasons why people work. Some of it has to do with money,
    obviously, but there are many reasons people work. Facing down
    lower-wage jobs, people do it because there are benefits that
    go beyond that.
        The employed lifestyle is a better one. There is a brighter
    future when you are working. You are more employable when you
    are employed. We have been able to teach that. People who work
    have higher self-esteem, and they are eligible for a range of
    transitional benefits.
        But rewarding that with an earnings boost from something
    like the EITC can create momentum, and it literally changed a
    generation, and we should build on that.
        Senator Crapo. Well, thank you. And I think, just to put a
    fine point on this discussion, again a lot of the argument is
    well, changing to a cash payment welfare system is not going to
    stop people from working. It is not going to be a disincentive
    to work.
        Like I said, we had this debate back when President Clinton
    signed the bill that many of us in this room voted for, that
    did implement this. And then, when the Child Tax Credit was
    created, it incentivized work and was connected to work. The
    legislation we are now discussing is going to disconnect,
    again, these efforts at helping those who are in need the most
    from the work incentives.
        Could you just--either one of you--just indicate, didn't
    the system work and work wonderfully, the one that President
    Clinton signed into law that most of us voted for and that we
    have followed in the concept as we established the CTC?
        Dr. Meyer. The increases in employment of single mothers
    during the 1990s were historic. We saw about 1.2 million single
    mothers join the workforce who had not been working, and their
    employment was relatively stable before and after. So it is
    clear it was the changes in welfare through PRWOA and the
    expansions of the EITC that did it.
        Senator Crapo. Thank you.
        The Chairman. I thank my colleague. The only thing I would
    say, and then we will go to Senator Stabenow, is the Clinton
    proposal was 30 years ago. And so, in 2021, what we saw was
    very contemporary, contemporaneous evidence that this does not
    discourage work, and that is why Ms. Lester's answer was----
        Senator Crapo. Mr. Chairman, that was also as a result of
    the pandemic, and it was an entirely different circumstance.
        The Chairman. I believe we are going to have plenty to talk
    about, but as somebody who participated in both of them, I
    thought 1996 was something that should be tested, and I think
    2021 proved to be a big win, and we will continue to have this
    debate.
        Senator Stabenow?
        Senator Stabenow. Well, thank you very much, Mr. Chairman,
    Ranking Member, and thanks to all of you. This is such an
    important discussion. What I find interesting, having been
    involved in these debates over the years, both in the House and
    the Senate, is that there is a very different view about how to
    stimulate the economy and create work.
        And one, which has been talked about and done over and over
    again, is trickle-down economics: tax cuts in the 2000s, two
    different tax cuts, a $2-trillion Trump tax cut, always going
    to the wealthy, well-connected at the top. And then we are
    told, ``Do not worry. We will stimulate that, and then it will
    trickle down to everybody else,'' and people in Michigan are
    still waiting.
        I mean, it just has never, never worked. So now we are
    trying something different under this administration, which is
    actually investing in people, investing in America, rebuilding
    America, bringing jobs home. We are seeing 13 million--13
    million--jobs created in less than 2\1/2\ years by investing in
    people, in America, in creating jobs, and creating opportunity
    for people.
        So to me, we have this debate over and over and over again,
    and in fact it is starting again, because the U.S. House, which
    was just complaining about deficits and bringing us to the
    verge of a default for our country, has now put in a new tax
    bill that, if it would be permanently voted in and put into
    law, would be another trillion dollars in deficits.
        And so, it is always about, whatever the problem, a tax cut
    will solve it--whatever. But not for everybody. Not for the
    poor, not for working families, not for working moms. Only for
    those at the top, and then we hold our breath and hope that it
    trickles down.
        And so, I think it is time really to debunk that, and even
    when we talk about work--of course we all support work--of
    course, this is about creating opportunity and lifting people
    up in the middle class. But I also see different ways of
    looking at it.
        My friend Senator Grassley, who has led us on the
    Agriculture Committee, will say, if you are going to get a
    government payment, a farm payment, you should be actively
    engaged in the farm. And yet, we have Republican colleagues who
    have not supported that for years and years and years. And so,
    this is really about who we are trying to lift up, in my
    opinion, and where our priorities are.
        And so, I would just say I am a proud sponsor of the
    Working Families Tax Relief Act. I cannot imagine how we can
    argue with the results that, in only 1 year, we cut child
    poverty in half. We cut food insecurity by 24 percent, lifted
    3.7 million kids out of poverty. Why in the world wouldn't we
    want to continue that?
        And so, let me ask a little bit more in terms of questions,
    after sharing my opinion now. But, Ms. Matsui, you have talked
    about what this means to families. Ms. Lester, you have talked
    about what this means for you. But, Ms. Matsui, if you could
    talk a little bit more about the estimated impacts if, in fact,
    we did permanently reinstate this policy that had such a
    shockingly positive result for millions of families the year
    that we did it.
        Ms. Matsui. Thank you for the question, Senator. So, most
    estimates for making the expansions to the Child Tax Credit
    permanent estimate that there would be a reduction in child
    poverty of up to 40 percent, and this, as you know, is really
    extraordinary. The costs of child poverty for our country, for
    our society, for our economy, are astronomical, and finding
    ways to intervene and prevent children from experiencing this
    level of poverty and the impacts on their development and
    education, have long-term benefits for ourselves, for our
    society, and for our economy at large.
        So, making these investments, and indeed, the weight of the
    studies that have examined this are not showing negative
    effects on employment--less than 1 percent of parents--for
    making the credit permanent. When compared to the long-term,
    lifelong benefits of boosting children out of poverty, those
    impacts simply do not counterbalance them.
        Senator Stabenow. Thank you.
        I have heard so many stories from Michigan parents about
    the benefits of the Child Tax Credit, but the number one thing
    that I have heard over and over again is, it helped me pay for
    child care so I could either keep my job, or I was able to go
    back to work for my family because I was able to address child
    care.
        I think when you look at the Census data, it shows that
    about a quarter of families with young children use their Child
    Tax Credit payments to cover child care, a precondition to
    work. And, since we have not addressed child care here in
    Congress in any meaningful way, this is the one way that we
    have been able to address this.
        So just quickly, Ms. Lester, you indicated that was
    important for you. And would you indicate that this would be
    significant for you, to be able to support your child-care
    costs?
        Ms. Lester. Absolutely. I mean, child-care costs are my
    family's biggest expense. With two children under six and child
    care right now for this year, we are estimated to spend almost
    30,000 of our own dollars on child care. I think it is really
    unrealistic for the regular family to sustain that for years
    and years, and this will be the first year.
        Yes, I am definitely concerned about how we will continue
    to maintain this. So, family-friendly policies do help families
    to reduce these costs when they do not qualify for any other
    State government assistance.
        Senator Stabenow. Thank you.
        The Chairman. Despite my agreeing with you and Senator
    Stabenow so much, Ms. Lester, I have to go on to Senator
    Grassley.
        Senator Grassley. Thank you, Mr. Chairman.
        Like Senator Crapo, I want to remind everybody about
    Republicans' history in the support of families and also
    fighting poverty, and doing it by rewarding work.
        Do not forget the Earned Income Tax Credit was signed into
    law by President Ford. The Child Tax Credit grew out of a
    Republican 1994 Contract with America. It was enacted in 1997
    on a bipartisan basis--a Republican Congress and a Democratic
    President. Since its enactment, Republicans have taken a lead
    in improving the credit as an anti-poverty tool.
        In 2001, as then-chairman of the Senate Finance Committee,
    I worked with the Republicans and Democrats, increasing the
    credit from $500 to $1,000. Moreover, we made the Child Tax
    Credit refundable, to help offset the burden of payroll taxes
    on the working poor. This made low-income working families
    eligible to receive a tax refund, even if they owed no income
    tax, even though they paid the payroll tax. In 2017,
    Republicans again doubled the credit, and they increased the
    amount that those who work but pay no income tax can receive as
    a tax refund. In order to benefit, a tax filer would have to
    earn income of just $2,500.
        As you earn more, a larger share of the credit becomes
    refundable, partially offsetting payroll taxes. Keep in mind
    the Child Tax Credit was enacted on the basis of the 1996
    welfare reform that linked Federal assistance to work or skill
    development through education and job training. The Child Tax
    Credit has complemented welfare reform by providing assistance
    to parents transitioning from welfare to work.
        Unfortunately, members of the other party seek to turn a
    broadly popular, bipartisan pro-work tax incentive into a
    government assistance program akin to the old pre-1996 welfare
    program. Their proposal eliminates any earned income
    requirement. It fails to provide any developmental or
    educational assistance, which are available to families as
    alternative work under the 1996 reform law.
        In other words, their proposals fail to provide tools
    intended to help struggling parents get back on their feet and
    tackle the root cause of intergenerational poverty. I fully
    support lending a hand to families in need of support--and that
    is like what I hear a lot of people of both political parties
    say--by providing a hand up, not a handout.
        So my question goes to Dr. Meyer. Your research suggests
    Democrats' workless Child Tax Credit proposal would do nothing
    to reduce deep child poverty. Can you elaborate on what you
    mean by ``deep child poverty,'' and what role does work
    promotion play, or why does it play a very key role in
    alleviating this deep poverty?
        Dr. Meyer. Sure. Thank you for the question, Senator
    Grassley. So, what we analyzed was the effect of the ARPA Child
    Tax Credit, accounting for the reduction in work using
    estimates of the responsiveness to work from the Congressional
    Budget Office, the National Academy of Sciences, and academic
    surveys. And we found that the reduction in work induced by
    getting rid of the work incentives that are part of the CTC and
    replacing them with cash welfare, as you said, would mean that
    there would be no reduction in the number of people below half
    the poverty line.
        That is what is often thought of as deep poverty, and many
    people are most concerned about the number of people that have
    income that low.
        Senator Grassley. Mr. Collins, based on your experience,
    why is work promotion and skill development so important to
    fight against intergenerational poverty?
        Mr. Collins. Thank you, Senator. As I mentioned before,
    there are at least six reasons that we know, that we teach,
    that we see happen when people go to work. Work provides a
    dignity that only work can provide actually. It is one of the
    first opportunities where someone outside the home has said,
    ``Yes, we are going to take a chance on you.''
        So there is a lot of esteem-building. It is a better
    lifestyle. People are more employable when employed, and it
    teaches the importance of work for young people as well.
    Rewarding it with a boost in earnings, the momentum created can
    change a generation. We have seen those outcomes since the
    beginning of the TANF program, and they continue to this day.
        So, when you attach the supplement to work, it has a
    cascading number of benefits that go beyond the cash incentive.
        The Chairman. Thank you, Mr. Collins.
        Next is Senator Cardin.
        Senator Cardin. Thank you, Mr. Chairman, and I very much
    appreciate you holding this hearing on anti-poverty and family
    support provisions in the tax code. I recall very vividly when
    we were debating the enhanced Child Tax Credits, the
    predictions that were made on lifting families out of poverty.
        I remember Senator Bennet going over those numbers with us,
    as to the impact this would have if we enhanced the Child Tax
    Credits. We then did it, and the numbers paralleled what the
    predictions were. We accomplished what we wanted to, lifting
    families out of poverty.
        So I think the case is pretty clear, the impact of
    reinstating the enhanced Child Tax Credits. I am proud of what
    we have done in Maryland, Mr. Chairman. Governor Moore signed
    into law the Family Prosperity Act in the State of Maryland,
    recognizing that there was going to be a reduction in Child Tax
    Credits here at the national level.
        The State of Maryland stepped up for its citizens and
    passed enhanced Child Tax Credits and Earned Income Tax Credits
    for Marylanders, and that is now the law in our State. Our
    Governor recognized the benefits of these programs on fighting
    poverty, and I would hope that we would do the same.
        Ms. Matsui, I want to ask you a question in regards to
    money being left on the table. I think the most recent survey
    shows that as much as 20 percent of those eligible for the
    Earned Income Tax Credit are not seeking the Earned Income Tax
    Credit.
        What can we do to make sure that those who are entitled to
    benefits understand that they are entitled to these benefits
    and have the help they need in order to receive those benefits
    and are not priced out of the market because of the cost of
    obtaining those benefits?
        Ms. Matsui. Senator, thank you for that question. And it is
    a very important point, that refundable tax credits like the
    EITC for eligible families--there is kind of a cost of
    accessing them. Families need to file their tax return every
    year in order to claim those credits, and for families who are
    intimidated by the tax system, who have language access issues
    or kind of simply are confronted with the pile of paperwork
    that it takes to file one's tax return, many of them would like
    assistance in doing so.
        Unfortunately, for programs like the Volunteer Income Tax
    Assistance program, or VITA, community tax preparation, there
    is limited funding, there is limited access in communities. So
    expanding programs like VITA to make sure that low- and
    moderate-
    income families have no-cost expert assistance in filing their
    tax returns would help boost the number of families who are
    able to access benefits.
        In addition, for those families who use paid tax preparers,
    if there is regulation of those preparers to make sure that
    they are correctly preparing those returns, that would also
    help families who are eligible for the EITC and other tax
    credits.
        Senator Cardin. And the VITA program traditionally has been
    supported, bipartisan, in this committee. It is an area that we
    need to pay more attention to, because it has become more
    challenging for lower-income families to be able to get the
    benefits that they are otherwise entitled do. I know the
    chairman strongly agrees with you on paid preparers. I do also.
        We now have gone several years without the IRS having the
    authority to do what they should be doing, and properly
    regulating paid preparers. That would certainly help modest-
    income families. Then we have the IRS helping with Direct File,
    which is a policy that we are looking at today, that would
    perhaps provide some assistance to lower-income families to be
    able to get this.
        But I just find that we need to be able to find creative
    ways to help organizations in the community to have the
    credibility with lower-income taxpayers, to be able to get the
    information and services that they need in order to provide the
    help for people to get the benefits they are entitled to.
        So, I hope that we will look for creative ways, working
    with you, in order to do this. Yes, let us deal with paid
    preparers. Let us deal with the VITA program. But let us look
    at other ways that we can get reliable information out that can
    be acted on in a cost-efficient way, so that taxpayers can get
    the benefits that they are entitled to, because just too much
    money has been left on the table.
        Mr. Chairman, it is sort of an anomaly. Those who are at
    the highest end are not paying their fair share of taxes; those
    at the lower end are not getting their fair share of tax
    breaks.
        The Chairman. DBA the double standard. No question about
    it.
        Next is--let's see. Senator Bennet is next.
        Senator Bennet. Thank you. Thanks, Mr. Chairman. I
    appreciate it.
        I just wanted to say a few words about this. First of all,
    I want to thank my colleague, Senator Brown, for his
    partnership on this, and the chairman for your partnership with
    the rest of the Democrats on the committee.
        I would say, with respect to my Republican colleagues--and
    I do have a lot of respect for them--I want to say that they
    have played a role that has been important over the years in
    the Child Tax Credit and in the Earned Income Tax Credit.
    Something I like about both of these programs is that they do
    not require you to add an additional bureaucrat to the Federal
    Government to administer them.
        I really like that as a Democrat, and I do think there has
    been leadership here. I feel like that leadership has come at a
    very high cost sometimes, which has been the reduction of taxes
    for the wealthiest people in this country, at a time when our
    income inequality is as great as it has been since the 1920s,
    when we have a terrible lack of economic mobility.
        You know, I would rather be funding the Child Tax Credit
    and funding the Earned Income Tax Credit than borrowing money
    from workers, police officers, firefighters in America, just so
    we can give another tax cut to the wealthiest people in
    America, who do not need it.
        I do not think the American people support that. I do not
    think they want us to do that anymore, and the reason why is
    that, in their lives, it is not 1996 anymore. We have had 50
    years of trickle-down economics in this country, in this
    beautiful and great country of ours. And in this country, that
    has caused us to have one of the highest rates of income
    inequality in the industrialized world. The work this committee
    has done has caused us to have some of the lowest economic
    mobility of any industrialized country in the world.
        As a former urban school superintendent--it has created a
    tragedy for the United States, which is that we have almost the
    highest rate of childhood poverty in the industrialized world.
    That is what we are facing, and our parents are having to spend
    $30,000 just to pay for child care.
        And Dr. Meyer is living in an imaginary world, in my view,
    with all respect, where people are working two and three jobs,
    whose kids are in the Denver public schools, my old district,
    and somehow, they have time to figure out when this committee
    passes an increase in the Child Tax Credit, and that is going
    to cause them to stop working months before they get the check.
        That is not reality. The reality is a world where parents
    are scraping by. Every single month they cannot afford the rent
    in this savage economy. They cannot afford to pay for food.
    They cannot afford to pay for child care. It is tragic. They
    cannot afford to work in America, because it is so expensive to
    pay for child care, unlike in other countries in the world,
    because their health care is not protected. And that is why
    Sherrod Brown and I did what we did with the Child Tax Credit,
    and I will say, Mr. Chairman, I would like to add for the
    record the Irvine study, the Columbia study, the Urban
    Institute study----
        The Chairman. Without objection, so ordered.
        [The studies appear in the appendix beginning on p. 43.]
        Senator Bennet [continuing]. Just so my colleagues know
    that Dr. Meyer's position is not the majority position. The
    majority position is, this worked. We showed that America does
    not have to accept as a permanent state of our economy or a
    permanent state of our democracy, this level of childhood
    poverty.
        We should end childhood poverty in America. That is what I
    believe. Why does the richest country in the world have one of
    the highest poverty rates in the world? Why do we have an
    education system--tragic--that does not have quality preschool,
    that does not have quality K-12? And higher education is so
    expensive, and that education system where colleagues of mine
    say, ``Well, do not do anything on the Child Tax Credit, but
    provide the education''--that education system is actually
    reinforcing the income inequality we have.
        A world where Ms. Lester has to come here and say to this
    committee, ``No, I am not going to make the economically
    idiotic, irrational decision of giving up my job, where I have
    to pay 30,000 bucks for child care, for an additional,
    incremental $300 a month,'' which lifted 50 percent of the
    poorer kids out of poverty in this country.
        And I want to finish; my time is up. But let's talk about
    the 19 million kids we have left out because we did not extend
    this credit. Ninety-five percent of those families of that 19
    million, the poorest kids in America, are working, are living
    with a retired relative, are living in a household where
    somebody has a disability, or whose kids are under the age of
    two.
        So what I would beg and say to my colleagues is, ``Let's
    work together on this. Let's build on the success that we have.
    Let's accept that the majority of the studies are right and Dr.
    Meyer might actually be wrong, because he probably is. And
    let's commit together to end childhood poverty in America and
    create an economy that when it grows finally--as it has not for
    the last 50 years--but when it grows in America, that it grows
    for everybody, not just the people at the very top, and that
    this country can stand for both freedom and for opportunity.''
    That is what we have to do in this country.
        The Chairman. We have to move on, in spite of the fact that
    the chairman of this committee agrees with so much of what
    Senator Bennet has to say, and that last point is everything.
    We've got to give everybody in America a chance to get ahead.
        Senator Johnson?
        Senator Johnson. Thank you, Mr. Chairman.
        I apologize for not having a big chart that you can really
    look at. But I am going to start here. This goes back to 1940.
    The data on poverty really starts in 1959, when the poverty
    rate was 22 percent. You can see how precipitously it was
    dropping, because we had strong economic times, right?
        The red line is out-of-wedlock birth rates. Here is the
    rest of history. So, the black line delineates the war on
    poverty, where we spent, depending on whether you want to use
    inflated dollars, $15 to $25 trillion on the war on poverty.
        I look at this and I--you know, again the chart. Poverty
    rates pretty well flatlined somewhere between 11 and 15
    percent. Out-of-wedlock birth rates have gone down societally
    in excess of 40 percent. I think two-parent families generally
    have less likelihood to be in poverty.
        Ms. Matsui, can you explain this historical trend, and what
    does this tell you?
        Ms. Matsui. So, Senator, one of things about poverty in
    America is that it also reflects the lack of societal
    investments. We do not have a child-care system that is
    available and affordable for most families. We failed to make
    those investments over time, so we have a fragile child-care
    system. We have child-care workers who are not paid enough. We
    have families who cannot afford it. That's one example.
        Senator Johnson. Let me--again, I am trying to relate the
    poverty rates and out-of-wedlock birth rates, the rise in
    single-parent families. You know, when I grew up, women did not
    have to work, and a single working family member could support
    an entire family.
        Ms. Matsui. And, Senator, with respect, if wages were
    increased and the supports to allow people to enter the
    workforce and take care of their families and engage in the
    paid workforce, that would probably be more prevalent as well.
        Senator Johnson. Dr. Meyer, can you speak to what this
    chart tells you?
        Dr. Meyer. I find it troubling. I think the rise in single-
    parent families is one of the more problematic trends that we
    have seen over the last 50 years. I am encouraged that the
    share of children living with two parents stabilized in the
    1990s and has actually risen a bit recently. I think we are
    headed in the right direction. I am concerned that current
    policy proposals could head us in the wrong direction.
        Senator Johnson. Yes. I look at a chart like this and, as
    regrettable as it is because we all want to reduce poverty, I
    would say the war on poverty did not work, I mean in general. I
    mean, it certainly did not work to the extent that we wanted it
    to. I mean, would you agree with that?
        Dr. Meyer. Well, on this issue I think that much of the war
    on poverty actually did succeed, but not without costs. Parts
    of the package were encouraging people to not work and urging
    single parenthood.
        Senator Johnson. What about keeping fathers out of the
    home? And again, this is 60 years' worth of history, and I know
    there have been a lot of changes--I mean, the most recent one
    that we are debating here today. But to what extent do we still
    have programs that keep fathers out of the home and actually
    disincentivize two-parent families?
        Dr. Meyer. There certainly are marriage penalties in the
    tax system, and we still do not do all that we could to
    encourage two-parent families.
        Senator Johnson. So again, I think one of the solutions is,
    we need to encourage two-parent families. We need to
    incentivize that. In a budget hearing--this is quite honestly
    years ago; this is off the top of my head--we had somebody in
    charge of welfare in the State of Pennsylvania, and we were
    talking about the welfare cliff.
        I think back then it was something like a single mom could
    work and make up to $30,000, but then because of reduction in
    benefits, she would have to actually make more than $65,000
    before she would get $1 more in disposable income. I do not
    think that is a fluke. I mean, that happens. Each State is
    different, and every circumstance is different.
        Can you speak to that in terms of the problem that we have
    created in terms of just not having a decent ramp as we
    incentivize work, and then there are just no incentives. You
    can work hard and have to make another $30,000-$35,000 before
    you can put another buck in your pocket.
        Dr. Meyer. Well, the current CTC does reduce the
    disincentives to work. It encourages low-income individuals to
    work, because it increases. The benefits increase with
    additional work, and that would be eliminated under proposals
    that are being suggested here.
        Senator Johnson. Okay.
        Thank you, Mr. Chairman.
        The Chairman. I thank my colleague.
        Let's see. Senator Thune, you are next.
        Senator Thune. Thank you, Mr. Chairman. Let me also thank
    the witnesses for being here today, as we examine ways in which
    the tax code can continue benefiting American families.
        The Tax Cuts and Jobs Act that Republicans enacted in 2017
    nearly doubled the standard deduction and reduced tax rates for
    individuals in every tax bracket. This has not only helped
    American families keep more of their hard-earned dollars, but
    also helped businesses grow and raise wages. And ultimately
    these provisions, partnered with other changes in the tax code
    like expanding the reach of the Child Tax Credit, helped the
    unemployment rate fall to a 50-year low and the poverty rate
    fall to the lowest level ever recorded.
        So, Professor Meyer, could you just briefly speak to what
    Tax Cuts and Jobs Act provisions you believe were the most
    effective in boosting employment and reducing poverty levels
    across the Nation, whether it be the reduced rates, expanded
    CTC, or other provisions?
        Dr. Meyer. The Tax Cuts and Jobs Act certainly incentivized
    work by those with low incomes. There are a couple of studies
    that have looked at the work responsiveness to the work
    incentives built into the Tax Cuts and Jobs Act on CTC, and
    they found substantial responsiveness of employment to the
    increased return to work that is generated by that tax credit.
        Senator Thune. But again, to the point, if you had to
    prioritize what is the most effective mechanism in boosting
    employment and reducing poverty rates, CTC as opposed to the
    reduction in rates across the board----
        Dr. Meyer. Well, the rates are fairly low at the bottom. I
    think the first bracket is 10 percent.
        Senator Thune. Right.
        Dr. Meyer. But the incentives provided by the EITC and the
    CTC are really substantial. For a parent, a single parent with
    two children, the combined effect of the EITC and CTC is about
    $9,000. So it essentially converts a $10-an-hour job into a
    $14.50 job, really quite a big increase in incentive to work,
    and that has had a substantial effect on inducing people to
    work and also just increasing incomes at the bottom at the same
    time as encouraging work.
        Senator Thune. So let me just follow up on that. Having
    said that, do you believe there are further changes that could
    encourage CTC beneficiaries to enter the workforce, given the
    positive impact it has as an incentive to work?
        Dr. Meyer. Well, one thing I might point to is that the Tax
    Cuts and Jobs Act's increases in the CTC are set to expire in
    2025. I would favor extending those, and that is something that
    would encourage work and transfer income to those at the bottom
    at the same time.
        Senator Thune. So, in your testimony, you discuss a little
    bit the adverse effects that changes to the CTC in the American
    Rescue Plan seem to have on workforce participation. Would you
    expand on that analysis, and specifically highlight what
    adverse effects to workforce participation you would expect to
    see if these changes to CTC that were made through the American
    Rescue Plan were reinstated?
        Dr. Meyer. Sure; thank you, Senator. If you compare the
    benefits that someone not working would receive through the
    combination of the ARPA CTC and SNAP, it exceeds in most
    States--and States that constitute 63 percent of the
    population--what was paid under the old AFDC system plus the
    Food Stamps benefits of that era.
        That is not including the current TANF benefits and
    expanded SSI that we are seeing. So the benefits for the
    nonworking would be quite a bit greater on average, really in
    almost all areas of the country, than we had under the AFDC
    program that people rejected as discouraging work.
        Senator Thune. All right; thank you.
        Mr. Chairman, my time has expired. I would like to ask some
    of the other panelists some questions. Perhaps I will submit
    those for the record.
        Thank you.
        The Chairman. Very good. Thank you, Senator Thune.
        Senator Casey is next.
        Senator Casey. Mr. Chairman, thanks very much for the
    hearing, and I want to start by thanking Senator Brown, Senator
    Bennet, and Senator Wyden, our chair, for leading the effort to
    include in the American Rescue Plan the enhanced version, the
    much better version I would argue, of the Child Tax Credit. It
    would not have happened without their leadership, and I want to
    thank our witnesses for being here today to highlight it and to
    make it real for people.
        But I can just speak from the perspective of Pennsylvania,
    in the context of where we have been as a Nation for the last
    40 years. In my view, we have had 40 years--most of the time,
    with very rare exception--with a tax code being rigged over and
    over again for the wealthiest Americans and the most powerful
    corporations in the world.
        It seems like every time the Congress had a chance to
    choose families raising children over very wealthy families or
    large multinational corporations, the Congress has chosen the
    latter. The only time in a substantial way that the Congress
    chose to help, through the tax code, families raising children
    was in the American Rescue Plan.
        And as Senator Bennet said, it worked. All the evidence
    shows that, and I will go through some of that data in a
    moment. But I think the most compelling testimony for me is--as
    someone who represents a large State, a very diverse State, a
    State that has 67 counties, 48 are rural counties--that the
    Child Tax Credit substantially, and in some cases
    disproportionately, benefited those families living in rural
    communities with about, on average, $440 a month.
        When I listened to my constituents, here is what I heard. I
    met with two mothers in the Lehigh Valley on the eastern border
    of our State, two moms both testifying to me about what the
    Child Tax Credit meant to them in 2021. In addition to the
    purchase of food, which we heard over and over again--and all
    the data shows that--that is what most families are using it
    for: food and rent and basic necessities.
        Ms. Lester, you said in your testimony, ``We used it to
    cover basic needs.'' That is what I heard in Pennsylvania. But
    here is another example. Those two mothers I met in Lehigh
    Valley said they were able to use a part of the Child Tax
    Credit that they got to enroll their children in school
    activities they could never afford otherwise.
        Just imagine what that means in the life of a child, if
    they cannot join a club that would benefit them somewhere down
    the road, to fulfill their dreams, whether it is athletics or
    some other school activity--totally foreclosed if the families
    cannot afford that.
        But, Ms. Lester, you personify what a lot of our
    constituents have told us. You said the Child Tax Credit ``was
    a godsend for my family.'' And again, you said that it covered,
    helped you cover basic needs. ``It gave us a bit of breathing
    room,'' you said, and you went on to say towards the end of
    your testimony, ``It makes moms like me feel like maybe, just
    maybe, it is possible for things to get better.''
        So the question we have to ask ourselves is, why the hell
    would we not do this again, if it worked so well on the macro
    level in terms of reducing child poverty? No action by the
    Congress in 75 years probably has reduced child poverty more
    than this one did.
        Why would we not do it again? And as Senator Bennet
    challenged us, why do we have to accept the fact that we have a
    high child poverty rate, to say the most powerful country in
    the world can do nothing about that? This is one thing we can
    do in a very direct, immediate, and substantial way to reduce
    child poverty.
        So, I will submit some questions for the record, especially
    about the other tax credit. Ms. Matsui, when you spoke and
    testified in your written testimony with regard to not just the
    Child Tax Credit, which--so we can explain it to people,
    because it gets confusing around here--helps families raise
    their children.
        The other tax credit, of course, is the Child and Dependent
    Care Credit, which is specifically designed to help families
    pay for child care itself and other support. But I will submit
    questions for the record, Mr. Chairman.
        But we need to do this again, to take action to
    dramatically reduce child poverty in America. We can do it, and
    we proved it in 2021.
        Thanks, Mr. Chairman.
        The Chairman. I thank my colleague, and I am going to
    recognize the Senator from Nevada in just a second. But I just
    want to take note that Senator Casey, and a number of our
    colleagues, have been talking about the issue of tax fairness
    throughout this morning's discussion.
        I just want the record to show that we have, through our
    investigators, been able to show that in today's tax system--
    and it is legal--it is possible for billionaires to pay little
    or no income taxes for years on end. Firefighters, teachers,
    nurses have to pay with every single paycheck. But a lot of
    billionaires do not have to, and it certainly is part of the
    debate we are highlighting today about giving everybody a
    chance to get ahead in America, which means everybody is going
    to have to pay their fair share. Paying your fair share is not
    something that is going to make you less successful. I
    appreciate my colleague's point.
        The Senator from Nevada.
        Senator Cortez Masto. Thank you, Mr. Chairman, and thank
    you for the panelists. I had to step out to attend a briefing,
    a classified briefing, but I went through the materials. And
    this is such an important issue, and I thank you, because we
    need to weed through the truth and the facts and the impacts to
    our families, and those that are misinformation out there.
        By the way, I just have to mention, because this is a
    conversation I have in my State all the time. Some of my
    colleagues on the other side of the aisle are concerned about--
    and they call it ``welfare to families'' when we give them tax
    credits to try to support and lift up their families and
    themselves.
        But when they want to give tax credits to the very wealthy,
    as well as those big corporations, it is not corporate welfare
    then. It is something else, and so this always astounds me,
    when we are actually talking about lifting up our families and
    pulling children out of poverty and helping one generation to
    succeed beyond to the next generation, right?
        Ms. Lester, it is just what you said. As a young girl, you
    did not have the opportunities, and you want to give these
    opportunities to your family, and you want to be a part of that
    workforce. And by the way, as a social worker, thank you.
        We need you. We need social workers and more of you, and I
    do not think it is inappropriate to help you succeed and to
    help you with your family so you can achieve that next rung,
    whatever that looks like for you and your family.
        So let me jump back here, Ms. Matsui. Many of my colleagues
    on the other side of the aisle compare a fully refundable tax
    credit to the Aid to Families with Dependent Children program.
    That was eliminated in 1996. The program was widely believed to
    have discouraged work, but the comparison to the 2021 CTC rings
    hollow.
        Let me--the AFDC program was designed in a way such that
    each dollar you earned in the workforce often directly
    corresponded to one less dollar in benefits. This was
    essentially a 100-percent tax rate on working, right, and so,
    can you talk to me? This is simply not the case with the
    refundable tax credit.
        So, Ms. Matsui, do you agree there is a difference between
    the two, and why is the Child Tax Credit--why is that
    important? How does this benefit and support so many children
    and families?
        Ms. Matsui. Thank you for the question Senator, and I think
    you raised one very important distinction between the AFDC
    program, which no longer exists, and the Child Tax Credit, and
    that is, if someone is working and receiving the Child Tax
    Credit, they do not receive less.
        So they can continue to work, they can increase their
    incomes and increase the family budget and what is available
    for resources for their family. So, to my mind, that is a very
    important distinction to make.
        I think the other point just to make is that, using the
    word ``welfare'' when there are clear policy distinctions
    between the Child Tax Credit and the AFDC program is simply an
    attempt to kind of demonize the Child Tax Credit and giving
    families support to raise their children, to make sure that
    children are not experiencing the deleterious effects of
    poverty.
        Senator Cortez Masto. Thank you.
        And then, let me follow up on this. In 2016, Canada
    replaced a patchwork of their Federal child benefits with a new
    Canada Child Benefit. It is a flat monthly payment made to
    families to help with the cost of raising children under 18.
        A 2021 study of that, of the CCB, found no evidence it
    caused less work among single parents. In fact, many
    industrialized countries have generous family benefits and
    higher labor force participation rates than the U.S.
        So, Ms. Matsui, would you talk a little bit about how
    common child and family benefits are around the world, and what
    the impact is of those policies on those families?
        Ms. Matsui. Thank you for the question, Senator. There are
    over 100 nations around the world that provide some kind of
    child benefit, and 23 of those are comprehensive, generous
    child allowances that are given in large part without regard to
    parental income.
        The evidence has shown that those programs have a
    significant impact in reducing poverty. The Canada benefit that
    you mentioned has shown increases also in test scores, in
    maternal health, and also improvement in physical health
    outcomes. So the evidence from programs that provide child
    allowances around the world shows that they do reduce poverty
    significantly.
        Senator Cortez Masto. Thank you.
        And then, Ms. Lester--and you have already touched on
    this--but the Child Tax Credit and the support provided to you
    and your family, is that incentivizing you to stay home and not
    work?
        Ms. Lester. No, of course not.
        Senator Cortez Masto. And I kind of find this offensive for
    so many families and individuals, that because they are just
    seeking assistance, whether it is with child care or help with
    that step up in a child tax benefit that, by the way, large
    corporations get----
        Ms. Lester. Right.
        Senator Cortez Masto [continuing]. That somehow it is
    demonizing all families and individuals that no, they are just
    taking advantage of the system and they just want to sit home
    and do nothing and get money from the Federal Government. Is
    that true? Do you see that happening in your community or in
    your family?
        Ms. Lester. I can see that happening in just the societal
    sphere, yes. I can see people trying to demonize families
    wanting family-friendly policies. But as we have discussed,
    most other industrialized countries have policies that are
    family friendly, and because of that, they have better quality
    of life.
        Senator Cortez Masto. Thank you. Thank you. I know my time
    is up.
        Thank you, Mr. Chairman.
        The Chairman. My colleague asked very good questions, and
    one of the areas, I would say to my friend from Nevada, that we
    got into that highlights your point, is the reason people do
    want and need to keep working is because of these crushing
    child-care bills. These child-care bills, the $30,000, are
    clearly just devastating to people.
        Senator Brown?
        Senator Brown. Thank you very much, Mr. Chairman. Again,
    thanks for holding this hearing. Thanks to Senators Whitehouse
    and Cortez Masto and Warren and the chair for their work on
    this and their cosponsorship of our bill today.
        I was sitting on the Senate floor with Senator Casey on
    March 6, 2021, and I remember turning to him and saying, ``This
    is the best day of my career,'' because it is the day that we
    passed the expanded Child Tax Credit--unfortunately, on a
    party-line vote, by one vote.
        But we passed it, and what Ms. Lester said in her opening
    statement, and the difference it made in her life, was the
    whole reason that we were all so excited about it, and the
    reason we should renew it.
        I remember after that day--we passed it March 6th--the
    President signed it maybe March 20th; I am not sure. I remember
    I called Secretary Yellen the next day and asked her to call
    the IRS Commissioner, who was a Trump appointee but a true
    public servant, and she called him; I called him. That was in
    March of 2021.
        By July, checks had gone out to the families of 60 million
    children, including Ms. Lester--2 million children of families
    in Ohio. We know what parents face today, as she said so well
    in her testimony. Everywhere it seems people are getting
    squeezed. This tax cut provided a little bit of relief. That is
    why we are introducing the bill today, again with Senators
    Bennet and Wyden and Warren and Whitehouse.
        Ms. Lester, I want to ask you a question. We have heard a
    lot about 1996 today, perhaps tiresomely, but let us talk about
    life for parents in 2023.
        How did the predictability of knowing that you would
    receive your tax credit every month help give you peace of mind
    and allow you to plan for your family's budget?
        Ms. Lester. Like I had mentioned, it helped cover costs
    that come up every month. There are always going to be
    birthdays, holidays, gifts to buy, parties--children, you know,
    love parties.
        There is always that, and then children always need clothes
    and shoes. I used a lot of that money towards that. I mean,
    kids grow out of clothes very fast, and Ohio you know is a
    four-season State. So at minimum, I have to buy clothes every
    season. Same thing with shoes every season.
        Even when you are shopping at places like Target and
    Walmart, the costs add up very quickly. You know, I would say
    on average I spend well over $100--when I had just one child,
    well over a $100 per month just on clothing and shoes alone.
        Senator Brown. Thank you. And I have never heard us called
    a four-season State. I have lived there my entire life, but I
    know what you mean, and it really is, so thank you for that. I
    am glad to hear a little more about Olivia and Emma.
        You talked about your childhood 30-40 miles away from where
    you live now in Marion, and tell us how you think that
    expansion, restarting the expansion, would make their lives
    just a little bit better, which will affect their future lives?
        Ms. Lester. It would help their parents cover child-care
    costs and be able to have money for other things, other
    necessities in life. Right now, our entire focus is just on
    paying child care, and then everything else is kind of next.
        And I think if we were not spending as much money towards
    child care in the future, I think about how much help could I
    give them with college? Because I worked my way through college
    on my own, and was a first-generation college student and the
    first woman in my family to go to college and also to get a
    graduate degree.
        I want that to be possible for them. I want them to go as
    far as they want to go or even further, and I would like to be
    able to help them as my family was not able to help me.
        Senator Brown. Thank you.
        Ms. Lester. Yes, thank you.
        Senator Brown. I have heard, I mean, I have heard today--
    sorry I had to be out of this committee. I had to do something
    on the rail safety issue in eastern Ohio that you know about in
    our State. But I have heard--and I have heard it for years, and
    Chair Wyden has heard it--that you know, this $300 a person,
    $300 a child if the child is under six, $250 a child from 7 to
    18, that it makes people lazy, that they will quit working.
        So let me ask you this question. I mean, it is kind of a
    stupid question, but it just sort of answers--if Congress
    decided to restart the CTC expansion, would you quit your job?
        Ms. Lester. No.
        Senator Brown. Okay. I think if I ask all of the parents of
    the 2 million children in Ohio that question, it would be such
    a minuscule number of people who would say, ``Yes, I would quit
    my job.'' Because, I mean parents are working hard. They are
    working hard with their kids, they are working hard in the
    workplace.
        You know, we have seen the rich get richer in this country.
    We have seen moderate-income--I mean, I know I heard you say
    maybe middle-class for you, working-class, however you think of
    yourself that way--struggling, working hard, putting a lot of
    hours in, not getting ahead.
        This gives people--as I said, that was the proudest day of
    my career, the day we passed that, because I knew enough
    people--we had not met before today--but I knew enough people
    in my State and my neighbors and others. It will make their
    lives easier, better, more productive, and especially give
    their kids a launch that we do not do well enough in this
    country.
        So, thank you, and Ms. Matsui, thank you too. Thank you,
    Mr. Chairman.
        The Chairman. I thank you. We already talked about the
    Brown doctrine of the dignity of work, so we appreciate it.
        Senator Warren, you are next.
        Senator Warren. Thank you, Mr. Chairman.
        So the tax code is a powerfully important policy tool. It
    raises the revenue that we need to fund investments in
    hospitals and bridges and clean air. It determines whether or
    not the wealthiest must pay their fair share for these
    investments, and the tax code itself is a social insurance
    system that helps struggling families.
        So today I want to talk about two ways to make our tax
    system fairer: restoring the expanded Child Tax Credit or CTC,
    and making it easier for families to actually claim that
    credit. For decades, the CTC has helped families with the cost
    of raising children, and during the pandemic--as many of my
    colleagues have talked about--Democrats expanded the CTC to
    make it more generous and to ensure that the poorest families
    would get a check from the IRS when the CTC exceeded the amount
    that they owed in taxes.
        So, Ms. Lester, thank you for joining us today. I know you
    have talked with a lot of people. But I just want to
    understand. You are an Ohio-based mom, right, with two
    daughters? How old are your girls?
        Ms. Lester. Yes. My oldest is 3\1/2\, Olivia, and then the
    youngest just turned one, and her name is Emma.
        Senator Warren. Ah, great names. What a blessing. Can you
    just say a word about how the Child Tax Credit has made a
    difference in their lives?
        Ms. Lester. I received it just for Olivia, but it
    definitely did help us cover a lot of different costs. I had
    given an example of, I took my first-ever family vacation, you
    know? That helped towards the cost of that. I wanted my
    daughter to see the ocean. I would love her to experience
    things that I never got to experience growing up, and I think
    that travel and experiencing different cultures is part of
    that, to expand her horizons.
        Senator Warren. That is great. Now the expanded Child Tax
    Credit lifted nearly 3 million children out of poverty, and it
    slashed the child poverty rate almost in half--the largest
    single-year decline on record. We need to restore the expanded
    Child Tax Credit and make it available again to mixed-status
    families.
        But we also need to make it easier and less expensive for
    families to file their taxes in order to claim it. So, Ms.
    Lester, let me ask you. How did you file your taxes, including
    the claim for the CTC? Did you have to pay money to file your
    taxes?
        Ms. Lester. Yes. I use an online software program. It is
    called TaxAct. It is like TurboTax. I have been using that for
    well over a decade.
        Senator Warren. Do you remember what you paid for it?
        Ms. Lester. This past year, yes. I had to pay like about
    $45 for Federal then $45 for State. I tried to file the State
    myself, so that it is free, but something went wrong this year,
    and so I had to pay.
        Senator Warren. Okay, so 90 bucks in order to get your
    Child Tax Credit. You know, this is all too common. The TaxAct
    is actually part of a public-private partnership called Free
    File, which was supposed to allow 70 percent of taxpayers to
    file for free. But it in fact only serves only about 2 percent
    of filers.
        Instead, the average individual--you are at least below
    average on this, when the average individual spends about $140
    to file their taxes. Now, those prices help the likes of TaxAct
    and Intuit and these other for-profit outfits, but they are
    also a big reason that over 10 million low-income Americans do
    not claim the hundreds of dollars in tax benefits that they are
    legally entitled to every year, including the CTC and the EITC.
        Our current tax filing system is not working, and that is
    why just last month the IRS announced that it will be launching
    a new tool next year that will allow taxpayers to file for free
    directly with the IRS.
        Ms. Lester, I want to ask: if the IRS were offering a free
    tool that you could use easily and securely to file your taxes,
    would you be interested in using it?
        Ms. Lester. Yes, I would probably feel a little more
    comfortable in using their program than a for-profit company.
    That is the reason why I have stayed with the one for so long,
    the concerns of security.
        Senator Warren. Yes, yes, good. And of course, you save
    yourself some money there.
        Ms. Lester. Right; right.
        Senator Warren. So, along with announcing the Direct File
    pilot for next year, the IRS released a report, which clearly
    showed that taxpayers want a direct filing tool, and that the
    IRS is able to provide one. So it is great news that the IRS is
    acting.
        Congress needs to step up too. We should restore the
    expanded CTC and fully fund the IRS so that it can keep
    providing and improving services like Direct File to ensure
    that American families get the refunds they are owed. That is
    the kind of tax reform that American families deserve.
        Thank you. Thank you, Mr. Chairman.
        The Chairman. I am going to go to Senator Tillis in just a
    quick second. I want people to note, this is a very important
    exchange between you, Ms. Lester, and Senator Warren, what we
    have been talking about since 2011, when I introduced Free File
    with Senator Dan Coats, a Republican.
        This is again, Ms. Matsui, back almost in yesteryear. Dan
    Coats, Republican of Indiana, joined me in it, and the only
    thing I want to add to the record is what Senator Warren is
    talking about, and I have been talking about: it is a purely
    voluntary idea.
        So, when we get this done--and we are going to stay at it
    until we do--it would be presented to you, Ms. Lester, as
    something if you chose to, you could do it. No government
    initiative is going to require you to do anything, and I think
    your exchange with Senator Warren was very important.
        Senator Tillis?
        Senator Tillis. Thank you, Mr. Chairman. Thank you all for
    being here.
        I do want to go back to what I think some of the main
    drivers were for the Child Tax Credit in the American Rescue
    Plan. If you remember, we were in the midst of the pandemic. A
    lot of people were talking about how we needed to provide
    relief to families.
        Keep in mind we had school closures, we had day care
    availability, we had a lot of stressors that suddenly made
    people who were employed think what was going to cost them
    less: stay employed or go home and take care of their children.
    We were trying to find a way to make the numbers work. The
    Congress was trying to find a way to make the numbers work.
        I voted against the American Rescue Plan and stand by that
    decision, not purely because of the CTC, because I do not think
    we are getting this right. Do we need a Child Tax Credit? Yes.
    How do we go about implementing it? Do we need to provide
    assistance to families with children? Yes. Do we need it
    through the Child Tax Credit? Questionable in my mind.
        You know, the Child Tax Credit was temporary in the
    American Rescue Plan, and it was truly incentivized to keep
    people at work. Now we are declaring it to be highly successful
    with about 5 months of data.
        I mean, would anybody looking at that program now think
    that we have sufficient information, Dr. Meyers, sufficient
    information to draw a conclusion it is a highly successful
    program and we should just reauthorize it?
        Dr. Meyer. I do not think so. When we looked at welfare
    reform back in the 1990s, there was a huge amount of high-
    quality research that preceded it. We are not seeing that kind
    of research effort to investigate the effects of the American
    Rescue Plan Act.
        Senator Tillis. Yes. I think fundamentally--and if you
    disagree, say so. I think we should have programs that give
    parents the flexibility they need to raise their children, to
    develop their work skills, and hopefully be able to get to
    work.
        What is wrong with a policy that tries to incent a positive
    outcome, which is ultimately to be independent of any
    government assistance? What is wrong with that sort of mindset
    when we go in and try to figure out what a Child Tax Credit
    policy should look like, or other government support systems?
        Dr. Meyer. I do not think that there is anything wrong with
    that at all. The problem I see with replacing the CTC with a
    child allowance is that it is universal, and it is not targeted
    to those who really need assistance.
        Senator Tillis. Right.
        Dr. Meyer. It is just going to everyone.
        Senator Tillis. I am sure we are going to have more
    discussions about this as it is set to expire. But the only
    relevant experience I have in this space is when I was Speaker
    in the House. Back during the Obama administration, we had a
    10.4-percent unemployment rate in North Carolina, fourth
    highest in the Nation.
        President Obama offered every State the opportunity to
    extend unemployment by another 26 weeks. The State of North
    Carolina, as a result of a decision I made and the Senate
    majority leader, took a pass on $750 million in additional
    unemployment benefits.
        We had an unemployment insurance fund that was nearly
    insolvent. We implemented policies that reduced the forward
    benefit on people prospectively who were unemployed by 25
    percent to put it in line with the regional average.
        We reduced the duration to the prevailing rate of
    unemployment, so if we were in high states of unemployment, you
    got 13 weeks. If we were in high states or low states--high
    states, you got more. Now everybody said that was horrible, it
    was draconian, it was going to destroy families. The only thing
    that happened over 6 quarters is that we went from 10.4-percent
    unemployment to 6.4-percent unemployment, with no measurable
    increase in social services safety net funding for the State.
        I for one think we got it right, and I for one think we
    should get this right. It is not about whether or not it should
    exist; it is who should be qualified for it and what
    expectations should we have for working families with respect
    to getting on track, to getting a job, and reducing their
    dependence on government.
        And if we have that discussion, they can count me in. But
    just a simple straight reauthorization of the CTC, I do not
    think serves the best interest of the very people that we are
    trying to help.
        Thank you, Mr. Chair.
        Senator Crapo [presiding]. Thank you.
        Senator Young?
        Senator Young. Thank you, Mr. Chair. I want to thank our
    witnesses for being here today. I really appreciate it. As we
    discuss family support provisions in the tax code, it is
    important to remember there are several provisions in the tax
    code that may not get mentioned today, but have a substantial
    impact on working families, and the populations we are focusing
    on here.
        In fact, just last week, Chairman Wyden, Ranking Member
    Crapo, Senator Cardin, and I hosted a joint roundtable of the
    Senate Finance Committee and the Small Business Committee to
    discuss how the tax code's complexity impacts small businesses.
    Each participant at that roundtable expressed support for
    restoration of full and immediate expensing under section 174.
        This is something I have been advocating for through my
    American Innovation and Jobs Act with Senator Hassan. What I
    found striking was the testimony from the small business owner
    roundtable participants about what they would do with those tax
    savings.
        They would hire more employees and provide additional
    compensation or bonuses to existing employees. They would offer
    educational incentives and scholarships, and provide enhanced
    health care and other benefits. These employees they were
    talking about supporting were not highly compensated
    executives. They were average Americans who were working to
    provide for their families and support their communities.
        It was a helpful reminder that supporting our small
    businesses translates into supporting America's working
    families. In addition to ensuring we have quality jobs
    available for working families, we also want to make sure those
    families have safe and affordable housing near those jobs.
        I am proud to work with Senator Cantwell on the Affordable
    Housing Credit Improvement Act, to build upon the successes of
    the Low-Income Housing Tax Credit or LIHTC program. This bill
    directly supports working families by facilitating the
    construction of much-needed affordable rental housing stock.
        Additionally, I am pleased to be working with Senator
    Cardin this Congress on the Neighborhood Homes Investment Act,
    which would use the tax code to promote home rehabilitation and
    ownership among low- and middle-income families in distressed
    neighborhoods.
        While the tax credit programs we are discussing today are
    an important component of our tax code's support for working
    families, they are certainly not the end of this story. I
    encourage my colleagues to support these other legislative
    initiatives and the great potential they offer for
    strengthening America's families in the future.
        Professor Meyer, in your written testimony you point out
    that the National Academy of Sciences conducted a study that
    modeled the income and poverty effects of policies similar to
    the CTC. But when they directly modeled the impacts of
    replacing the CTC with a child allowance, they failed to
    incorporate changes in employment, even though they
    incorporated changes in employment when analyzing other tax
    credits.
        Can you please share why you believe employment effects
    were specifically excluded in the modeling of the child
    allowance?
        Dr. Meyer. Thank you for the question, Senator. The report
    is quite peculiar. This was a very influential report that the
    President, and much of the research on the effects of the CTC,
    has cited. In the report, it says that you do not need to worry
    about the return to work when there is not an existing CTC.
        But it then indicates that the calculations done in the
    report are with the 2015 tax law baseline, and then redone with
    the second set of estimates using a post-TCJA baseline. In
    neither case, though, does this report incorporate the effect
    of changing the return to work.
        It does include this return when it examines expanding the
    EITC as an option, but never when it is cutting the CTC by
    replacing it with a child allowance, i.e., a CTC for those who
    do not work. If we were to apply their methods evenly across
    the tax credits, we would find the larger employment response
    then in the estimates that we provided, that had a very
    substantial 1.5-million-person decline in work from the ARPA
    CTC.
        Senator Young. This seems like, certainly, an oversight at
    best, but a weakness in the data, which will need to be
    remedied. And in the interim, I think we are all going to have
    to just do our best based on some of the historical analogs we
    can think of.
        Based on your understanding of the CTC and the proposed
    child allowance, do you believe replacing the CTC with an
    allowance would have an impact on employment?
        Dr. Meyer. Yes, substantially. I do think that the best
    analog is to look at what happened when we reformed welfare and
    saw an unprecedented increase in employment following it in the
    1990s.
        Senator Young. Thank you, Doctor.
        Senator Crapo. Thank you.
        Senator Blackburn?
        Senator Blackburn. Thank you, Mr. Chairman, and I am so
    pleased that we are doing this hearing today, and I appreciate
    hearing each of your opening statements and the approach that
    you bring. There are so many public and private organizations
    along with our Federal, our State, and our local governments
    that are working to help people climb out of poverty and
    helping them to build sustainable economic success.
        In Tennessee at one point, we had done a Tennessee women's
    economic council to focus on the issue specifically with women
    and working moms. We did that because Tennessee is no stranger
    to the impact of poverty, and in 2021, 14 percent of the
    households, which is over 380,000 households, were considered
    to be at or below the poverty line.
        That is the impact it has in our State, and of that number,
    just under 80,000 of those were female-led households. So
    thankfully, Tennessee is seeing our numbers trend downward.
    People are being lifted out of poverty. We are fortunate that
    companies are choosing to move to Tennessee, and they are
    bringing well-paying jobs.
        But even with all of this, poverty continues to be a
    significant issue that we are working toward reducing. I think
    it does take our different government entities and our
    community partners to do a good job of moving this forward.
        Dr. Meyer, I want to come to you. I appreciated your
    opening statement, and your referencing the work you did with
    President Clinton as you worked on the welfare-to-work
    programs. You highlight your and many academics' concerns with
    eliminating the work requirements for these incentive programs.
        Specifically, you mention that this could lead to a
    reversal of much of the progress that was made since the '90s
    under the bipartisan welfare reform. So I would love for you to
    just talk a little bit more in depth about how unconditional
    cash transfers impact the long-term economic stability of
    recipients.
        Dr. Meyer. Thank you for the question. We saw with welfare
    reform, when we moved to a system that rewarded work, that
    there was a substantial decrease in poverty for single mothers.
    And unlike the changes in poverty over time for other groups,
    it was due to increased work rather than increased government
    benefits.
        Senator Blackburn. Let me ask you also, I had looked at an
    article you did in 2019, ``The Use and Misuse of Income Data
    and Extreme Poverty in the United States.'' So how can the U.S.
    Government better work with the public and private sectors to
    account for real income, and that real valuation, to ensure
    that the funds are being targeted where they are most needed?
        Dr. Meyer. So, I appreciate that question. It is one of the
    biggest issues with moving from something like the current
    system to a system where you are paying benefits to just
    everyone. In that case then, you do not have the interaction of
    social services in figuring out what is the best benefit for
    people, whether it is money or it is job training or it is some
    kind of----
        Senator Blackburn. So, having caseworkers that tailor the
    benefit to the need?
        Dr. Meyer. Yes.
        Senator Blackburn. Mr. Collins, I would love to have you
    weigh in on that.
        Mr. Collins. Sure. I think it is very important that the
    committee knows there is a lot of work that is going on, on the
    ground right now. That is sort of what my organization does. We
    have, basically, a seven-point strategy for when individuals
    come in through case management. We ask them what type of job
    they want. We look at their family size. We do an EITC
    calculation right up front that spurs their ability to think
    about what that job looks like.
        We have, basically, a seven-point strategy. So, we will
    talk to you about that job choice at the next meeting, and many
    programs these days support people through work through 365
    days. So, we will have that conversation at 30 days, 90 days,
    180 days, 365 days. And most importantly, we will invite them
    in for a free tax preparation opportunity during tax season.
        It takes all of that to make sure that everybody who is
    eligible actually receives the credits that they are due for
    their work.
        Senator Blackburn. That's excellent.
        Thank you, Mr. Chairman.
        The Chairman. I thank my colleague.
        Senator Carper is next.
        Senator Carper. Thanks, Mr. Chairman. Welcome one and all.
    I had a chance to meet you. I had to run off and chair another
    hearing, so I am glad you are still here, and thank you for
    your testimony today.
        I have a couple of questions. One deals with targeting the
    Child Tax Credit to help those most in need, and I will just
    get right to that one. One important principle that I try to
    follow when considering policies like the Child Tax Credit is
    to ensure that benefits are targeted to those most in need. I
    think that is a view that is shared by most, if not all, of my
    colleagues.
        Unfortunately, the Child Tax Credit as it currently exists
    does not reflect this principle, and today I am told a married
    couple earning up to $400,000 per year is able to receive the
    full benefit of the Child Tax Credit. At the same time, a
    married couple at the lowest end of the income spectrum is only
    eligible for a portion of that credit.
        Question--and this would be for Ms. Matsui and Ms. Lester--
    but how can policymakers better target the Child Tax Credit to
    support those most in need, instead of benefiting upper-income
    families, all while reducing the cost of the credit to the
    Federal Government? Please, Ms. Matsui.
        Ms. Matsui. Senator, thank you for the question. I think
    one of the most important ways to make the Child Tax Credit
    accessible to those who need it the most is to remove the
    earned income requirement, which limits and boxes out at this
    moment 19 million children under the age of 17 in households
    that do not earn enough to be able to claim the full credit.
        In addition, the provision from the 2017 tax law that made
    children with ITINs ineligible to be claimed for the Child Tax
    Credit is another policy that locks families out of the
    benefits of the Child Tax Credit, and is another way that we
    could improve it, so that the families most in need receive it.
        Senator Carper. Okay, great. Thank you.
        Ms. Lester, the same question. How can policymakers like us
    better target the Child Tax Credit to support those most in
    need, instead of benefiting in no small part upper-income
    families, all while reducing the cost of the credit to the
    Federal Government?
        Ms. Lester. I think you basically have to spend money to
    save money sometimes, and that is going to be through the
    family-friendly policies, which are going to help the average
    family such as myself, a two-income working household. We need
    better policies to be able to continue to work.
        It is not sustainable to continue to pay almost $30,000 for
    child care so that I can go to work. I mean, that is most
    people's yearly income, so they cannot maintain that.
        Senator Carper. Okay, thank you.
        My second question is for Mr. Collins. Good morning--good
    afternoon. It has been a full day so far, but a question, if I
    could, on the Earned Income Tax Credit and workforce
    participation.
        As I travel around the State of Delaware, about 100 miles
    from north to south, about 50 miles from east to west--we have
    a million people. But I regularly do what we call customer
    calls. I visit businesses large and small, I have visited
    schools and hospitals, all kinds of entities, nonprofits.
        But when I do these customer calls throughout our State, I
    find out how they are doing, and I ask those folks whom we are
    visiting, I say, ``How are we doing, the congressional
    delegation? How are we doing? How is the Federal Government
    doing? How is the State government doing?''
        And I ask, ``How can we help? What can we do to help?'' And
    a common refrain that I hear from many, many employers is that
    they are struggling to find workers, people who come to work,
    show up regularly, do a job, get trained, and make a
    contribution.
        While we are fortunate to have a low unemployment rate--I
    think it is hovering around 3.5 percent--we got good news today
    on the inflation side. It continues to subside. I think we are
    looking now at an annual rate of down to about 4 percent. We
    had 340,000 new jobs that were created last month. The
    unemployment rate is still, I think, about the lowest it has
    been in a long, long time.
        But we still have a tough time encouraging people to enter
    the workforce following the pandemic. Fortunately, the Earned
    Income Tax Credit is a proven bipartisan tool to tackle this
    challenge and bring people back into the workforce. My question
    for you, Mr. Collins, is, how does the EITC incentivize people
    to work, and how can greater workforce participation uplift
    families and communities?
        Mr. Collins. Thank you, Senator. How does it incentivize?
    Long research and history have proven that it has done that
    since the mid-'90s. Attaching it to work has actually worked
    out very well. So work, in fact, does work when it comes to the
    EITC.
        To expand it, I think in the situation that you just
    mentioned in Delaware, it would be very interesting to see if
    employers would embrace actually doing EITC awareness
    campaigns, so that they can find more individuals who would be
    interested in working at their particular facilities.
        This is the work of some of the programs that we have done
    across the country, and some of the actual programs are done by
    the Office of Family Assistance, for example, in Waco, TX.
        Senator Carper. All right; thank you for that.
        Mr. Chairman, this may already have come up, but you and I
    served, Mr. Chairman, with Bob Matsui and later on with his
    widow, and I know we have here with us today their daughter-in-
    law. I had a chance to meet with you earlier just to convey our
    best to your mother-in-law and your family. We appreciate very
    much having known them and served with them.
        The Chairman. The bouquets have been flowing to Ms. Matsui,
    because we all have so appreciated the family's advocacy,
    particularly for low-income folks on the issues that we are
    talking about. That is what Bob championed during his service.
        Okay. Thank you, Senator Carper.
        Senator Menendez?
        Senator Menendez. Thank you, Mr. Chairman.
        I am proud to have voted for the American Rescue Plan,
    which provided a historic increase to the Child Tax Credit. By
    boosting the credit to $3,600 for infants and toddlers, and
    $3,000 for children, and paying those credits on a monthly
    basis, child poverty decreased by 30 percent in 2021.
        In the same year, food insecurity decreased by 24 percent,
    the equivalent to 2 million fewer children going hungry. For
    parents with a newborn at home and a toddler in day care, that
    was $600 a month that helped pay for diapers, for baby formula,
    for child care. And for children between 6 and 17 years of age,
    the $250 monthly payment went towards new clothes, maybe a
    laptop for school, the money needed to join an extracurricular
    activity.
        Unfortunately, this critical lifeline ended for hardworking
    families across the Nation at the end of 2021. So, Ms. Lester,
    can you talk about how the enhanced Child Tax Credit impacted
    your day-to-day life and what has changed since its expiration?
        Ms. Lester. Yes, thank you. As I have said before, it
    helped us pay for basic needs monthly that come up. Bills come
    up monthly, not just once a year. You know, we pay for clothes,
    shoes. We have paid for extracurricular activities as well.
        Since it has gone and now I have a second child, our
    expenses have just doubled and with less help that we can count
    on. That has caused me to run through savings and kind of run
    out of resources.
        That is why after this year, I do wonder how we will
    continue on this kind of rate of continuing to pay the
    astronomical child-care bill that we have, with the little
    assistance that we get. Because right now, with the Child and
    Dependent Care Credit, we hardly receive anything.
        I think it just amounts to literally a few dollars for us,
    and I was not aware of that before I had children. I believed
    that were tax incentives for people that self-paid for day
    care, that there was a little more help than there is in
    reality.
        The expanded one from 2021, we qualified for, and that
    particular year when we filed for it, I believe that the only
    refund we had received was from that credit, or we would have
    received nothing or would have possibly owed.
        Senator Menendez. Thank you, thank you. Let us stay on
    child care for a moment. Child care is about being able to be
    free to go to work. We talk about the ability to work. Child
    care is a big part of that, as well as formation of the child.
    The Child and Dependent Care Credit is, I think, critical in
    making child care more accessible for working and middle-class
    families.
        The American Rescue Plan took the long overdue step of
    boosting the credit from $3,000 to $8,000, but that was only
    temporary. So, Ms. Matsui, what are the economic benefits that
    families and the economy stand to gain if the Federal
    Government made critical investments in child care?
        Ms. Matsui. Thank you for the question, Senator. As you are
    well aware, child care is incredibly important to sustain the
    employment, of keeping women in the paid workforce, for
    supporting families, and also to help child-care workers, who
    are among some of the most poorly paid workers in our country
    but do this essential work.
        The way that the American Rescue Plan expanded the Child
    and Dependent Care Credit, primarily by making it refundable,
    made that credit available to low- and moderate-income
    families. Because under current law, families who do not have
    sufficient tax liability cannot get any benefit from it at all.
    It is only a nonrefundable credit that wipes away tax
    liability.
        And so, only a very small fraction of its benefits goes to
    low- and moderate-income families. So especially--and as you
    noted, the size of the credit does not come close to matching
    the cost of child care that families are experiencing every
    month.
        So you know, if the Child and Dependent Care Credit's
    expansions were restored, along with kind of the robust
    systemic investments in child care to make the system stronger
    and support providers, child-care workers, and families
    overall, it would make it easier for parents to go to work. It
    would make the workforce more stable for employers, and that
    would boost our economic growth overall.
        Senator Menendez. Yes. I mean if we--I hear a lot of my
    colleagues talk about the value of work and rewarding work.
    Well, you've got to be able to get to work, and child care is
    an important part of that.
        One last question, if I may. You know, the Tax Cuts and
    Jobs Act of 2017 added nearly $2 trillion to the annual deficit
    over 10 years. But one of the cruelest provisions in the law
    was excluding the Child Tax Credit for certain taxpaying
    families because of their immigration status. Isn't the theory,
    Ms. Matsui, behind the Child Tax Credit applicable to both ITIN
    filers and filers with a Social Security number? Basically,
    that proposition being that taxpayers should be able--and I
    underline--taxpayers should be able to keep a portion of the
    potential taxes owed and use that money on their children.
        Ms. Matsui. Senator, I agree completely with you. Children
    of the ITINs need support in the same way that children with
    Social Security numbers do. The benefits of the Child Tax
    Credit are denied to a significant number of children just
    because of that tax number status.
        Many of them are Dreamers. So I think having the Child Tax
    Credit to be able to be claimed for children with the ITINs is
    an important equity issue. It is an important economic issue,
    and it addresses the need of children so that all of us have
    access to supports and the ability to succeed in our economy.
        Senator Menendez. Well, I appreciate that.
        Mr. Chairman, if we are talking about families who are
    paying taxes to the Federal Government, we will never be able
    to fully solve the issue of child poverty until ITIN filers
    also have the ability to access this essential tax credit. So I
    appreciate you holding this hearing.
        The Chairman. The gentleman's points are spot-on, and I
    share your view.
        All right. I thank our panel. It has been a long morning.
    Just a couple of thoughts.
        I think in a sense, going 2\1/2\ hours in, we have kind of
    come full circle, you know. Ms. Lester, you highlighted it:
    encouraging work and helping families get ahead. Those two
    things are not mutually exclusive. You can do both, and you
    just drove that point home and gave us firsthand experience
    about it.
        I also want to put this tax fairness issue in some context,
    and I have talked to my colleagues about this often. Many
    people who receive the Child Tax Credit pay Federal taxes with
    every paycheck.
        What we have also learned in recent years is that it is
    possible for billionaires to pay little or no taxes for years
    on end by in effect calling in their accountant and saying,
    ``Just make sure I do not get any income this year. I will live
    off my borrowings this year, and I will not pay taxes this
    year.'' So, if ever there was a double standard, as we walk out
    of this room, I think that little snapshot really highlights
    it.
        I have introduced a proposal to address that. The President
    has as well. You all have given us more reasons to take it up,
    and it also comes in the context of another point that was
    important today, which is that 19 million children are in
    families ineligible for the full Child Tax Credit, and I think
    Ms. Matsui and others have made that point. The Brown-Bennet
    bill would fix that, while expanding incentives to work with
    the Earned Income Tax Credit.
        So, there is a lot do here, and I am also very glad, Ms.
    Lester, for the discussion about Free File because, you know,
    for the life of me--when you look all over the western
    industrialized world, their governments do what I just
    described in your conversation with Senator Warren. They just
    say, look, this can be a voluntary thing. But if you want us to
    do it, particularly for wage earners, you and teachers and
    firefighters and nurses, the government has pretty much got
    your information. So I think we've got to join the rest of the
    western industrialized world.
        The immediate work of business, and I am glad to be part of
    it, is to support the Brown-Bennet bill that is going to give
    families a little bit of a fair shake in the days ahead when
    they are dealing with those crushing child-care costs that you
    were talking about, Ms. Lester.
        And I thank Senator Crapo. We are going to look at these
    issues and see where the possibilities are for bringing the
    committee together, and you all have helped us get firsthand
    information.
        And with that, the Finance Committee will be adjourned.
        [Whereupon, at 12:29 p.m., the hearing was concluded.]

                                A P P E N D I X

                  Additional Material Submitted for the Record

                                  ----------

       Submitted by Hon. Michael F. Bennet, a U.S. Senator From Colorado

                               TAX POLICY CENTER

                   urban institute and brookings institution

        CHILD TAX CREDIT RECIPIENTS EXPERIENCED A LARGER DECLINE IN FOOD
    INSECURITY AND A SIMILAR CHANGE IN EMPLOYMENT AS NONRECIPIENTS BETWEEN
                                 2020 AND 2021

    Michael Karpman, Elaine Maag, Stephen Zuckerman, and Doug Wissoker

    May 2022

    The American Rescue Plan (ARP) Act of 2021 temporarily increased the
    amount of the Child Tax Credit (CTC) for most families with children.
    It also directed the IRS to deliver up to half the credit in advance of
    the tax filing season in monthly payments from July to December 2021.
    For the first time in the credit's history, even families with very low
    incomes were eligible to receive the maximum benefit. The sixth and
    final monthly advanced payment reached the families of more than 61
    million children, representing most children eligible for payments.\1\
    ---------------------------------------------------------------------------
        \1\ U.S. Department of the Treasury, ``Treasury and IRS Disburse
    Sixth Monthly Child Tax Credit to Families of 61 Million Children,''
    news release, December 15, 2021, https://home.
    treasury.gov/news/press-releases/jy0533.

    ---------------------------------------------------------------------------
    _______________________________________________________________________

    The introduction of the advanced CTC payments was associated with a
    near immediate decline in child poverty and food insufficiency (a
    measure of whether households did not have enough to eat in the past
    week) among households with children (Parolin et al. 2021; Shafer et
    al. 2022).\2\ Recent surveys suggest few parents planned to work less
    because of the credit and that the payments made it easier for some
    parents to engage in paid work or work more hours (Burnside 2021;
    Hamilton et al. 2021). Other research found the payments had no
    immediate effect on reducing employment (Ananat et al. 2021).
    Researchers have also produced estimates of the effect a permanent
    expansion of the credit could have on incentives to work; some suggest
    modest responses that would still result in dramatic reductions in
    poverty (Bastian 2022) and others suggest larger employment declines
    (Corinth et al. 2021).
    ---------------------------------------------------------------------------
        \2\ Studies of the Child Tax Credit that draw on data from the
    Census Bureau's Household Pulse Survey have measured food
    insufficiency. Our analysis instead focuses on food insecurity, which
    is a broader measure of households' inabilities to acquire adequate
    food for one or more members at times in the past year because of a
    lack of resources.

    In this brief, we add to the assessment of how the CTC affects
    employment and material hardship with data from the 2020 and 2021
    rounds of the Urban Institute's Well-Being and Basic Needs Survey
    (WBNS). We estimate changes in material hardship and employment for
    adults living with children who received advanced CTC payments and
    compare them with changes for adults with and without children who did
    not get the payments. The WBNS allows us to follow the same adults
    between December 2020 and December 2021, providing insight into how
    their well-being, work status, and work hours changed after the
    advanced CTC payments became available in July 2021. Our analysis
    focuses on adults with annual family incomes in 2020 below 600 percent
    of the federal poverty level (FPL), about $103,500 for a single person
    with one child and $157,200 for a family of four. The enhanced CTC
    amount began phasing out at $112,500 for single parents filing as heads
    of household and at $150,000 for married couples filing jointly. The
    regular CTC amount continued to phase out at $200,000 for single
    ---------------------------------------------------------------------------
    parents and $400,000 for married couples. We find the following:

          Between December 2020 and December 2021, adults who received the
    CTC payments reported a larger decline in household food insecurity
    than adults who did not receive the payments.

              Rates of food insecurity (a broad measure of households'
            inabilities to acquire adequate food over the past year)
            decreased from 26.1 to 20.0 percent for CTC recipients and from
            24.7 to 22.4 percent for nonrecipients. The reduction in food
            insecurity for CTC recipients was 3.8 percentage points larger
            than the reduction for nonrecipients. The drop in food
            insecurity for CTC recipients was 5.0 percentage points larger
            after accounting for differences in the characteristics of
            adults in each group.

              Among CTC recipients, the decline in food insecurity was
            concentrated among adults with family incomes below 200 percent
            of FPL; their rate of food insecurity fell from 48.2 to 35.8
            percent.

          The change in the employment rate for CTC recipients did not
    differ from the change for nonrecipients.

              Among CTC recipients, 70.2 percent were working in December
            2020 and 72.6 percent were working in December 2021. Among
            nonrecipients, 58.1 percent were working in December 2020 and
            60.1 percent were working in December 2021.

              The share of employed adults usually working full time did
            not change significantly for CTC recipients and nonrecipients
            during the study period.

          Transitions in employment status and usual weekly hours worked
    between December 2020 and December 2021 were also similar for CTC
    recipients and nonrecipients.

              About 5 percent of adults in both groups were employed in
            2020 but not 2021, and 7 percent went from not employed in 2020
            to employed in 2021.

              CTC recipients and nonrecipients who were employed in both
            years reported similar changes in their work hours.

    Though this analysis is not designed to identify a causal relationship
    between the advanced CTC payments and material hardship and employment,
    the results highlight improvements in food security for payment
    recipients and show no significant difference in short-term employment
    changes for recipients relative to nonrecipients. If Congress expands
    the CTC, further research will be needed to assess changes in these
    outcomes over a longer period and by gender, marital status,
    educational attainment, income, and other characteristics that may be
    related to hardship or employment.

    It will also be important to confirm these findings if the CTC is
    expanded during periods of less economic volatility. The study period
    occurred during the COVID-19 pandemic and coincided with a rapid labor
    market recovery in 2021 that followed a sharp recession in 2020, child
    care and school closures that presented ongoing barriers to work for
    many parents, high levels of job turnover, two rounds of stimulus
    payments in the first half of 2021, and rising inflation throughout
    2021. These and other factors may have affected material hardship and
    employment in different ways for families with and without children.

    BACKGROUND

    The CTC provides a near-universal benefit for families with children.
    Before the temporary expansion through the ARP in 2021, families could
    receive a credit of up to $2,000 per child under age 17. The credit
    could be used to offset taxes owed. If the credit a family qualified
    for exceeded taxes owed, families could receive up to $1,400 as a tax
    refund. The refund was limited to 15 percent of earnings above $2,500.
    Together, these two limitations on the credit amount meant millions of
    families with low incomes either did not benefit from the credit or
    received less than $2,000 per child. This design disproportionately
    excluded Black and Hispanic/Latinx families from the full credit
    (Goldin and Michelmore 2020; Greenstein et al. 2018).

    The ARP temporarily changed both the maximum credit and how the credit
    was delivered. Under the ARP, low-income families with children could
    receive a credit of up to $3,600 per child under age 6 and $3,000 per
    child ages 6 to 17. The credit was made fully refundable; if the credit
    exceeded taxes owed, families could receive the entire excess amount as
    a tax refund. Making the credit fully refundable was the most important
    change to the CTC for families with very low incomes (Acs and Werner
    2021).

    Families with low incomes typically receive any CTC they are eligible
    for as part of their tax refunds after filing tax returns. That means
    that any CTC they qualified for in 2021 would be paid in 2022. Instead
    of having to wait to receive the CTC in 2022, most families could
    receive up to half of the CTC through monthly payments from July to
    December 2021. The IRS delivered payments automatically to families who
    appeared eligible for the credit on the basis of information in their
    2019 or 2020 tax returns or their claims for an economic impact
    payment. Families could also claim the CTC via a special IRS web
    portal.\3\ From July to December 2021, the number of children in
    families receiving the CTC increased from 59 to 61 million, suggesting
    that though families could opt out of advanced payments starting June
    21, few did so.\4\ In another analysis, Urban Institute researchers
    reported that the families most likely to have been left out of
    advanced payments were those with very low incomes. In many cases, they
    were likely not required to file tax returns. Reported rates of receipt
    were lowest amongst Hispanic/Latinx adults and non-Hispanic/Latinx
    adults who are American Indian/Alaska Native, Native Hawaiian/Pacific
    Islander, or more than one race (Karpman et al. 2021).
    ---------------------------------------------------------------------------
        \3\ The Treasury Department estimates that it sent advanced CTC
    payments to 729,000 children because their families had used the IRS
    nonfiler portal to claim economic impact payments. See White House,
    ``Fact Sheet: Biden-Harris Administration Whole-of-Government Efforts
    to Ensure Child Tax Credit Reaches All Eligible Families,'' news
    release, September 15, 2021, https://www.whitehouse.gov/briefing-room/
    statements-releases/2021/09/15/fact-sheet-biden-harris-administration-
    whole-of-government-effort-to-ensure-child-tax-credit-reaches-all-
    eligible-families/.
        \4\ U.S. Department of the Treasury, ``Treasury and IRS Disburse
    Sixth Monthly Child Tax Credit to Families of 61 Million Children'';
    U.S. Department of the Treasury, ``Treasury and IRS Announce Families
    of Nearly 60 Million Children Receive $15 Billion in First Payments of
    Expanded and Newly Advanceable Child Tax Credit,'' news release, July
    15, 2021, https://home.treasury.gov/news/press-releases/Treasury-and-
    IRS-Announce-Families-of-Nearly-60-Million-Children-Receive-%2415-
    Billion-Dollars-in-First-Payments-of-Expanded-and-Newly-Advanceable-
    Child-Tax-Credit; and ``IRS Updated the 2021 Child Tax Credit and
    Advance Child Tax Credit Frequently Asked Questions,'' Internal Revenue
    Service, March 2022, https://www.irs.gov/pub/taxpros/fs-2022-17.pdf.

    Making the credit fully refundable and delivering the credit as a
    monthly benefit resulted in near-immediate drops in child poverty and
    food insufficiency among families with children. Child poverty dropped
    and remained low through the duration of the payments, but it increased
    again when the payments stopped in January 2022 (Parolin, Collyer, and
    Curran 2022). Using data from the U.S. Census Bureau's Household Pulse
    Survey, researchers estimated that food insufficiency among families
    with children also declined by nearly 25 percent, and families with
    very low incomes experienced the largest declines (Parolin, Collyer,
    ---------------------------------------------------------------------------
    and Curran 2022; Shafer et al. 2022).

    A debate around the effect of the newly structured CTC on employment
    also surfaced. One survey suggested that almost 94 percent of parents
    who expected to receive the CTC planned to work the same amount or more
    (Hamilton et al. 2021). Those who planned to work less were most likely
    to be parents of infants and those living with a spouse or partner who
    said they would use the credit to stay home with children. The
    researchers concluded that while the credit had a small effect on work,
    it also allowed parents greater freedom in making child care
    arrangements. In another survey, about one-quarter of parents reported
    the CTC monthly payments made it easier for them to engage in paid work
    (Burnside 2021). This might be because parents used the credit, in some
    cases, to help pay for child care (Perez-Lopez and Mayol-Garcia 2021).
    Other studies suggested the credit had no immediate effect on reducing
    employment (Ananat et al. 2021). Looking longer term, researchers have
    produced estimates of the effect permanently expanding the credit could
    have on incentives to work; some suggested modest responses that would
    still result in dramatic reductions in poverty (Bastian 2022) and
    others suggested larger employment declines and reduced impacts on
    poverty (Corinth et al. 2021).

    Our analysis adds to the assessment of how the CTC affected employment
    and material hardship in the short term. By following the same
    respondents in a nationally representative sample of adults between
    December 2020 and December 2021, we present new evidence of how these
    outcomes changed for CTC recipients and nonrecipients after the
    advanced CTC payments became available.

    RESULTS

    Between December 2020 and December 2021, adults who received the CTC
    payments reported a larger decline in food insecurity than adults who
    did not receive the payments.

    Over the study period, the share of adults with family incomes below
    600 percent of FPL reporting food insecurity declined, and those
    declines were greatest among adults who reported receiving the advanced
    CTC payments between July and December 2021. In December 2020, 26.1
    percent of adults with children who would later report receiving the
    advanced CTC payments reported their households had experienced food
    insecurity in the past 12 months (figure 1). When interviewed again in
    December 2021, 20.0 percent of these adults reported food insecurity in
    the past 12 months, a decline of 6.1 percentage points. Adults who did
    not receive the advanced payments reported about a 2.3 percentage-point
    decline in food insecurity, from 24.7 percent in 2020 to 22.4 percent
    in 2021. Appendix table 1 shows a similar pattern in the change in food
    insecurity for nonrecipients with children and those without children.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Among CTC recipients, the decline in food insecurity was
    concentrated among adults with family incomes below 200 percent of FPL
    in 2020. The share of these adults reporting food insecurity dropped
    from 48.2 percent in 2020 to 35.8 percent in 2021 (figure 1). Rates of
    food insecurity also declined among nonrecipients with incomes in this
    range and did not change significantly among either recipients or
    nonrecipients with higher incomes.

    CTC recipients and nonrecipients also became less likely to have
    problems paying for housing and utility costs. The share of CTC
    recipients reporting problems paying the rent or mortgage in the past
    12 months declined by about 3.1 percentage points, from 12.9 percent in
    2020 to 9.7 percent in 2021, and the share with problems paying utility
    bills fell 2.8 percentage points, from 13.9 to 11.1 percent (figure 2).
    Nonrecipients reported the same percentage-point change in utility bill
    problems as recipients and a slightly smaller reduction in problems
    paying for housing. As with food insecurity, the decrease in problems
    paying for housing costs was larger among adults with family incomes
    below twice the federal poverty level in both groups (data not shown).

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Some of the differences in changes in hardship may have been
    affected by differences in the composition of the recipient and
    nonrecipient groups. Nonrecipients were more likely than recipients to
    be men, to be older in age, and to have 2020 family incomes below twice
    the federal poverty level and were less likely to have graduated from
    college, to be married or living with a partner, and to own their homes
    (data not shown). Figure 3 compares the changes in measures of material
    hardship between 2020 and 2021 for CTC recipients and nonrecipients
    without and with controlling for the composition of these groups.
    Adults who received the CTC payments reported a reduction in food
    insecurity 3.8 percentage points larger than the reduction for
    nonrecipients. When we control for differences in the demographic and
    socioeconomic characteristics of each group in 2020, the estimated
    reduction in food insecurity for CTC recipients is 5.0 percentage
    points larger than that for nonrecipients. This estimate did not change
    when we also controlled for receipt of other major pandemic assistance,
    including stimulus checks and unemployment benefits (data not shown).
    Though the magnitude of the estimated decreases in housing and utility
    hardship was larger for recipients than for nonrecipients, we did not
    find statistically significant differences in changes in these measures
    between groups.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    We observed no differences in the change in the employment rate for
    CTC recipients and nonrecipients.

    Researchers and policymakers have expressed concern that removing the
    CTC's minimum earnings requirement for families with low and moderate
    incomes will discourage employment. The WBNS data suggest the share of
    adults employed increased modestly between 2020 and 2021 for both
    recipients and nonrecipients of the advanced CTC payments. Among
    recipients, 70.2 percent reported that they were working in December
    2020 and 72.6 percent were working in December 2021 (figure 4). These
    were higher than the employment rates of adults who did not report
    receiving the advanced payments: 58.1 percent in 2020 and 60.1 percent
    in 2021. The changes in employment status between 2020 and 2021 for
    recipients and nonrecipients did not differ significantly with or
    without accounting for the characteristics of each group. The share of
    workers reporting full-time work hours also remained steady for each
    group: 83 to 84 percent of employed CTC recipients reported usually
    working 35 or more hours per week in each year, compared with 77 to 78
    percent of employed nonrecipients.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Transitions in employment status and usual weekly hours worked
    between December 2020 and December 2021 were similar for CTC recipients
    and nonrecipients.

    Table 1 shows the share of CTC recipients and nonrecipients who changed
    their employment statuses between December 2020 and December 2021.
    About two-thirds of CTC recipients and just over half of nonrecipients
    were employed in both years. In addition, more than one in five
    recipients and one in three nonrecipients were not employed in either
    year. Changes in employment status were less common, but about 5
    percent of adults in each group transitioned from being employed in
    December 2020 to not being employed in December 2021. The reverse was
    true for about 7 percent of adults in each group.

    We also examined changes in usual hours worked per week among adults
    who were employed in both 2020 and 2021 and reported their usual hours
    in each year. Among both recipients and nonrecipients working in both
    years, most were working full time (87 to 89 percent in each group and
    each year), though about 7 percent of recipients and 11 percent of
    nonrecipients transitioned from full-time to part-time status or vice
    versa (data not shown). Given how many adults in each group were
    already working full time, we only observed a limited share of adults
    reporting changes in the number of hours worked greater than 10 hours
    per week. Roughly half of CTC recipients and nonrecipients reported the
    same number of usual hours in 2020 and 2021, and most of the remaining
    workers reported small changes of fewer than 10 hours per week. About
    10 to 12 percent of workers in each group reported working 10 or more
    additional hours per week in 2021 than in 2020, and 8 to 9 percent of
    workers in each group reported working at least 10 fewer hours per week
    in 2021 than in 2020.

     Table 1. Employment Transitions Between December 2020 and December 2021
     Among Adults Ages 18 to 64 With Family Incomes Below 600 Percent of FPL
                By receipt of advanced Child Tax Credit payments

               Category               CTC recipients     CTC nonrecipients

    Employment status in 2020 and
     2021 (%)

        Working in both years                   65.2               52.8 ***

        Not working in both years               22.5               34.7 ***

        Working in 2020, not                     4.9                    5.2
         working in 2021

        Not working in 2020,                     7.4                    7.3
         working in 2021

    Change in hours between 2020 and 2021 among those working and reporting
     usual hours in both years (%)

        Working 10+ hours more per              10.1                   11.6
         week in 2021

        Working 1-9 hours more per              15.9                   14.3
         week in 2021

        Working same number of                  52.2                   54.7
         hours per week in 2021

        Working 1-9 hours less per              13.5                   10.7
         week in 2021

        Working 10+ hours less per               8.4                    8.7
         week in 2021

    Sample size, all adults                      840                  1,657

    Sample size, adults working                  392                    400
     and reporting usual hours in
     both years

    Source: Well-Being and Basic Needs Survey, December 2020 and December
      2021.
    Notes: FPL is federal poverty level. CTC is Child Tax Credit. Adults who
      did not receive the CTC include those with and without children under
      18 in the household.
    */**/*** Estimate for CTC nonrecipients differs from estimate for CTC
      recipients at the 0.10/0.05/0.01 level, using two-tailed tests.

    DISCUSSION

    Consistent with other studies, our data show that the advanced CTC
    payments were associated with a reduction in food insecurity among
    adults with children who received CTC payments. The reductions were
    more pronounced among families with the lowest incomes and were larger
    than reductions in food insecurity experienced by adults who did not
    receive the advanced CTC payments. This is consistent with estimates
    based on the Census Bureau's Household Pulse Survey that showed many
    families used the payments to purchase food, particularly families with
    the lowest incomes (Karpman et al. 2021).

    Not all families eligible for the advanced CTC payments received them.
    In particular, families with very low incomes who were not required to
    file tax returns and had not claimed economic impact payments were at
    elevated risk of not receiving the CTC payments. After controlling for
    differences in demographic and socioeconomic characteristics, we still
    found that adults who reported receiving the payments experienced
    larger drops in food insecurity than adults who did not report
    receiving them.

    Providing the maximum benefit of the CTC to all families delivered
    additional benefits to families with the lowest incomes, even those who
    were not employed. Though some worried that doing so would reduce
    employment, the findings in this analysis do not suggest that is the
    case--at least in the near term. We find that employment increased
    between December 2020 and December 2021 among adults who received the
    advanced payments, and that change was similar to the change in
    employment among adults who did not receive the payments. The
    differences in December 2020 and December 2021 were modest. The
    temporary nature of the payments and the brief and historically unusual
    period of study do not necessarily imply that employment patterns for
    recipients and nonrecipients would remain the same over a longer or
    qualitatively different period or be constant across various
    demographic subgroups.

    CONCLUSION

    The expanded CTC was a key policy in the ARP that directed resources to
    households with children and very low incomes. The credit's maximum
    benefit was temporarily increased from $2,000 per child under age 17 to
    $3,600 per child under age 6 and $3,000 per child ages 6 to 17. The
    entire credit could be received as a refundable tax credit, which meant
    even families with very low incomes could receive the maximum benefit.
    Rather than waiting to deliver the credit at tax time, the IRS
    delivered up to half of the credit in monthly payments from July
    through December 2021. The payments went to most families with
    children. Shortly after payments began, a larger share of adults who
    received the payments reported declines in food insecurity than adults
    who did not receive the payments.

    If the ARP's temporary changes to the CTC were made permanent, it is
    unclear whether the credit's design would discourage adults from being
    employed. Some studies have suggested the credits will discourage
    employment, and other data suggest families will use the credits to pay
    for child care or other work-related expenses, encouraging work. We
    found no significant differences in the changes in employment between
    December 2020 and December 2021 for adults who received the payments
    and adults who did not receive the payments.

    The advanced credits were correlated with an immediate drop in child
    poverty, which persisted during the entire advanced payment period. If
    the enhanced CTC payments had continued or were resumed and produced
    sustained declines in food insecurity, the payments would likely
    produce long-term benefits for children's health, well-being, and
    educational outcomes.

    APPENDIX. DATA AND METHODS

    Data
    This brief draws on data from the December 2020 and December 2021
    rounds of the Urban Institute's Well-Being and Basic Needs Survey, a
    nationally representative, Internet-based survey of adults ages 18 to
    64 designed to monitor changes in individual and family well-being as
    policymakers consider changes to federal safety net programs. For each
    round of the WBNS, we draw a stratified random sample (including a
    large oversample of adults in households with low incomes) to obtain
    approximately 7,500 completed interviews with adults from the
    KnowledgePanel, a probability-based Internet panel maintained by Ipsos
    that includes households with and without Internet access. The survey
    completion rates among panel members sampled for the WBNS were 52
    percent in 2020 and 54 percent in 2021. Survey weights adjust for
    unequal selection probabilities and are poststratified to the
    characteristics of nonelderly adults based on benchmarks from the
    Current Population Survey Annual Social and Economic Supplement and the
    American Community Survey. Participants can complete the survey in
    English or Spanish. For further information about the survey design and
    content, see Karpman, Zuckerman, and Gonzalez (2018).\5\
    ---------------------------------------------------------------------------
        \5\ The 2020 and 2021 WBNS instruments are available at https://
    www.urban.org/policy-centers/health-policy-center/projects/well-being-
    and-basic-needs-survey.

    Because samples for each round of the WBNS are drawn from the same
    online research panel, members of the panel may participate in multiple
    rounds of the survey; the typical rate of overlap across 2 consecutive
    years of data collection is about 30 percent in each core survey
    sample. In the 2021 round of the survey, we augmented the overlap
    between the 2020 and 2021 samples by conducting an additional
    oversample of adults with children who participated in 2020, increasing
    ---------------------------------------------------------------------------
    the rate of overlap to about 40 percent in each year.

    Overall, we interviewed 3,277 respondents who participated in both the
    2020 and 2021 rounds of the survey, including 1,531 adults who reported
    living with children under 18 in 2020 and 1,746 who did not report
    living with children under 18. Participants in this two-period
    longitudinal sample answered the same questions on material hardship
    and employment in both December 2020 and December 2021. The 2021 survey
    also asked adults living with children whether they received the
    advanced CTC payments, allowing us to examine outcomes for recipients
    and nonrecipients before and after the IRS issued advanced monthly
    payments.
    Sample Weights
    To reduce the effects of differential attrition and nonresponse, we
    reweighted the longitudinal sample to reflect the baseline
    characteristics of adults who participated in the full 2020 core
    sample. We implemented this reweighting approach within four groups on
    the basis of whether adults lived with children in the household and
    reported an annual family income above or below 150 percent of FPL in
    2020. We used the same measures we use in the poststratification
    weighting of the full WBNS: age, gender, race and ethnicity,
    educational attainment, census region, residence in an urban or rural
    area, homeownership status, family income as a percentage of FPL,
    primary language, household Internet access, and family composition.

    The weights also account for differential nonresponse to the 2021
    survey associated with the adults' 2020 material hardship and
    employment outcomes. Research conducted in 2020 using the Urban
    Institute's Coronavirus Tracking Survey found that people experiencing
    economic hardship in the early months of the pandemic were less likely
    to respond to future waves of the survey (Karpman, Zuckerman, and
    Kenney 2020). To mitigate nonresponse bias in estimated changes between
    2020 and 2021, we adjusted the weights so that the distribution of 2020
    hardship and employment outcomes in the longitudinal sample are more
    aligned with those reported for the full 2020 sample.
    Analytic Sample
    We focus on three groups: (1) adults living with children under 18 in
    2020 who reported receiving the advanced CTC payments in 2021, (2)
    adults living with children under 18 in 2020 who did not report
    receiving the payments in 2021, and (3) adults who did not live with
    children in 2020 or 2021 and were ineligible to receive the CTC
    payments.\6\ This brief refers to the first group as CTC recipients and
    the second and third groups as CTC nonrecipients.
    ---------------------------------------------------------------------------
        \6\ The 2021 WBNS asked some adults without children whether they
    received the advanced CTC payments because they reported having
    children under 18 who live outside their households. Our analysis only
    included adults without children who did not receive the CTC, and we
    excluded one respondent living without children in their household in
    2020 and 2021 who reported receiving the CTC for children outside their
    household.

    We excluded from our analysis respondents with missing data on the
    number or age of children in their households in 2020 or 2021. We also
    excluded respondents living with children under 18 in 2020 but not 2021
    and respondents not living with children in 2020 but living with
    children in 2021. Sensitivity analyses indicated these exclusions had
    ---------------------------------------------------------------------------
    little effect on the results (see below).

    Our analysis focuses on adults with annual family incomes below 600
    percent of FPL in 2020, which was about $103,500 for a single person
    with one child and $157,200 for a family of four. The expanded CTC
    amount began phasing out at $112,500 for single parents filing taxes as
    heads of household and $150,000 for married couples filing taxes
    jointly. Our final analytic sample includes 840 adults with children
    who reported receiving the CTC, 394 adults with children who did not
    report receiving the CTC, and 1,263 adults without children who did not
    receive the CTC.
    Key Measures
    We focus on three measures of material hardship that reflect difficulty
    meeting regular expenses for housing, utilities, and food in the past
    12 months: household food insecurity, problems paying the rent or
    mortgage, and problems paying utility bills. Household food insecurity
    estimates are based on responses to the six-item short form of the US
    Department of Agriculture's Household Food Security Survey Module (USDA
    2012).\7\ Food insecurity is a broad measure of households' inabilities
    to acquire adequate food for one or more members at times in the past
    year because of a lack of resources. It differs from the measure of
    food insufficiency used in the Census Bureau's Household Pulse Survey,
    which measures whether households sometimes or often did not have
    enough to eat in the past seven days.\8\ Estimates of problems paying
    the rent or mortgage are based on respondents reporting their
    households did not pay the full amount of the rent or mortgage or were
    late with a payment because their households could not afford to pay.
    Problems paying utility bills are defined on the basis of whether the
    respondent's household was unable to pay the full amount of the gas,
    oil, or electricity bills.
    ---------------------------------------------------------------------------
        \7\ Affirmative responses to the six-item short form of the US
    Department of Agriculture's Household Food Security Survey Module
    include reporting that it was often or sometimes true that the food the
    household bought just didn't last, and the household didn't have money
    to get more; it was often or sometimes true that the household could
    not afford to eat balanced meals; adults in the household ever cut the
    size of meals or skipped meals because there was not enough money for
    food; meals were cut or skipped almost every month or some months but
    not every month; the respondent ate less than they felt they should
    because there wasn't enough money for food; and the respondent was ever
    hungry but didn't eat because there wasn't enough money for food.
    Respondents with two to four affirmative responses are defined as
    having low household food security, and respondents with five to six
    affirmative responses are defined as having very low household food
    security. These groups are jointly defined as being food insecure.
        \8\ ``Food Security in the U.S.: Measurement,'' U.S. Department of
    Agriculture, accessed April 7, 2022, https://www.ers.usda.gov/topics/
    food-nutrition-assistance/food-security-in-the-u-s/measurement/.

    We also examine changes in work status at the time of the survey and
    usual weekly hours worked among respondents who were employed in each
    survey round. Work status estimates are based on a question asking
    respondents if they are currently working for pay or self-employed.
    Employed respondents are asked how many hours per week they usually
    work at their main job and any other jobs. Respondents who report their
    hours vary are asked if they usually work 35 hours or more per week
    across all of their jobs. Our analysis focuses on the overall change in
    employment rates, transitions in employment status (e.g., the share
    moving from employed to not employed and vice versa), and usual weekly
    work hours (e.g., the share of respondents working in both years
    experiencing increases, decreases, or no change in hours worked)
    between December 2020 and December 2021. Our analysis of transitions in
    the number of hours worked per week only focuses on employed adults who
    did not report their usual weekly work hours varied in one or both
    ---------------------------------------------------------------------------
    years.

    We assess CTC receipt on the basis of responses to the following
    question, which we adapted from the Census Bureau's Household Pulse
    Survey: ``In the last 6 months, that is, since July 2021, did you or
    someone in your household receive one or more monthly Child Tax Credit
    payments? You may have received the payments as a paper check or as a
    direct deposit to your bank account.''
    Analysis
    We compare changes in material hardship and employment among adults
    living with children who received the CTC payments with changes for the
    full group of CTC nonrecipients (i.e., with and without children).
    Appendix table 1 also shows the results for nonrecipients by the
    presence of children in the household.

    We estimate both unadjusted and regression-adjusted differences in the
    changes in hardship and employment outcomes between the two groups. The
    regression adjustment accounts for differences in the 2020
    characteristics of CTC recipients and nonrecipients. We control for the
    measures used to reweight the sample described above. This adjustment
    ensures estimated differences in the changes in well-being and work
    between 2020 and 2021 do not reflect differences in observed baseline
    characteristics that may be correlated with those outcomes (e.g., a
    stronger labor market recovery for certain educational attainment
    groups). We also estimated differences controlling for the receipt of
    pandemic stimulus checks and unemployment insurance benefits, but this
    had little effect on the results.

    We assessed the results' sensitivity to the exclusion or inclusion of
    certain groups, such as imputing receipt and nonreceipt of the advanced
    payments to all excluded adults living with children in 2020 but not
    2021; including responses to the CTC questions of excluded adults
    living with children in 2021 but not 2020; excluding adults living with
    children in both years who did not know or did not answer whether they
    received the advanced payments, or imputing receipt on the basis of
    having filed a tax return or received a stimulus check; and excluding
    nonparents from the groups of recipients and nonrecipients with
    children. Though the estimated changes in material hardship and
    employment varied slightly across these sensitivity tests, the basic
    patterns remained the same.

    Table 1. Material Hardship and Employment Status Among Adults Ages 18 to
       64 With Family Incomes Below 600 Percent of FPL, December 2020 and
                                  December 2021
              By receipt of the advanced Child Tax Credit payments

                                                           Percentage-point
              Category            2020 (%)    2021 (%)    change, 2020-2021

    CTC recipients

        Food insecurity, past         26.1        20.0                 -6.1
         12 months

        Problems paying rent or       12.9         9.7                 -3.1
         mortgage, past 12
         months

        Problems paying utility       13.9        11.1                 -2.8
         bills, past 12 months

        Employed at time of           70.2        72.6                  2.4
         survey

        Full-time hours, if           82.8        83.5                  0.8
         employed

    CTC nonrecipients with
     children

        Food insecurity, past         29.2        26.5                 -2.7
         12 months

        Problems paying rent or       14.6        12.9                 -1.7
         mortgage, past 12
         months

        Problems paying utility       20.1        16.2                 -3.9
         bills, past 12 months

        Employed at time of           57.0        59.3                  2.3
         survey

        Full-time hours, if           78.7        76.7                 -2.0
         employed

    CTC nonrecipients without
     children

        Food insecurity, past         23.3        21.2                 -2.1
         12 months

        Problems paying rent or        8.2         6.6                 -1.6
         mortgage, past 12
         months

        Problems paying utility       10.6         8.2                 -2.4
         bills, past 12 months

        Employed at time of           58.4        60.3                  2.0
         survey

        Full-time hours, if           76.3        77.9                  1.7
         employed

    Source: Well-Being and Basic Needs Survey, December 2020 and December
      2021.
    Notes: FPL is federal poverty level. CTC is Child Tax Credit. Full time
      is defined as usually working 35 or more hours per week across all
      jobs.

    Limitations
    This analysis has several limitations. First, estimated differences in
    the changes in well-being and work outcomes between CTC payment
    recipients and nonrecipients do not represent causal effects of the CTC
    on material hardship or employment. Though the ARP established near-
    universal eligibility for the expanded CTC up to the income threshold
    at which the increased benefit amount phased out, not all eligible
    families with children received payments. In particular, receipt was
    lowest among families with low incomes who were not required to file
    tax returns in previous years, and we do not control for unobserved
    differences between nonfilers who claimed the credit through the IRS
    portal and those who did not. We also do not observe prepandemic
    differences in well-being and employment for recipients and
    nonrecipients before 2020.

    The sample weights likely mitigate but do not eliminate panel attrition
    and nonresponse error. Approximately 19 percent of participants in the
    December 2020 WBNS were no longer members of the panel in December
    2021. The survey completion rate among the remaining 2020 participants
    sampled in 2021 was 72 percent. The 2020 participants who left the
    panel or did not respond in 2021 had higher rates of material hardship
    in 2020 than those who completed the 2021 survey. The weights adjust
    for differential nonresponse based on 2020 outcomes; however, lower
    response rates among people whose economic situations worsened between
    2020 and 2021 could still lead to overestimates of the improvement in
    material hardship.

    Our analysis did not show evidence of nonresponse bias among 2020
    participants who remained on the panel: no correlation exists between
    household income in 2021 and nonresponse after controlling for the
    measures used in weighting. In addition, the remaining nonresponse
    error after reweighting would not necessarily affect the estimated
    difference in changes in outcomes between CTC recipients and
    nonrecipients if the error is not correlated with both CTC receipt and
    the outcomes of interest.

    Survey respondents also report CTC receipt with measurement error.
    Studies have found that people tend to underreport public benefits in
    surveys (Meyer, Mok, and Sullivan 2009; Wheaton 2008). IRS data on the
    number of children who received the advanced CTC payments suggest
    participants in the WBNS and the Census Bureau's Household Pulse Survey
    underreported receipt of the advanced CTC payments (Karpman et al.
    2021; Parolin et al. 2021). However, mistakenly categorizing CTC
    recipients as nonrecipients would likely cause us to underestimate the
    change in material hardship for recipients. In addition, some WBNS
    participants may have reported material hardship in 2021 on the basis
    of experiences that occurred before the advanced CTC payments became
    available in July, since they were asked to report hardship for the
    past 12 months.

    Finally, sample size limitations prevent us from detecting small
    differences in the changes in material hardship and employment for
    subgroups of CTC recipients and nonrecipients. Estimated differences in
    the change in food insecurity by CTC receipt appeared to be larger
    among women, adults who had not attended college, and adults with low
    incomes, and estimated differences in the change in employment by CTC
    receipt were generally smaller among these groups. Data sources with
    larger sample sizes could provide greater insight into how well-being
    and employment change for different groups of people following the
    implementation of new child benefits such as the expanded CTC.

    REFERENCES

    Acs, Gregory, and Kevin Werner. 2021. ``How a Permanent Expansion of
            the Child Tax Credit Could Affect Poverty.'' Washington, DC:
            Urban Institute.

    Ananat, Elizabeth, Benjamin Glasner, Christal Hamilton, and Zachary
            Parolin. 2021. ``Effects of the Expanded Child Tax Credit on
            Employment Outcomes.'' New York: Columbia University, Center on
            Poverty and Social Policy.

    Bastian, Jacob. 2022. ``Will the Child Tax Credit's Effect on Work
            Decrease Its Poverty Impact?'' Washington, DC: Niskanen Center.

    Burnside, Ashley. 2021. ``Key Findings from National Child Tax Credit
            Survey.'' Washington, DC: Center for Law and Social Policy.

    Corinth, Kevin, Bruce Meyer, Matthew Stadnicki, and Derek Wu. 2021.
            ``The Anti-poverty, Targeting, and Labor Supply Effects of the
            Proposed Child Tax Credit Expansion.'' Chicago: University of
            Chicago, Becker Friedman Institute for Economics.

    Goldin, Jacob, and Katherine Michelmore. 2020. ``Who Benefits from the
            Child Tax Credit?'' Working Paper 27940. Cambridge, MA:
            National Bureau of Economic Research.

    Greenstein, Robert, Elaine Maag, Chye-Ching Huang, Emily Horton, and
            Chloe Cho. 2018. ``Improving the Child Tax Credit for Very Low-
            Income Families.'' Washington, DC: US Partnership on Mobility
            from Poverty.

    Hamilton, Leah, Stephen Roll, Mathieu Despard, Elaine Maag, and Yung
            Chun. 2021. ``Employment, Financial, and Well-Being Effects of
            the 2021 Expanded Child Tax Credit.'' St. Louis, MO: Washington
            University of St. Louis.

    Karpman, Michael, Elaine Maag, Genevieve M. Kenney, and Douglas A.
            Wissoker. 2021. ``Who Has Received Advance Child Tax Credit
            Payments, and How Were the Payments Used?'' Washington, DC:
            Urban Institute.

    Karpman, Michael, Stephen Zuckerman, and Dulce Gonzalez. 2018. ``The
            Well-Being and Basic Needs Survey: A New Data Source for
            Monitoring the Health and Well-Being of Individuals and
            Families.'' Washington, DC: Urban Institute.

    Karpman, Michael, Stephan Zuckerman, and Genevieve M. Kenney. 2020.
            ``Uneven Recovery Leaves Many Hispanic, Black, and Low-Income
            Adults Struggling.'' Washington, DC: Urban Institute.

    Meyer, Bruce D., Wallace K. C. Mok, and James X. Sullivan. 2009. ``The
            Underreporting of Transfers in Household Surveys: Its Nature
            and Consequences.'' Working Paper 15181. Cambridge, MA:
            National Bureau of Economic Research.

    Parolin, Zachary, Elizabeth Ananat, Sophie M. Collyer, Megan Curran,
            and Christopher Wimer. 2021. ``The Initial Effects of the
            Expanded Child Tax Credit on Material Hardship.'' Working Paper
            29285. Cambridge, MA: National Bureau of Economic Research.

    Parolin, Zachary, Sophie Collyer, and Megan A. Curran. 2022. ``Sixth
            Child Tax Credit Payment Kept 3.7 Million Children out of
            Poverty in December.'' New York: Columbia University, Center on
            Poverty and Social Policy.

    Perez-Lopez, Daniel J., and Yeris Mayol-Garcia. 2021. ``Parents with
            Young Children Used Child Tax Credit Payments for Child Care.''
            Washington, DC: U.S. Census Bureau.

    Shafer, Paul R., Katherine M. Gutierrez, Stephanie Ettinger de Cuba,
            Allison Bovell-Ammon, and Julia Raifman. 2022. ``Association of
            the Implementation of Child Tax Credit Advance Payments with
            Food Insufficiency in U.S. Households.'' JAMA Network Open 5
            (1): e2143296. https://doi.org/10.1001/
            jamanetworkopen.2021.43296.

    USDA (U.S. Department of Agriculture). 2012. ``U.S. Household Food
            Security Survey Module: Six-Item Short Form.'' Washington, DC:
            U.S. Department of Agriculture, Economic Research Service.

    Wheaton, Laura. 2008. Underreporting of Means-Tested Transfer Programs
            in the CPS and SIPP. Washington, DC: Urban Institute.

    ACKNOWLEDGMENTS

    This brief was funded by the Doris Duke Charitable Foundation and the
    Robert Wood Johnson Foundation. The Robert Wood Johnson Foundation also
    funded the Well-Being and Basic Needs Survey. We are grateful to them
    and to all our funders, who make it possible for the Urban-Brookings
    Tax Policy Center to advance its mission.

    The views expressed are those of the authors and should not be
    attributed to the Urban-Brookings Tax Policy Center, the Urban
    Institute, the Brookings Institution, their trustees, or their funders.

    The authors thank Greg Acs for his review of an earlier version of this
    paper, Timothy Triplett for guidance on the development of survey
    weights and assessment of survey nonresponse, Lillian Hunter for help
    with formatting this brief, and Rachel Kenney for editing the brief.

                                     ______

                Effects of the 2021 Expanded Child Tax Credit *
    ---------------------------------------------------------------------------

        * We thank the Think Forward Initiative and the University of
    California, Irvine, for funding. We thank Envestnet l Yodlee for
    providing Data Analytics. We include additional details of the data in
    Section 2. We are grateful for valuable comments and suggestions from
    Elizabeth Chuk, Chong Huang, Chuchu Liang, Mort Pincuas, Jinfei Sheng,
    Lisa De Simone, Zheng Sun, Yuhai Xuan, Lu Zheng and workshop
    participants at the University of California, Irvine.
    ---------------------------------------------------------------------------

                                   Ben Lourie

                             Devin M. Shanthikumar

                                 Terry Shevlin

                                   Chenqi Zhu

              University of California, Irvine
    ---------------------------------------------------------------------------

         Ben Lourie, blourie@uci.edu; Devin Shanthikumar,
    dshanthi@uci.edu; Terry Shevlin tshevlin@uci.edu; Chenqi Zhu,
    chenqiz1@uci.edu.
    ---------------------------------------------------------------------------

                                 April 4, 2022

                                    Abstract

        We examine the effects of the July 2021 expansion of the Child Tax
    Credit (CTC). We analyze detailed transactions data for 2019 through
    September 2021, utilizing a difference-in-difference design, and
    controlling for state-time specific conditions. We find that recipients
    of expanded CTC monthly payments do not significantly leave the
    workforce. They increase their total consumption, including increasing
    spending on groceries, education, and healthcare. Families put more
    money towards reducing debt, and incur fewer overdraft fees. We find
    weaker results regarding savings and payments towards debt collection
    agencies. The consumption effects of the expanded CTC are strongest for
    families with more children, and for the lowest-income families. Our
    results provide large-scale empirical evidence on the realized effects
    of the 2021 changes to the CTC, and suggest that families significantly
    benefited from the expanded CTC payments, without significant costs to
    employment.

        Keywords: Child Tax Credit, individual taxpayers, tax policy,
    household finance, employment, consumption, debt, savings, financial
    distress
    JEL Codes: D12, D14, G5, H24, M48

    I. Introduction

        The Child Tax Credit (CTC) in the United States is a key tax policy
    lever used to support families with children. The American Rescue Plan
    Act of 2021, passed in March 2021, made several modifications to the
    CTC, to expand this support (see https://www.whitehouse.gov/child-tax-
    credit/ for the administration's explanation of the expansion). Despite
    general support for the CTC,\1\ the 2021 expanded CTC remains
    controversial, mainly due to potential disincentives to work (see,
    e.g., Dante and Sheffield, 2021). Congress continues to debate whether
    to make some of the 2021 changes permanent (see, e.g., Duehren, January
    31, 2022).\2\ In this study, we examine the realized effects of the
    2021 expanded CTC on individual taxpayers' employment, consumption,
    financial position, and financial distress.
    ---------------------------------------------------------------------------
        \1\ Individuals from both major parties have proposed Child Tax
    Credit expansions. For example, Senator Mitt Romney proposed The Family
    Security Act in February of 2021 (see https://www.romney.senate.gov/
    sites/default/files/2021-02/family%20security%20act_one%20pager.pdf for
    a summary). The American Rescue Plan Act of 2021, primarily supported
    by Democrats, made several changes and expansions to the Child Tax
    Credit, including expanding payments and eligibility. Non-partisan
    groups have also supported expanding the Child Tax Credit from pre-2021
    levels. A report by the National Academies of Sciences, Engineering,
    and Medicine estimated that monthly payments, similar to the CTC
    expansion introduced by the American Rescue Plan Act of 2021, would
    have the largest impact on reducing child poverty in the United States
    of any of the major proposals examined (National Academies of Sciences,
    Engineering, and Medicine 2019).
        \2\ In addition, the Biden administration continues to support
    making the changes permanent. For example, in a February 2022 speech,
    Vice President Harris, after describing how the Child Tax Credit could
    help families, concluded ``and that's why the President and I will keep
    fighting to extend these measures for years to come.'' The full speech,
    made at the Child Tax Credit and Earned Income Tax Credit Day of
    Action, February 8, 2022, can be viewed at https://youtu.be/pOF7-
    MB5bLU.

        As stated in Yetman and Yetman (2013), ``a central issue in tax
    accounting research is how taxation affects the decisions of businesses
    and individuals'' (p. 1069). Most accounting tax-related research
    examining individual tax payers is conducted using laboratory
    experiments, testing the relationship between general features of the
    tax system (level or change in tax rate, timing, year-end tax position)
    and tax compliance and household financial decisions such as allocation
    of retirement account assets (e.g., Falsetta, Rupert, and Wright 2013;
    Austin, Bobek, and LaMothe 2020; Stinson, Doxey, and Rupert 2021). In
    contrast, we employ detailed transaction data to examine how
    ---------------------------------------------------------------------------
    individuals respond to a significant change in a specific tax policy.

        The American Rescue Plan Act made several changes to the CTC for
    the second half of 2021. Three of the most notable changes are as
    follows.\3\ First, the legislation increased the amount of the credit
    from $2,000 per child per year to $3,600 per year for children under
    age 6 and $3,000 per year for children 6 and over, for families with
    sufficiently low income (e.g., households making less than $150,000 per
    year if married filing jointly). Second, the legislation changed the
    payment schedule such that the credit was paid out through monthly
    advance payments from July through December of 2021, rather than after
    the family filed their taxes the following year. Third, the legislation
    made the tax credit fully refundable, so that even low- or no-income
    families would receive the full benefit. Previously, the credit could
    only be used to reduce taxes owed. Thus, families with low or no income
    did not receive the full benefit.
    ---------------------------------------------------------------------------
        \3\ For a ``fact sheet'' summarizing the law, see https://
    home.treasury.gov/news/featured-stories/fact-sheet-the-american-rescue-
    plan-will-deliver-immediate-economic-relief-to-families. For the full
    text of the law, see https://www.congress.gov/bill/117th-congress/
    house-bill/1319?q=
    %7B%22search%22%3A%22america+rescue+plan%22%7D&r=1.

        We provide the first empirical evidence of the realized impacts of
    the CTC using 1.17 billion transactions from bank and credit card
    accounts for one million Americans.\4\ Our data allow us to examine
    multiple spending categories (groceries spending for example), as well
    as details like payments made towards debt, savings, overdraft fees,
    and payments made to debt collection agencies, indicators for financial
    distress. In doing so, our study provides evidence on a large set of
    responses to this important change in tax policy, using newly-available
    big data to shed light on the impacts of the 2021 CTC expansion.
    ---------------------------------------------------------------------------
        \4\ Data is described in more detail in Section 2.

        We utilize a difference-in-differences approach, comparing families
    who receive monthly CTC payments, identified using transactions with
    the IRS, with those who do not receive such payments. We examine
    changes in behavior from April through June 2021, the three months
    prior to the start of monthly payments, to July through September 2021,
    the first three months of monthly CTC payments. Focusing on immediate
    changes in behavior allows us to sharpen the identification of the
    impact of CTC payments. Moreover, the difference-in-differences design
    addresses confounding macroeconomic events which affect both CTC
    ---------------------------------------------------------------------------
    recipients and non-recipients.

        We take two additional steps to control for factors which might
    drive differences between recipients and non-recipients. First, we
    benchmark the same individuals' employment or spending behavior against
    the same month in 2019 or 2020. This helps to adjust for seasonality in
    employment and spending which might differ between families with
    children and individuals or families without children. Second, we
    include state-month fixed effects to control for differing economic
    recoveries and COVID-19 effects across states during 2021.

        We separately examine the lower-income recipients of enhanced
    monthly CTC payments (enhanced recipients) and those higher-income
    recipients of advance monthly payments who do not receive any increase
    in the total amount (advance-only recipients). Enhanced recipients
    receive an increase in total payments ($2,000 to $3,000 or $3,600 per
    year), while advance-only recipients receive the same level of total
    Child Tax Credit payments as prior to the changes, with only the timing
    of those payments being changed.

        Our first set of empirical evidence fails to find significant
    reductions in employment or wages among enhanced recipients of monthly
    CTC payments. We find a slight increase in employment and wages among
    advance-only recipients, although the economic magnitude is small,
    amounting to a 0.5 to 0.6 percentage point rise in employment rate and
    a 3.5 to 4.5 percentage point rise in wages. This result may be related
    to CTC payments facilitating the payment of expenses that support work,
    such as payment of childcare expenses (e.g., Roll, Hamilton, and Chun
    2021). In additional analyses, we further subdivide enhanced recipients
    by income, and find no change in employment among the lowest-income
    recipients. This evidence speaks to the question of the impact of full
    refundability on work incentives. We find no measurable reduction in
    employment or wages among recipients.

        In terms of consumption, we find that both groups of CTC recipients
    significantly increase total consumption. Recipients of enhanced
    payments spend more in each of the three categories of Groceries,
    Education, and Healthcare, with increases ranging from 2.6 to 10.2
    percentage points. These observed effects are consistent with CTC
    increasing spending on basic needs which are likely to improve child
    welfare. Furthermore, we find the increase in total consumption is
    highest for the lowest-income recipients and those with more children,
    consistent with CTC expansion having the highest impact on the lowest-
    income families.

        Finally, we find that CTC payments are used to improve families'
    financial positions. Both groups of CTC recipients increase payments
    towards debt (loans or mortgages). Enhanced recipients increase their
    contribution to savings accounts, which is important given that more
    than half of Americans can't cover emergency expenses with savings
    (Reinicke 2022). Both groups experience a reduction in financial
    distress, as measured by overdraft fees. Results are weaker for those
    in the most extreme financial distress, as proxied by payments to debt
    collection agencies, with significant reductions relative to 2019 but
    not relative to 2020.

        Our paper presents the first analysis of the realized effects of
    the 2021 modifications to the CTC using transaction data. This allows
    us to examine outcomes which prior studies have not examined, such as
    detailed spending categories, savings, debt payments, and overdraft
    fees. It also potentially provides higher power, as we detect an
    increase in employment for advance recipients, in contrast to no
    effects found using survey data (Ananat, Glasner, Hamilton and Parolin
    2022). Our evidence complements survey-based evidence in concurrent
    working papers (e.g., Ananat, Glasner, Hamilton and Parolin 2022;
    Parolin, Ananat, Collyer, Curran, and Wimer 2021; and Parolin, Collyer,
    Curran and Wimer 2021). These studies utilize Census data, and find
    that survey respondents receiving the CTC report decreased perceptions
    of hardship, relative to non-recipients.\5\ However, these studies are
    constrained by survey data--evidence is based on self-reported
    recollections, data does not allow for benchmarking the same individual
    against prior years, and the data contains less detail about spending
    behavior and financial positions. Census survey data quality also
    suffered during the pandemic.\6\ Our big-data approach thus provides
    greater detail and new insights relative to the survey evidence, which
    contributes to the debate about whether to make the CTC expansion
    permanent.
    ---------------------------------------------------------------------------
        \5\ Baker, Messacar, and Stabile (2021) use a similar survey-based
    approach to examine the poverty-reduction and labor-supply effects of a
    change in Canada's Child Tax Credit policies.
        \6\ See https://www.census.gov/data/experimental-data-products/
    household-pulse-survey.html for a description of the Census Household
    Pulse Survey. Because the survey is part of the Census Bureau's
    Experimental Data Series, one caveat is that it may not meet the normal
    statistical quality standards of Census Bureau data. Evidence also
    indicates that ongoing surveys were less accurate during the pandemic,
    suggesting lower data quality during this time (see, e.g., Schneider,
    2022, regarding the Census Bureau's American Community Survey, and
    Smith and Zhang, 2021, regarding Bureau of Labor Statistics data).

        Our study more broadly contributes to the literature examining
    individual taxpayers. Prior research in this area has studied how
    individual tax compliance is affected by institutional factors such as
    social norms, enforcement, and tax structure components such as rate
    and timing (e.g., Davis, Hecht, and Perkins 2003; Austin et al. 2020;
    De Simone, Lester and Markle 2020). Another theme in this area is to
    study the influence of individual taxation on individual investments,
    e.g., contributions to, and asset allocation of, retirement accounts
    (Falsetta and Tuttle 2003; Falsteta et al. 2013; Stinson et al. 2021).
    Others have linked personal taxes to corporate policies and financing
    showing that they are affected by executives' or shareholders' personal
    tax considerations (Ayers, Lefanowicz, and Robinson 2003, 2004, 2007;
    Li, Lin, and Robinson 2016; Yost 2018; Armstrong et al. 2019; Hanlon,
    Verdi, and Yost 2021). By exploiting the change in the CTC, our study
    examines the effect of the timing and amount of tax credits on
    taxpayers' financial behaviors and investigates the differential impact
    ---------------------------------------------------------------------------
    on families with different incomes and different numbers of children.

        Finally, our study contributes to recent literature that examines
    the usefulness of alternative big data sources to decision-makers. For
    example, Zhu (2019) shows that the sale of consumer transactions and
    satellite images data to investment professionals increases price
    informativeness. Gutierrez et al. (2020) show that investors react
    positively to the firm investment in human capital measured by the
    changes in the daily number of job postings made by a firm. These
    studies show how the proliferation of alternative big data sources can
    inform investors' decision-making. Our study shows that the use of
    consumer transaction data can inform policymakers and regulators. The
    use of this alternative big data allows for analysis of policy effects
    in real time on a large sample of individuals, without the potential
    biases and costs that exist with survey evidence.

        Our study faces several limitations. First, we require users to
    have an active bank account from April 2019 through September 2021.
    This ensures high-quality data, and allows us to benchmark 2021
    spending against 2020 and 2019. However, this means that we do not
    include unbanked individuals and families in our analyses. According to
    estimates from the FDIC, 5.4% of Americans were unbanked in 2019.\7\
    Thus, future work that focuses on the unbanked will be important to
    complement the results of our study. Second, we only study short-term
    effects to the CTC changes in this paper.
    ---------------------------------------------------------------------------
        \7\ See https://www.fdic.gov/analysis/household-survey/index.html,
    updated December 17, 2021.

        Section 2 describes the data. Section 3 explains the methodology
    used in this study. Section 4 presents the empirical findings. Finally,
    Section 5 concludes.

    II. Data and Summary Statistics

        Our data is obtained from a proprietary data vendor which collects
    all transactions from bank accounts and credit cards from several
    partner financial institutions. The data is de-identified to protect
    the privacy of individual users, but bank accounts and credit cards
    belonging to the same user are linked by a unique user ID.\8\ This
    allows us to track the transactions by one user across multiple
    financial institutions and accounts.\9\
    ---------------------------------------------------------------------------
        \8\ The data vendor, Envestnet | Yodlee, provides the following
    disclosure regarding their data security and privacy practices.
    ``Envestnet | Yodlee follows leading industry practices for data
    security and privacy. Our data contains no personal identifiers
    including but not limited to age, gender, ethnicity, address, and
    healthcare records. For our data analytics offerings, Envestnet |
    Yodlee imposes measures to protect consumers' identities, such as
    prohibiting users from attempting to re-identify any consumer from the
    data. Importantly, Envestnet | Yodlee does not sell data that
    identifies consumers.''
        \9\ One limitation is that we cannot link users in the same family
    (i.e., bank and credit accounts under the name of different family
    members are treated as independent observations). We identify the tax
    payer/recipient as the CTC recipient from within each family, and focus
    on changes in their behavior.

        For each transaction, either in bank accounts or credit card
    accounts, we observe the time, amount, direction (i.e., debit
    transactions, meaning money flowing out of the account, or credit
    transitions, meaning money flowing into the account), the transaction
    counterparty, as well as a description of the transaction, after
    masking sensitive/personal information. We observe descriptions for the
    receipt of CTC payments from the IRS, allowing us to clearly identify
    ---------------------------------------------------------------------------
    CTC recipients.

        Table 1 describes the sample selection process. We start with users
    with sufficient consistency of spending data. This restriction ensures
    that our sample includes individuals for which we capture a large
    portion of their overall income and spending, as estimated using the
    data. The database contains 13,409,164 unique users that meet this
    requirement. We restrict to a random 1 million users given the large
    number of transactions per user, to reduce the computational burden. We
    exclude a small number of users who receive CTC payments that are not
    multiples of the typical per-child amounts (e.g., not multiples of
    $166, $167, $250 or $300).\10\ Our primary data restriction, to allow
    us to benchmark spending to prior year spending, is that we require the
    user to have an active bank account from April 2019 through September
    2021. Finally, we require non-missing state location and income class
    information. This results in a sample of 365,363 individuals. Of these,
    59,214, 16.2% of the sample, receive enhanced CTC payments (enhanced
    recipients), and 24,310, 6.7% of the sample, receive advance, but not
    increased, CTC payments (advance-only recipients). The remaining
    281,839, 77.1% of the sample, do not receive payments. We use this last
    group as a control group with which to compare CTC recipients.
    ---------------------------------------------------------------------------
        \10\ By restricting to multiples of $166, $167, $250 and $300, we
    exclude families with income which falls into the two phase-out
    ranges--the phase-down between $250/$300 to $166/$167, and the phase-
    out from $166/$167 to $0. However, this provides three clean subsamples
    to examine--lower-income recipients of expanded $250/$300 payments,
    higher-income recipients of $166/$167 payments, and non-recipients who
    do not have children. Our data includes very few individuals with
    incomes above $400,000, which are included in our non-recipient sample.

        Our final sample captures a wide distribution of individuals around
    the country. Figure 1 displays the geographic distribution of
    recipients. By number of observations, our sample is more heavily
    concentrated in high-population states.\11\ The percentage of
    observations in each state which receive CTC payments shows a slightly
    different distribution, roughly consistent with fertility rates by
    state.\12\ Thus, the geographic distribution of our sample is
    representative of the US population and the distribution of households
    with children.
    ---------------------------------------------------------------------------
        \11\ See https://www.census.gov/library/visualizations/interactive/
    2020-population-and-housing-state-data.html for Census data on the
    population by state, as of the 2020 Census, for comparison.
        \12\ See, e.g., https://www.cnn.com/2019/01/10/health/us-fertility-
    rate-replacement-cdc-study/index.html, accessed 12/9/2021.

        To address our research questions of the impact of the CTC
    expansion on individuals, we examine several variables that proxy for
    employment, consumption, financial position, and financial distress.
    Summary statistics are provided in Table 2. First, for employment, we
    examine an indicator for whether the individual is employed, Employed.
    The average values of this indicator show that 43.5%, 50.6%, and 39.2%
    of enhanced recipients, advance-only recipients, and non-recipients,
    respectively, are employed in any given month on average. These numbers
    are lower than Bureau of Labor Statistics employment numbers as we
    measure employment and wages based upon bank and credit account
    information. Thus, we miss employees who are paid using checks, cash,
    and people who are self-employed. In part for this reason, we benchmark
    each individual's employment, e.g., whether they earned income or wages
    via bank deposit, against whether the same individual was employed in a
    similar way in the same month in 2019 or 2020. Employed_Adj19
    (Employed_Adj20) is defined as Employed for the given month, minus the
    value of Employed for the same month in 2019 (2020). These values are
    more similar across the three groups, ranging from 1.1% to 1.6%. We
    also examine the natural log of monthly wages (salary payments),
    benchmarked against 2019 and 2020, Lnwage_Adj19 and Lnwage_Adj20. Wages
    show an average increase, with positive means for all three groups,
    consistent with inflation and increases in average wages over this
    period (https://www.bls.gov/news.release/empsit.t19.htm). For all other
    variables, we similarly examine both the value benchmarked against 2019
    ---------------------------------------------------------------------------
    and the value benchmarked against 2020.

        Second, to understand how families use CTC payments, we quantify
    and compare individuals' consumption. We first examine total
    consumption, which we define as total monthly spending, excluding
    transactions that are made in the following categories: Loans,
    Mortgages, Credit Card Payments, Savings, Retirement Contributions,
    Securities Trades, and Transfers. In light of the primary purpose of
    CTC reform, we also examine spending in each of the three categories of
    Groceries, Education, and Healthcare. These are presumably less
    discretionary and more likely to related to childcare. After
    benchmarking consumption against 2019 and 2020, we find that all users
    generally increase their consumption in 2021. The average values of all
    six adjusted variables are positive. Enhanced recipients seem to enjoy
    more growth in consumption than the other two groups, especially when
    benchmarked against 2019.

        Third, we examine if families use CTC payments to adjust their
    financial positions. In particular, we focus on two aspects: paying
    down debt and increasing amounts put into savings accounts. For the
    former, we aggregate individuals' payments towards Loans and
    Mortgage.\13\ For the latter, we identify money transferred from the
    current bank account to savings accounts (categorized as ``Savings'' in
    the database) and aggregate it by month.\14\ The summary statistics
    show that both enhanced and advance-only CTC recipients pay down more
    debt and deposit more money into savings accounts than in prior years,
    more so than non-recipients.
    ---------------------------------------------------------------------------
        \13\ In untabulated robustness checks, we also include debit
    transactions under the category of ``Credit card payments'' into the
    computation of total debt payments and find similar results. We do not
    include credit card payments in the main measure for payments towards
    reducing debt as credit card payments are highly related to the
    spending on credit cards (i.e., consumption) in the previous month.
        \14\ In untabulated robustness checks, we also include debit
    transactions under the category of ``Retirement contributions'' as part
    of savings and find similar results.

        Lastly, to understand the overall impact of the CTC reform on
    families' (by extension, children's) financial condition, we examine
    two proxies for financial distress. One is overdraft or non-sufficient
    fee charges on bank accounts.\15\ Roughly speaking, when one initiates
    a transaction that costs more money than what is available in the bank
    account, it will result in an overdraft fee charge if the transaction
    goes through or a non-sufficient fee charge if the transaction is
    denied. The presence of these charges is an indicator that the
    individual is having difficulty managing their finances, as they do not
    have sufficient funds to cover the transaction. For our purpose, we do
    not differentiate these two charges and use overdraft hereafter for
    brevity. During our sample period, 8.5% of users have at least one
    overdraft charge and the average number of overdraft charges is 0.06
    per month. Benchmarking against 2019 and 2020, overdraft frequencies
    decrease. The second proxy is payments to debt collection agencies.
    Creditors often hire debt collection agencies to collect money from
    delinquent borrowers. In other words, when we observe that a user makes
    a payment to a debt collection agency, we can infer that they have
    recently defaulted on a loan, which suggests a financial hardship.\16\
    We identify the top 20 consumer debt collection agencies and aggregate
    the monthly payments to these agencies as our second proxy.\17\ Such
    transactions are relatively rare. Only 0.8% of users make a payment to
    a debt collection agency during our sample period.\18\ Benchmarked
    against 2020 or 2019, we observe a slight decrease in debt collection
    payments, especially among enhanced recipients.
    ---------------------------------------------------------------------------
        \15\ We identify these two charges based on transaction description
    using regular expression matching with key words such as ``insufficient
    funds,'' ``overdraft,'' ``OD CHG,'' and ``OD FEE.''
        \16\ We acknowledge that this measure has several limitations.
    First of all, we do not observe people in extreme hardship such that
    they cannot afford to make any payments to debt collection agencies
    after defaulting on a loan. Second, as there is not a specific category
    for debt collection agencies, we focus on the 20 largest agencies and
    likely miss some people who are dealt with by smaller agencies.
        \17\ We include debt collection agencies listed at https://
    nexacollect.com/research/large-collection-agency/.
        \18\ Due to its infrequency, we do not winsorize debt collection
    payments while all other continuous variables are winsorized at 1% and
    99%.
    ---------------------------------------------------------------------------

    III. Empirical Methodology

        For all variables of interest, we first present plots for their
    average over the three months before and after the start of monthly CTC
    payments. These plots convey descriptively how employment, spending,
    and financial situations have changed relative to 2019 and 2020 for the
    groups in question. We then conduct regression analyses to estimate
    whether enhanced/advance CTC payments have a significant impact on the
    variables in question. To do so, we utilize a difference in differences
    specification with fixed effects. We estimate two difference-in-
    difference models,

    [GRAPHIC] [TIFF OMITTED] T1423.005

    [GRAPHIC] [TIFF OMITTED] T1423.006

    where CTCi is an indicator which takes the value of one
    if the individual receives a monthly CTC payment in 2021, and
    Postt is an indicator which takes the value of one for the
    months after the start of monthly CTC payments. Model (1) is the
    baseline model which examines the outcomes of interest for CTC
    recipients before and after the receipt of monthly payments, relative
    to non-recipients during the same period. In Model (2), we
    differentiate lower-income families which receive enhanced CTC payments
    of $250 or $300 per child (Enhanced_CTC), from higher-
    income families which receive advance, but not expanded, payments of
    $166 or $167 per child (Advance_Only_CTC). The variables of interest
    are the interaction terms Post*CTC in Model (1) and Post*Enhanced_CTC
    and Post*Advance_Only_CTC in Model (2). This coefficient is the
    difference-in-differences estimate of the CTC reform impact. In both
    models, we include state-month fixed effects to control for state-
    specific economic conditions. We include user fixed effects to control
    for user-specific changes in behavior in 2021 which do not vary with
    respect to enhanced/advance CTC payments. State-month fixed effects
    absorb the standalone term of Post and user fixed effects absorb the
    standalone terms of CTC indicators.

    IV. Results

        In this section, we present results for employment, consumption,
    financial position, and financial distress. Finally, we present cross-
    sectional analyses partitioned on the number of children and prior
    income level.
    4.1. Employment
        Figure 2 displays plots for Employed_Adj19, Employed_Adj20,
    Lnwage_Adj19, and Lnwage_Adj20. While there is some decrease in
    employment and wages in the second half of the sample period, the
    patterns appear similar for all three groups.
    Advance-only recipients have the highest rates of employment and wages
    of the three groups. Overall, there is no clear indication of an
    employment effect from the descriptive plots.

        Table 3 presents the results of the difference-in-differences
    regressions. We find significantly higher rates of employment for
    advance-only CTC recipients after the July payments begin, both
    relative to 2019 and 2020, but find no significant differences for
    enhanced CTC recipients. Similarly, advance recipients experience a
    statistically significant increase in wages relative to non-recipients,
    while enhanced recipients experience no significant change. The
    increase in employment and wages for advance payment recipients is also
    economically significant. Wages increase by an incremental 4.5% (3.5%)
    relative to 2019 (2020) compared to non-recipients.

        This evidence speaks to an existing disagreement on the potential
    employment impacts of CTC expansion, based on simulation forecasting
    approaches. National Academy of Sciences (2019) forecast a minimal
    employment effect for a similar policy, with only 150,000 individuals
    leaving the workforce. In contrast, Corinth, Meyer, Stadnicki, and Wu
    (2021) forecast over 1.5 million parents leaving the workforce. We find
    that the realized impact of the 2021 expansion is an insignificant
    change, or even increase, in employment.
    4.2. Consumption
        Figure 3 presents the average monthly total consumption for each of
    the three groups over the 6 months surrounding the start of monthly CTC
    payments, adjusted for the same individuals' consumption in 2020 and
    2019. There is a high level of adjusted consumption in April and May
    2021, likely related to American Rescue Plan Act ``Economic Impact
    Payments,'' direct payments to all individuals, which were sent out
    starting March 2021.\19\ The gaps between the groups appear to shift
    after monthly CTC payments begin. Prior to the start of monthly CTC
    payments, non-recipients consume as much or more than recipients. In
    contrast, after payments begin, enhanced recipients consume more.
    ---------------------------------------------------------------------------
        \19\ See, for example, Baker et al. 2020 and Li et al. 2021, for
    examinations of the impacts of earlier COVID relief payments, and
    https://www.irs.gov/coronavirus/economic-impact-payments for payment
    details.

        Table 4 presents results for the difference-in-difference analyses.
    Columns 1 and 2 present results for total consumption and show that
    total consumption increases significantly for both advance-only and
    enhanced CTC recipients, relative to both 2019 and 2020. For example,
    families receiving enhanced CTC payments increase their total
    consumption by 5.6% more relative to 2019 than non-recipients do, and
    9.3% more relative to 2020, controlling for overall state-time specific
    patterns in spending. Columns 3 through 8 present results for three
    categories of consumption that are particularly relevant to child
    welfare--groceries, education, and healthcare. In all cases, enhanced
    recipients significantly increase their consumption relative to both
    2019 and 2020. Enhanced recipients increase Grocery, Education, and
    Healthcare spending by 4.9%, 7.7%, and 3.3% (10.2%, 2.6%, and 3.1%)
    more than non-
    recipients, relative to 2019 (2020). Advance-only recipients also spend
    more on groceries relative to both 2019 and 2020. Spending on education
    and healthcare is higher relative to 2019 but not relative to 2020 for
    this group of higher-income families, however.
    4.3. Financial Position
        Raising families out of debt is a potentially important component
    of raising children out of poverty. We examine whether enhanced or
    advance-only recipients increase their payments towards reducing debt,
    and/or increase savings. Figure 4 presents summary statistics for debt
    payments and money put towards savings, relative to 2019 and 2020, for
    each of the three groups we examine. Payments towards reducing debt and
    towards saving appear to be higher in 2021 relative to prior years for
    CTC recipients than for non-recipients, in general. However, the gap
    between recipients and non-recipients appears larger for debt payments
    after monthly CTC payments begin. The pattern for savings is unclear--
    with the gap appearing larger relative to 2019 but smaller relative to
    2020.

        Table 5 presents the results of difference-in-difference analyses.
    Both enhanced and advance-only recipients increase payments towards
    debt relative to prior years. The increases in payments towards debt
    range from 2.4% to 5.0% relative to non-recipients, compared to 2019
    and 2020. However, results are mixed for savings--
    advance-only recipients increase the amount put towards savings
    relative to 2019 by 1.1%, but do not increase relative to 2020.
    Enhanced recipients increase relative to 2019 and marginally
    significantly towards 2020, with magnitudes less than 1%. Overall, the
    CTC expansion appears to support families in paying off debt, but we do
    not find consistent evidence that it supports additional savings.
    4.4. Financial Distress
        An alternative measure of financial position at the low end is
    financial distress. Are families struggling to manage their expenses,
    or are they in extreme debt and unable to pay the bills? To gauge this,
    we examine overdraft fees and payments to debt collection agencies,
    indicators that the individual is in financial distress. Figure 5
    displays such fees and payments over the six months surrounding the
    start of payments, for each of the three groups we examine. While all
    three groups experience a decrease in overdraft fees starting in July
    2021, relative to prior years, it is unclear whether recipients
    experience a differential effect. Similarly, the relative patterns in
    payments to debt collection agencies are unclear.

        Table 6 presents the results of the difference-in-differences
    analyses. Both enhanced and advance-only recipients experience a drop
    in overdraft fees relative to 2019 and 2020, in comparison to non-
    recipients. The coefficients range from -0.2% to -0.5%, and are
    statistically significant at the 1% level. Results for debt collection
    agency payments are more mixed, with significant drops for both groups
    relative to 2019, but no change relative to 2020. Overall, we find
    evidence that CTC payments are associated with reduced financial
    distress as measured by overdraft fees, however, we fail to find
    evidence that it significantly reduces default, as measured by debt
    collection agency payments.
    4.5. Number of Children
        In additional analyses, we examine the employment and total
    consumption effects of the 2021 CTC expansion separately for families
    with one to two children, and families with greater than two children.
    The results are presented in Table 7. Results for employment and wage
    effects are similar across families of different sizes. Enhanced CTC
    recipients neither increase nor decrease employment and wages.
    Advance-only recipients significantly increase employment and wages if
    they have one or two children, with weaker evidence of an increase if
    they have three or more children.

        Total consumption increases significantly for enhanced recipients
    with either one or two children or three or more children. The
    magnitudes of the consumption increases are significantly higher for
    larger families. We find mixed evidence of the consumption effect for
    advance-only recipients with one or two children, depending on whether
    consumption is benchmarked to 2019 or 2020. However larger families
    receiving advance-only payments appear to increase consumption.

        Overall, we again fail to find a drop in employment when
    partitioning on family size. Consistent with consumption effects being
    driven by CTC payments, families with more children increase
    consumption more than smaller families.
    4.6. Income Level
        Finally, we examine employment and consumption effects for subsets
    of enhanced recipients, based on income. In particular, lower income
    enhanced recipients are of interest for two reasons. First, from a
    poverty-reduction perspective, these are the families which
    policymakers hope to most strongly impact. Second, many of the
    questions surrounding refundability focus on this subset of the
    population and whether their willingness to work will be affected. For
    this analysis, we exclude advance-only recipients, as they have
    relatively higher income (i.e., families with annual income of $200,000
    or above). Instead, we focus on recipients of the enhanced $250 or $300
    per child payments and compare them to non-recipients. We add an
    indicator for lower-income individuals based on their income class
    during the pre-period (income class below sample median, i.e., income
    below $75,000 per year), and interact this with Post*Enhanced_CTC.\20\
    The coefficient on this interaction term measures the incremental
    effect of the 2021 CTC expansion on the lower-income enhanced
    recipients relative to moderate-income enhanced recipients.
    ---------------------------------------------------------------------------
        \20\ Income classes are computed based on individuals' wage income,
    deposits, spending, etc.

        Results are presented in Table 8. We find no consistently
    significant difference in employment and wage effects for lower-income
    enhanced recipients, compared to moderate-income enhanced recipients.
    The coefficient on the interaction term is positive and significant for
    employment and wages, relative to 2019, but is insignificant relative
    ---------------------------------------------------------------------------
    to 2020.

        We find a positive and statistically significant incremental effect
    for consumption, relative to both 2019 and 2020. The lower-income CTC
    recipients increase their consumption by a larger portion than more
    moderate-income recipients of enhanced CTC payments. While moderate-
    income recipients increase consumption by 4.7% and 5.7% relative to
    2019 and 2020, compared to non-recipients, lower-income recipients
    increase consumption by an additional 2.8% and 11.8%, relative to 2019
    and 2020, respectively.

        In untabulated analyses we further examine recipients earning below
    $45,000 a year, and find an even larger consumption increment. Families
    earning more than $45,000 per year increase consumption by 4.9% and
    7.7%, while those with incomes below $45,000 increase consumption by an
    additional 8.0% and 19.1%.

    V. Conclusion

        We examine several potential impacts of the CTC expansion which
    occurred as part of The American Rescue Plan Act of 2021. We find no
    significant decrease in employment among recipients of the enhanced
    payments. In fact, we find evidence of either no change, or even an
    increase, in employment and wages among lower-income recipients
    relative to moderate-income recipients, with neither group decreasing
    employment. This speaks to the policy-relevant question of whether
    expanded CTC payments with full refundability will cause lower-income
    individuals to leave the workforce. Our analysis shows no such effect.

        Consistent with the goals of the 2021 CTC reform to support
    families, we find that families receiving CTC payments increase total
    consumption, particularly on groceries, education, and healthcare. Such
    consumption effects are significantly higher for families with more
    children or lower income. Moreover, CTC recipients are able to pay down
    debt and reduce overdraft fees, indicating a relaxation of financial
    constraints. Recipients of enhanced CTC payments are also able to
    contribute slightly more to savings accounts. We find weaker evidence
    for payments to debt collection agencies, with improvements versus
    2019, but not versus 2020. Overall, we find evidence consistent with
    the CTC expansion achieving its intended goal of supporting families
    during this period.

        Analyzing the transactions of a large sample of Americans, we
    provide evidence on the realized effects of the 2021 CTC expansion,
    which can inform the continuing debate surrounding the CTC. While we
    lack data on unbanked individuals, our data covers a broad cross-
    section of American individuals and families, both geographically and
    in terms of income. Our data and analyses provide insight into the
    effects on many of the families that the CTC aims to support.

        More broadly, our study contributes to several areas of research.
    Our study takes a unique big-data approach to examining individual
    taxation effects and household responses to monetary and fiscal
    stimulus policies. This approach is relevant for research in multiple
    fields, including economics, finance, and accounting.

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                        Appendix A. Variable Definitions

              Variable                            Definition

    Employed                     Dummy variable, equal to one if there is
                                  cash inflow to the bank account from
                                  transactions in the category of ``Salary/
                                  Regular Income'' during the month.
    Employed_Adj[X]              Employed, adjusted by its value in the same
                                  month of 2019 [X=19, hereinafter] or 2020
                                  [X=20, hereinafter].
    LnWage_Adj[X]                Natural logarithm of one plus salary income
                                  (identified by credit transactions in the
                                  categories of ``Salary/Regular Income''),
                                  adjusted by its value in the same month of
                                  year X.
    LnTot_Cons[X]                Natural logarithm of one plus total
                                  consumption (identified by debit
                                  transactions in the categories other than
                                  ``Loans,'' ``Mortgages,'' ``Credit Card
                                  Payments,'' ``Savings,'' ``Retirement
                                  Contributions,'' ``Securities Trades,''
                                  ``Transfers''), adjusted by its value in
                                  the same month of year X.
    LnGroceries_Adj[X]           Natural logarithm of one plus spendings on
                                  groceries (identified by debit
                                  transactions in the category of
                                  ``Groceries''), adjusted by its value in
                                  the same month of year X.
    LnEducation_Adj[X]           Natural logarithm of one plus education
                                  spending (identified by debit transactions
                                  in the category of ``Education''),
                                  adjusted by its value in the same month of
                                  year X.
    LnHealthcare_Adj[X]          Natural logarithm of one plus healthcare
                                  spending (identified by debit transactions
                                  in the category of ``HealthCare/
                                  Medical''), adjusted by its value in the
                                  same month of year X.
    LnDebt_Adj[X]                Natural logarithm of one plus debt payments
                                  (identified by debit transactions in the
                                  category of ``Loans'' and ``Mortgages''),
                                  adjusted by its value in the same month of
                                  year X.
    LnSaving_Adj[X]              Natural logarithm of one plus monthly
                                  saving (identified by debit transactions
                                  in the category of ``Savings''), adjusted
                                  by its value in the same month of year X.
    LnOverdraft_Adj[X]           Natural logarithm of one plus the number of
                                  overdraft/non-Psufficient charges to the
                                  bank account, adjusted by its value in the
                                  same month of year X.
    DCA_Adj[X]                   Dummy indicator of the existence of
                                  payments to debt collection agencies,
                                  adjusted by its value in the same month of
                                  year X.
    Children                     Number of children, inferred from the
                                  dollar amount of monthly CTC payments.

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                          Table 1. Sample Construction
      This table describes the sample construction process. We start with a
     random one million unique users with sufficiently high data quality. We
    then exclude users with irregular CTC payments. We further require users
      to have data throughout 2019 April and 2021 September and non-missing
            demographic data (geographic location and income class).

                                          # User       # User
      Sample Filtering      # Total     [Enhanced     [Advance    # Control
                              User         CTC]      Only CTC]      users

    Random users with       1,000,000
     sufficiently high
     data quality

    Exclude users with        986,556       65,009       27,393      894,154
     abnormal CTC
     payments

    Requiring account         400,747       62,110       26,382      312,255
     history throughout
     2019 Apr-2021 Sep

    Requiring non-            365,363       59,214       24,310      281,839
     missing state and
     income information

                                               Table 2. Summary Statistics
     This table reports the mean and standard deviation of selected key variables for enhanced recipients, advance-
       only recipients, and non-recipients, respectively. The sample includes six months for each user, April 2021
      through September 2021. We have 355,284 user-month observations for enhanced recipients, 145,860 observations
         for advance-only recipients, and 1,691,034 observations for non-recipients. We winsorize all continuous
      variables at 1% and 99% except DCA_Adj19 and DCA_Adj20 due to its infrequency. Please refer to Appendix A for
                                             detailed variable definitions.

                                                   Enhanced CTC          Advance-only CTC             Non-CTC

                                                 Mean        S.D.        Mean        S.D.        Mean        S.D.

    Employed                                      0.435       0.496       0.506       0.500       0.392       0.488

    Employed_Adj19                                0.013       0.485       0.016       0.471       0.011       0.483

    Employed_Adj20                                0.013       0.420       0.015       0.404       0.015       0.419

    Lnwage_Adj19                                  0.151       3.653       0.179       3.642       0.138       3.601

    Lnwage_Adj20                                  0.130       3.114       0.145       3.041       0.139       3.082

    LnTot_Cons19                                  0.340       1.562       0.220       1.408       0.297       1.767

    LnTot_Cons20                                  0.262       1.351       0.256       1.311       0.292       1.610

    LnGroceries_Adj19                             0.140       2.081       0.061       2.088       0.100       2.353

    LnGroceries_Adj20                             0.155       1.921       0.165       1.949       0.150       2.215

    LnEducation_Adj19                             0.046       1.810       0.005       2.175      -0.031       1.436

    LnEducation_Adj20                             0.139       1.611       0.210       1.888       0.028       1.279

    LnHealthcare_Adj19                            0.192       2.546       0.144       2.502       0.101       2.470

    LnHealthcare_Adj20                            0.255       2.451       0.336       2.403       0.207       2.368

    LnDebt_Adj19                                  0.121       3.284       0.092       3.174       0.000       3.106

    LnDebt_Adj20                                  0.184       2.914       0.157       2.811       0.107       2.692

    LnSaving_Adj19                                0.052       0.928       0.048       0.972       0.011       0.845

    LnSaving_Adj20                                0.026       0.729       0.032       0.761       0.003       0.664

    Lnoverdraft_Adj19                            -0.025       0.221      -0.019       0.191      -0.020       0.209

    Lnoverdraft_Adj20                             0.000       0.149       0.000       0.126      -0.001       0.145

    DCA_Adj19                                    -0.001       0.104       0.000       0.094       0.000       0.073

    DCA_Adj20                                    -0.003       0.097      -0.002       0.088      -0.001       0.068

    Children                                      1.772       0.996       2.435       0.822

                                                              Table 3. CTC Expansion and Employment
     This table reports the impact of CTC reform on employment. The sample is a balanced panel of 2,192,178 user-month observations for 365,363 unique users
       from 2021 April to 2021 September. Using a  difference-in-difference specification, we compare CTC recipients to non-recipients during the 6 months
         centered around the first CTC payments under American Rescue Plan Act. We further separate enhanced recipients (Enhanced_CTC) from advance-only
      recipients (Advance_Only_CTC). The dependent variables in Columns 1-4 are measured by whether a user is employed or not, adjusted by its value in the
     same month of 2019 (Employed_Adj19) or 2020 (Employed_Adj20). The dependent variables in Columns 5-8 are measured by the natural logarithm of one plus
      salary/regular income, adjusted by its value in the same month of 2019 (LnWage_Adj19) or 2020 (LnWage_Adj20). Please refer to Appendix A for detailed
     variable definitions. Robust standard errors clustered by state-month are reported in parentheses. ***, **, and * stand for statistical significance at
                                                            the 1%, 5%, and 10% level, respectively.

                                                    Employed_Adj19              Employed_Adj20               LnWage_Adj19                LnWage_Adj20
                    VARIABLES
                                                   (1)           (2)           (3)           (4)           (5)           (6)           (7)           (8)

    Post*CTC                                        0.002                       0.001                      0.013*                       0.008
                                                  (0.001)                     (0.001)                     (0.008)                     (0.008)
    Post*Advance_Only_CTC                                      0.006***                     0.005**                    0.045***                    0.035***
                                                                (0.002)                     (0.002)                     (0.012)                     (0.013)
    Post*Enhanced_CTC                                            -0.000                      -0.001                       0.001                      -0.003
                                                                (0.001)                     (0.001)                     (0.008)                     (0.009)

    State-Month FE                                      Y             Y             Y             Y             Y             Y             Y             Y
    User FE                                             Y             Y             Y             Y             Y             Y             Y             Y
    Observations                                2,192,178     2,192,178     2,192,178     2,192,178     2,192,178     2,192,178     2,192,178     2,192,178
    Adj R2                                          0.659         0.659         0.534         0.534         0.710         0.710         0.589         0.589

                                                                                 Table 4. CTC Expansion and Consumption
      This table reports the impact of CTC reform on total consumption, as well as specific spending on groceries, education, and healthcare The sample is a balanced panel of 2,192,178 user-month
         observations for 365,363 unique users from 2021 April to 2021 September. Using a difference-in-difference specification, we compare enhanced recipients (Enhanced_CTC) and advance-only
     recipients (Advance_Only_CTC) to non-recipients during the 6 months centered around the first CTC payments under American Rescue Plan Act. The dependent variables are natural logarithm of one
      plus total consumption, specific spending on groceries, education, or healthcare, adjusted by its value in the same month of 2019 or 2020, as indicated in the table header. Please refer to
     Appendix A for detailed variable definitions. Robust standard errors clustered by state-month are reported in parentheses. ***, **, and * stand for statistical significance at the 1%, 5%, and
                                                                                        10% level, respectively.

                                                     (1)               (2)               (3)                (4)                (5)                (6)                 (7)                 (8)
                    VARIABLES                 LnTot_Cons_Adj19  LnTot_Cons_Adj20  LnGroceries_Adj19  LnGroceries_Adj20  LnEducation_Adj19  LnEducation_Adj20  LnHealthcare_Adj19  LnHealthcare_Adj20

    Post*Advance_Only_CTC                          0.062***          0.034***             0.049***           0.079***         0.136***              0.019           0.053***               0.015
                                                    (0.008)           (0.009)              (0.010)            (0.011)          (0.014)            (0.016)            (0.012)             (0.013)
    Post*Enhanced_CTC                              0.056***          0.093***             0.049***           0.102***         0.077***           0.026***           0.033***            0.031***
                                                    (0.007)           (0.009)              (0.006)            (0.009)          (0.008)            (0.009)            (0.008)             (0.009)

    State-Month FE                                        Y                 Y                    Y                  Y                Y                  Y                  Y                   Y
    User FE                                               Y                 Y                    Y                  Y                Y                  Y                  Y                   Y
    Observations                                  2,192,178         2,192,178            2,192,178          2,192,178        2,192,178          2,192,178          2,192,178           2,192,178
    Adj R2                                            0.552             0.459                0.474              0.360            0.278              0.202              0.273               0.198

                                      Table 5. CTC Expansion and Financial Position
     This table reports the impact of CTC reform on financial position as measured by payments towards reducing debt
     and money put towards savings. The sample is a balanced panel of 2,192,178 user-month observations for 365,363
       unique users from 2021 April to 2021 September. Using a difference-in-difference specification, we compare
    enhanced recipients (Enhanced_CTC) and advance-only recipients (Advance_Only_CTC) to non-recipients during the 6
    months centered around the first CTC payments under American Rescue Plan Act. The dependent variables in Columns
      1-2 (3-4) are measured by natural logarithm of one plus monthly debt payments (money transferred into saving
       accounts or retirement accounts), adjusted by its value in the same month of 2019 or 2020. Please refer to
      Appendix A for detailed variable definitions. Robust standard errors clustered by state-month are reported in
       parentheses. ***, **, and * stand for statistical significance at the 1%, 5%, and 10% level, respectively.

                                                    (1)              (2)               (3)                (4)
                    VARIABLES                   LnDebt_Adj19     LnDebt_Adj20     LnSaving_Adj19     LnSaving_Adj20

    Post*Advance_Only_CTC                            0.037**         0.030***           0.011***             -0.008
                                                     (0.016)          (0.011)            (0.004)            (0.005)
    Post*Enhanced_CTC                                0.024**         0.050***           0.009***             0.006*
                                                     (0.009)          (0.008)            (0.002)            (0.003)

    State-Month FE                                         Y                Y                  Y                  Y
    User FE                                                Y                Y                  Y                  Y
    Observations                                   2,192,178        2,192,178          2,192,178          2,192,178
    Adjusted R-squared                                 0.622            0.478              0.506              0.382

                                      Table 6. CTC Expansion and Financial Distress
      This table reports the impact of CTC reform on financial health proxied by overdraft charges and payments to
    debt collection agencies. The sample is a balanced panel of 2,192,178 user-month observations for 365,363 unique
      users from 2021 April to 2021 September. Using a difference-in-difference specification, we compare enhanced
     recipients (Enhanced_CTC) and advance only recipients (Advance_Only_CTC) to non-recipients during the 6 months
    centered around the first CTC payments under American Rescue Plan Act. The dependent variables in Columns 1-2 (3-
    4) are measured by natural logarithm of one plus the number of overdraft charges (a dummy indicator for payments
     to debt collection agencies), adjusted by its value in the same month of 2019 or 2020. Please refer to Appendix
          A for detailed variable definitions. Robust standard errors clustered by state-month are reported in
       parentheses. ***, **, and * stand for statistical significance at the 1%, 5%, and 10% level, respectively.

                                                  (1)                  (2)
                  VARIABLES                LnOverdraft_Adj19    LnOverdraft_Adj20    (3)  DCA_Adj19   (4)  DCA_Adj20

    Post*Advance_Only_PCTC                         -0.005***            -0.002***        -0.002***            0.000
                                                     (0.001)              (0.001)          (0.000)          (0.000)
    Post*Enhanced_CTC                              -0.005***            -0.003***        -0.002***            0.000
                                                     (0.001)              (0.001)          (0.000)          (0.000)

    State-Month FE                                         Y                    Y                Y                Y
    User FE                                                Y                    Y                Y                Y
    Observations                                   2,192,178            2,192,178        2,192,178        2,192,178
    Adjusted R-squared                                 0.280                0.129            0.476            0.426

                                  Table 7. Cross-Sectional Analysis: Number of Children
        This table reports the differential impacts of the 2021 CTC reform by number of children. The sample is a
        balanced monthly panel for 365,363 unique users from 2021 April to 2021 September. Using a difference-in-
           difference specification, we compare enhanced recipients (Enhanced_CTC) and advance-only recipients
     (Advance_Only_CTC) to non-recipients during the 6 months centered around the first CTC payments under American
     Rescue Plan Act. Among CTC recipients, we differentiate enhanced recipients with 1 or 2 children (Enhanced_CTC
       [1 or 2 Children]), more than 2 children (Enhanced_CTC [>2 Children]), advance-only recipients with 1 or 2
      children (Advance_Only_CTC [1 or 2 Children]), or more than 2 children (Advance_Only_CTC [>2 Children]). The
     dependent variables in adjusted employment, adjusted wages, and adjusted total consumption, as indicated in the
     table header. Please refer to Appendix A for detailed variable definitions. Robust standard errors clustered by
      state-month are reported in parentheses. ***, **, and * stand for statistical significance at the 1%, 5%, and
                                                10% level, respectively.
    ----------------------------------------------------------------------------------------------------------------
                         (1)               (2)             (3)           (4)             (5)               (6)
      VARIABLES    Employed_Adj19    Employed_Adj20   LnWage_Adj19  LnWage_Adj20  LnTot_Cons_Adj19  LnTot_Cons_Adj20
    ----------------------------------------------------------------------------------------------------------------
    Post*Advance          0.008***          0.007***      0.051***       0.045**          0.046***         -0.070***
     _Only_CTC             (0.002)           (0.003)       (0.017)       (0.018)           (0.016)           (0.015)
     [1 or 2
     Children]
    Post*Enhance            -0.001            -0.001        -0.000        -0.004          0.047***          0.079***
     d_CTC [1 or           (0.001)           (0.001)       (0.009)       (0.009)           (0.006)           (0.009)
     2 Children]
    Post*Advance           0.006**             0.003       0.041**        0.028*          0.072***          0.097***
     _Only_CTC             (0.002)           (0.002)       (0.017)       (0.015)           (0.008)           (0.010)
     [>2
     Children]
    Post*Enhance             0.001            -0.000         0.004         0.002          0.084***          0.140***
     d_CTC [>2             (0.002)           (0.002)       (0.012)       (0.014)           (0.012)           (0.013)
     Children]
    State-Month                  Y                 Y             Y             Y                 Y                 Y
     FE
    User FE                      Y                 Y             Y             Y                 Y                 Y
    Observations         2,192,178         2,192,178     2,192,178     2,192,178         2,192,178         2,192,178
    Adjusted R-              0.659             0.534         0.710         0.589             0.552             0.459
     squared
    ----------------------------------------------------------------------------------------------------------------

                                        Table 8. Cross-Sectional Analysis: Income
        This table reports the differential impacts of the 2021 CTC reform by prior income level. The sample is a
      balanced monthly panel for 341,053 unique users (59,214 enhanced recipients and 281,839 non-recipients) from
    2021 April to 2021 September. The dependent variables in adjusted employment, adjusted wages, and adjusted total
              consumption, as indicated in the table header. The variable of interest is the interaction of
    Post*Enhanced_CTC*Low_Income where Post indicates the post period of CTC reform, Enhanced_CTC indicates enhanced
       recipients, and Low_Income indicates the average income class during 2021 January to 2021 March is below or
       equal to the sample median ($75,000). Please refer to Appendix A for detailed variable definitions. Robust
       standard errors clustered by state-month are reported in parentheses. ***, **, and * stand for statistical
                                significance at the 1%, 5%, and 10% level, respectively.
    ----------------------------------------------------------------------------------------------------------------
                         (1)               (2)             (3)           (4)             (5)               (6)
      VARIABLES    Employed_Adj19    Employed_Adj20   LnWage_Adj19  LnWage_Adj20  LnTot_Cons_Adj19  LnTot_Cons_Adj20
    ----------------------------------------------------------------------------------------------------------------
    Post*Enhance            -0.002            -0.002        -0.010        -0.011          0.047***          0.057***
     d_CTC                 (0.001)           (0.001)       (0.008)       (0.010)           (0.009)           (0.011)
    Post*Enhance           0.005**             0.002       0.034**         0.029           0.028**          0.118***
     d_CTC*Low_I           (0.002)           (0.003)       (0.014)       (0.018)           (0.013)           (0.013)
     ncome
    State-Month                  Y                 Y             Y             Y                 Y                 Y
     FE
    User FE                      Y                 Y             Y             Y                 Y                 Y
    Observations         2,046,318         2,046,318     2,046,318     2,046,318         2,046,318         2,046,318
    Adjusted R-              0.659             0.535         0.709         0.589             0.556             0.465
     squared
    ----------------------------------------------------------------------------------------------------------------

                                     ______

                           NBER WORKING PAPER SERIES

              THE INITIAL EFFECTS OF THE EXPANDED CHILD TAX CREDIT
                              ON MATERIAL HARDSHIP

                                Zachary Parolin

                                Elizabeth Ananat

                               Sophie M. Collyer

                                  Megan Curran

                               Christopher Wimer

                              Working Paper 29285

                       http://www.nber.org/papers/w29285

                      NATIONAL BUREAU OF ECONOMIC RESEARCH

                           1050 Massachusetts Avenue

                              Cambridge, MA 02138

                                 September 2021

    The authors wish to thank The JPB Foundation and the Annie E. Casey
    Foundation for grant support. The views expressed herein are those of
    the authors and do not necessarily reflect the views of the National
    Bureau of Economic Research.

    NBER working papers are circulated for discussion and comment purposes.
    They have not been peer-reviewed or been subject to the review by the
    NBER Board of Directors that accompanies official NBER publications.

     2021 by Zachary Parolin, Elizabeth Ananat, Sophie M. Collyer, Megan
    Curran, and Christopher Wimer. All rights reserved. Short sections of
    text, not to exceed two paragraphs, may be quoted without explicit
    permission provided that full credit, including  notice, is given to
    the source.

    The Initial Effects of the Expanded Child Tax Credit on Material
    Hardship
    Zachary Parolin, Elizabeth Ananat, Sophie M. Collyer, Megan Curran, and
    Christopher Wimer
    NBER Working Paper No. 29285
    September 2021
    JEL No. H53,I3,I38,J13

                                    ABSTRACT

    The transformation of the Child Tax Credit (CTC) into a more generous,
    inclusive monthly payment marks a historic (temporary) shift in U.S.
    treatment of low-income families. To investigate the initial impact of
    these payments, we apply a series of difference-in-difference estimates
    using Census Household Pulse Survey microdata collected from April 14
    through August 16, 2021. Our findings offer three primary conclusions
    regarding the initial effects of the monthly CTC. First, payments
    strongly reduced food insufficiency: the initial payments led to a 7.5
    percentage point (25 percent) decline in food insufficiency among low-
    income households with children. Second, the effects on food
    insufficiency are concentrated among families with 2019 pre-tax incomes
    below $35,000, and the CTC strongly reduces food insufficiency among
    low-income Black, Latino, and White families alike. Third, increasing
    the CTC coverage rate would be required in order for material hardship
    to be reduced further. Self-reports suggest the lowest-income
    households were less likely than higher-income families to receive the
    first CTC payments. As more children receive the benefit in future
    months, material hardship may decline further. Even with imperfect
    coverage, however, our findings suggest that the first CTC payments
    were largely effective at reducing food insufficiency among low-income
    families with children.

    Zachary Parolin                     Megan Curran
    Columbia University                 Columbia University
    and Bocconi University              School of Social Work
    zachary.parolin@columbia.edu        1255 Amsterdam Avenue
                                        7th floor
                                        New York, NY 10027
                                        megan.curran@columbia.edu

    Elizabeth Ananat                    Christopher Wimer
    Barnard College                     Columbia University
    Columbia University                 1255 Amsterdam Avenue
    3009 Broadway                       Office 735
    Office 1019 Milstein Building       New York, NY 10027
    New York, NY 10027                  cw2727@columbia.edu
    and NBER
    eananat@barnard.edu

    Sophie M. Collyer
    Columbia University
    smc2246@columbia.edu

    A data appendix is available at http://www.nber.org/data-appendix/
    w29285.

    INTRODUCTION

        In March 2021, the United States (U.S.) Congress passed the
    American Rescue Plan (ARP), which included a large expansion of the
    Child Tax Credit (CTC). The ARP increased the benefit values of the
    CTC, removed the earnings requirement and made the benefit fully
    refundable, and shifted the distribution schedule from a once-per-year
    payment of the CTC to monthly payments. The first monthly payment was
    distributed to families of 59.3 million children in July 2021, while
    the second payment reached 60.9 million children in August 2021 (U.S.
    Department of Treasury, 2021a). The CTC expansion marks a notable shift
    in the American welfare state's treatment of low-income families;
    however, the program is implemented only for 1 year and, in the absence
    of Congressional renewal, will expire in 2022. As such, timely and
    reliable evidence is critical for informing policymakers, researchers,
    and the public of the CTC's short-term consequences. This study
    investigates the effects of the expanded CTC on material hardship among
    families with children in the initial weeks after the first CTC
    payment.

        A large body of research shows that children who grow up in
    families with higher incomes perform better across a host of measures
    of both short- and long-term development and well-being (Brooks-Gunn
    and Duncan, 1997; Chaudry and Wimer, 2016). And a smaller but growing
    body of literature attempts to understand whether these relationships
    are causal, given the fact that lower- and higher-income families may
    differ on numerous fronts besides income alone. Most of these studies
    use so-called ``natural experiments,'' which attempt to identify quasi-
    random variation in income to see whether that exogenous change
    predicts changes in important child outcomes. This growing literature
    is so far consistent in finding that enhanced incomes and reduced
    poverty causally impact children's short- and long-term development and
    well-being (Duncan, Morris and Rodrigues, 2011; Wimer and Wolf, 2020;
    Garfinkel et al., 2021).

        There are two primary channels through which increases in income
    are thought to impact children's outcomes (NAS, 2019). The family
    stress channel posits that the absence of resources increases stress,
    which compromises healthy parenting and other family relationships,
    resulting in worse child outcomes. The family resources channel posits
    that increased income allows parents to purchase or invest in various
    things that enhance child development and well-being (e.g., books,
    toys, enriching activities, academic supports, safer neighborhoods,
    etc.). Each channel assumes that an increase in income would change
    aspects of the home environment in the shorter term, and that these
    effects would accumulate over time into more positive child outcomes.

        This study seeks to add to this burgeoning literature by looking at
    the short-term impacts of the CTC, which now extends income support to
    children historically left out of the full benefit of the credit
    (Collyer, Harris and Wimer, 2019; Goldin and Michelmore 2020). We apply
    difference-in-difference estimates to take advantage of (1) the fact
    that effects of the policy differ between households with children and
    those without, and (2) that households with children benefit
    differentially based on the ages of their children, number of children,
    and pre-reform income levels.

    The Expanded Child Tax Credit

        Since the mid-1990s, the American welfare state has relied more on
    in-kind transfers, such as benefits from the Supplemental Nutrition
    Assistance Program (SNAP), and work-conditional transfers, such as
    benefits from the Earned Income Tax Credit (EITC), relative to cash-
    based income support (Bauer et al., 2018; Hoynes, 2019; Pac et al.,
    2017). As a result, share of children in families with very little cash
    income has grown (Shaefer and Edin, 2013). The lack of cash-based
    assistance and the comparatively high rate of child poverty sets the
    U.S. apart from other high-income countries, most of which have some
    form of child allowance (Curran, 2015; Garfinkel et al., 2016; Shaefer
    et al., 2018). The expansion of the CTC thus represents a historic
    deviation from the direction of the U.S. welfare state throughout the
    past 3 decades.

        Prior to the expanded CTC, tax filers could receive a maximum CTC
    of $2,000 per child per year, but it was not fully refundable.\1\ One
    in three children did not receive the full benefit value because their
    families did not earn enough to qualify. Children with single parents,
    those in rural areas, Black and Latino children, and those in larger
    families were disproportionally ineligible for the full credit (Curran
    and Collyer, 2020; Collyer, Harris, and Wimer, 2019). Following similar
    parameters to the American Family Act (a bill first introduced in both
    the Senate and House of Representatives in 2017 and reintroduced in
    2019), the ARP has temporarily transformed the CTC into a nearly-
    universal child allowance for 2021.\2\ Specifically, the ARP includes
    three fundamental changes to the CTC. First, it makes the CTC available
    to almost all children, including those in families with the lowest
    incomes previously excluded, by removing the earnings requirement and
    making the credit fully refundable. Second, it raises the maximum
    annual credit amounts to $3,000 for children ages 6-17 and $3,600 for
    children under age 6. Third, beginning mid-July 2021, it delivers the
    credit in monthly installments of up to $250 per older child or up to
    $300 per younger child, for a period of 6 months.\3\
    ---------------------------------------------------------------------------
        \1\ See additional information on the history of the Child Tax
    Credit, see Crandall-Hollick (2021), Crandall-Hollick (2018), and
    Garfinkel et al. (2016).
        \2\ The expansion to the CTC in the ARP mirrors the proposed
    reforms in the American Family Act (AFA) with one exception: in the
    AFA, the credit would begin to phase out for heads of household with
    earnings above $120,000 or and joint filers with Adjusted Gross Incomes
    (AGI) over $180,000. In the ARP, the credit begins to phase out for
    families with AGIs above $112,500 or $150,000 per year, depending on
    filing status, but it only phases out until matching the credit values
    that a family would receive under prior law. This alteration was made
    because the Biden administration committed to not raising taxes for
    those with incomes below $400,000 per year.
        \3\ Because the payments began halfway through the year, families
    will receive half of the full amount of their credit in 2021 and the
    remainder when they file taxes in 2022.

        One challenge facing the introduction of the expanded CTC is that
    not all eligible children automatically receive the payments. Families
    who did not file taxes in the prior year, presumably due to having an
    income below the tax-filing threshold, generally must register with the
    Internal Revenue Service (IRS) in order to receive benefits. Several
    estimates suggest that the total number of children in eligible tax
    units is around 64 to 67 million children (Parolin et al., 2021b), more
    than the 60.9 million to whom the IRS distributed CTC payments to in
    August 2021. Put differently, the first payments did not reach all
    eligible families. As we discuss in our Data and Methods section, we
    take several steps to account for the imperfect coverage of the initial
    ---------------------------------------------------------------------------
    CTC payment when evaluating the policy's effects on hardship.

        Despite the challenge in reaching full coverage, early research
    suggests the expanded CTC has potential to generate large reductions in
    child poverty (Center on Poverty and Social Policy, 2021; Marr et al.,
    2021; Acs and Werner, 2021; Parolin et al., 2021a; Wheaton et al.,
    2021) and may contribute to reductions in economic hardship (Perez-
    Lopez, 2021). Thus far, however, it remains unclear whether the
    expanded CTC has plausibly causal effects. This study investigates that
    possibility, using household data released in the initial weeks
    following the first CTC payment, to assess the policy's effects on
    material hardship among families with children.

    DATA AND METHODS

        Data Source: This study uses data from the Census Household Pulse
    Survey (Pulse). The U.S. Census Bureau introduced the Pulse in April
    2020 to begin collecting up-to-date and nationally-representative
    information on the social and economic well-being of households across
    the U.S. The Census Bureau randomly selects addresses to participate in
    the Pulse, then sends either an email or a text message to the contact
    information associated with the household. The message prompts the
    recipient to participate in a 20-minute online survey asking questions
    related to education, employment, food security, housing, and more. The
    data have been used to track trends in material hardship, subjective
    wellbeing, and other social and economic indicators throughout the
    pandemic (Bauer et al., 2020; Bitler et al., 2020; Morales et al.,
    2020; Schanzenbach and Pitts, 2020; Ziliak, 2021; Cai et al., 2020,
    Twenge and Joiner, 2020). Our particular focus in this analysis centers
    on the hardship data, but there is potential to use the Pulse data to
    explore the relationship between the CTC monthly payments and
    subjective well-being (see Appendix E).

        We use Pulse data collected between April 14, 2021 (3 months before
    the start of the monthly CTC) through August 16, 2021 (waves 28-35).
    The first payment of the expanded CTC was delivered to recipients on
    July 15, 2021, which falls prior to the beginning of Wave 34 of the
    Pulse (which spans July 21 to August 2, 2021). The second payment was
    delivered on August 13, 2021. Our total sample size is 411,613
    respondents.

        One limitation of the Pulse is that is conducted online-only (often
    sent via text message with a link to complete a survey online), which
    may exclude segments of the population who lack reliable Internet
    connection. We provide descriptive statistics on the respondents in
    Appendix I. The descriptive statistics show that the Pulse sample
    closely mirrors population estimates from the U.S. Current Population
    Survey.

        Sample Criteria: We exclude all households in the Pulse who have
    imputed values of number of children in the household, as error in the
    imputed values could bias our estimates. In our sample, 1.3 percent of
    all responses featured imputed values of the number of children. Given
    that the expanded CTC should benefit lower-
    income households more so than higher-income households, we restrict
    our primary estimates to households with a 2019 pre-tax income of under
    $35,000 (``low-income families''). In subsequent estimates, however, we
    also display results when assessing the effect of the CTC on all
    households under $25,000 and at different income bins up to $200,000 in
    2019 pre-tax income. We also display subgroup analyses to estimate the
    effects of the CTC by race and ethnicity.

        Receipt of the CTC: As noted, the first two payments of the CTC did
    not reach all children in eligible families. Though the Department of
    Treasury reports that 60.9 million children (around 83 percent of all
    children) received the second payment, the Pulse includes its own
    question of whether the household received a CTC payment (U.S.
    Department of Treasury, 2021a). We thus begin our Findings section with
    a descriptive portrait of coverage rates as reported in the Pulse.

        Indicators of Material Hardship: Table 1 presents our primary
    measures of material hardship. Our material hardship indicators include
    household food insufficiency, difficulty with expenses, and not being
    caught up on rent or mortgage payments. We operationalize each of these
    indicators as a binary variable using the criteria described in the
    right-most column of Table 1. In a parallel exercise, we explore early
    indications of the relationship between the new CTC monthly payment and
    three measures of subjective well-being, including confidence in paying
    the rent/mortgage, frequent anxiety, and frequent worrying. These
    results are included in Appendix E; as the monthly CTC payments
    continue and more data becomes available, this represents an area for
    continued investigation. In general, however, we would expect measures
    of subjective well-being to be more sensitive to continued receipt of
    monthly payments than to just the initial payments.

                                    Table 1: Overview of Primary Hardship Indicators
    ----------------------------------------------------------------------------------------------------------------
                       Type                                     Prompt                      Qualifying Responses
    ----------------------------------------------------------------------------------------------------------------
    Household food insufficiency.............  In the last 7 days, which of these       Sometimes or often not
                                                statements best describes the food       enough to eat
                                                eaten in your household?

    Difficulty with expenses.................  In the last 7 days, how difficult has    Somewhat or very difficult
                                                it been for your household to pay for
                                                usual household expenses, including
                                                but not limited to food, rent or
                                                mortgage, car payments, medical
                                                expenses, student loans, and so on?

    Not caught up on rent [or mortgage]......  Is this household currently caught up    No
                                                on rent [or mortgage] payments?
    ----------------------------------------------------------------------------------------------------------------

        Methods: We estimate difference-in-difference models to assess the
    effect of the expanded CTC on our outcomes of interest, as defined in
    Equation (1).
    [GRAPHIC] [TIFF OMITTED] T1423.012

        The outcome variable is one of our hardship indicators
    (separate models for each). PostCTC is a binary indicator of whether
    the time of survey occurred after July 15, 2021, the day on which the
    expanded CTC was first administered. We specify our treatment variable,
    Treatment, in two separate ways. First, we operationalize a binary
    treatment indicator measured as whether the household has children
    (value set to 1) or is childless (value set to 0). Given that our
    sample is limited to households reporting a 2019 pre-tax income of
    under $35,000, we assume (but cannot directly test) that the vast
    majority of households with children in this subsample are eligible to
    receive the monthly CTC. Childless households, in contrast, do not
    directly benefit from the reform.

        For our second treatment definition, we estimate models using a
    continuous measure of treatment intensity to capture the fact that the
    effects of the CTC are likely to vary by age of the children (as
    families with children under age 6 receive larger monthly benefit
    values), the number of children in the home, and the relative value of
    the new CTC benefits compared to what the family likely received from
    the CTC prior to the reform. We cannot consistently observe the age of
    each child in a given household in the Pulse, nor do we have
    information on pre-reform CTC receipt.\4\ Thus, we use data from the
    2019 U.S. Current Population Survey to estimate the mean pre- and post-
    reform benefit values for bins defined by the number of adults in the
    household (ranging from 1 to 10), the number of children in the
    household (ranging from 0 to 10), and eight categorical pre-tax income
    bins (from under $25,000 annually scaling up to more than $200,000 per
    year). We compute the mean pre-reform refundable CTC benefits as
    observed for each family unit in the CPS ASEC. We then simulate the
    additional post-reform benefits that each family is eligible for (not
    yet taking into account imperfect coverage in benefit distribution)
    using detailed policy rules from the CTC reform as specified in the
    2021 American Rescue Plan. We subtract the pre-reform benefit value
    from the post-reform benefit value to create a ``net benefit''
    indicator for each family unit. We then adjust the net benefit
    indicator for family size using the modified OECD equivalence scale.\5\
    Finally, we calculate the weighted mean of the size-adjusted net
    benefit value for each of the bins defined above. We then import this
    value into the Pulse, matching on the number of adults, number of
    children, and 2019 pre-tax income category of the Pulse respondents. We
    provide more details and descriptive statistics on the indicator in
    Appendix B.
    ---------------------------------------------------------------------------
        \4\ Wave 34 of the Pulse does have binary variables of whether
    children are under 5 or between 5 to 11. Given that the data are not
    consistently available throughout the waves included in this analysis,
    however, we cannot use it in our estimations or creation of the
    treatment indicators.
        \5\ The modified OECD scale begins with a value of 1 for a single
    adult, then adds 0.5 for each child in the home and 0.3 for each
    additional adult in the home. Alternative family-size adjustments
    include the square-root equivalence scale or dividing by a family-size-
    adjusted poverty-threshold, such as that of the U.S. official poverty
    measure.

        In a sensitivity test, we also produce an alternative version of
    our treatment intensity indicator that matches the July 2021 coverage
    rate of the CTC--59.3 million children--as reported by the U.S.
    Department of Treasury. Specifically, we scale down coverage from all
    likely-eligible children to match the reported numbers of children
    receiving the CTC by state, following the procedure in Parolin,
    Collyer, Curran, and Wimer (2021b). Within each state, we adjust
    coverage so that it is the lowest-income tax units who are removed
    first, representing the fact that lower-
    income tax units are less likely to have filed taxes in the prior year
    and, thus, are less likely to receive the benefits automatically (Cox,
    et al., 2021). In our Findings section, we also present observed
    coverage rates from the Pulse among households with children by income
    bin; these results corroborate the claim that the lowest-
    income households with children were less likely to receive the benefit
    in July 2021. We present the results from our sensitivity tests in
    Appendix B, but we note that they do not vary meaningfully from the
    ---------------------------------------------------------------------------
    results of our primary analyses.

        In Equation (1), we control for the age, sex, and education status
    of the household head, and we include state fixed effects (captured in
    vector X). In each estimate, b3 is our primary coefficient
    of interest, as it informs us, when using the binary treatment
    indicator, of whether households with children faced a larger (or
    smaller) difference in the outcome relative to childless households
    after the introduction of the CTC.

        While Equation (1) provides us the intent-to-treat effect (or the
    effect of the treatment on the full treatment group, regardless of
    whether they report actually receiving the CTC), we also provide
    estimates of the treatment effect on the treated (or the local average
    treatment effect). To do so, we estimate two-stage least squares models
    (2SLS) using the treatment group identifier as an instrumental variable
    and observed receipt of the treatment as the endogenous variable. When
    applying our binary treatment, observed receipt of the treatment
    reflects whether the family reports in the Pulse that it actually
    received the monthly CTC payment(s). When applying our continuous
    treatment indicator, the observed treatment in the 2SLS model is the
    family's projected net benefit increase from the CTC. Because levels of
    the benefit receipt of the CTC are not directly measured in the Pulse,
    we apply our projected value of the net CTC benefit based on the
    family's income, number of children, and number of adults (as defined
    above) as the observed treatment; however, we convert the projected
    benefit value to zero for families reporting that they did not receive
    the CTC payment.

    FINDINGS

        Our Findings section proceeds in three parts. First, we discuss
    reported receipt of the CTC in the Pulse and compare this to
    administrative reports from the U.S. Department of Treasury. Second, we
    present descriptive findings on trends in material hardship. Third, we
    present the results of our difference-in-differences estimates.

    Reported Receipt of the Child Tax Credit

        As noted, the U.S. Department of Treasury reports that 59.3 million
    children received the first CTC payment in July 2021, while 60.9
    million received the second payment in August 2021 (U.S. Department of
    Treasury, 2021a). Estimates from the Pulse, however, suggest that 66
    percent of children were in households that report receiving the
    initial CTC payment. This is equivalent to approximately 48 million
    children, or 12 million fewer than the IRS reports. The discrepancy
    could be due a number of factors: sampling bias in the Pulse, benefit
    underreporting in the Pulse, overestimation of children served from the
    Department of Treasury, or general measurement error. Regardless of
    cause, all results should be interpreted with this discrepancy in mind.
    Moreover, the coverage rate is likely to increase in subsequent months,
    considering that 1.6 million additional families received the benefit
    in August relative to July (Department of Treasury, 2021b).

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Figure 1 breaks down reported CTC receipt rates by race and
    ethnicity (left panel) and 2019 pre-tax income bin (right panel). As
    noted, 66 percent of all children are in households that report receipt
    of the first or second payment of the CTC in the Pulse, including 61
    percent of Asian children, 70 percent of Black children, 61 percent of
    Latino children, and 67 percent of White children. Keep in mind that
    the sample here is not limited to eligible family units, and that not
    all children in the U.S. are eligible; thus, the reported means should
    be interpreted as general coverage rates and not take-up among the
    eligible.

        The results by income bin (right panel) suggest that families with
    children that had 2019 pre-tax incomes below $25,000 are less likely
    than higher-income families to have received the benefit. According to
    the Pulse data, just over half (57 percent) of children in families
    with incomes under $25,000 received the first or second payment. Rates
    of (self-reported) receipt rise as incomes rise. Among families with
    earnings between $25,000 to $35,000, more than two-thirds (67 percent)
    of children received the benefit. Among families with incomes between
    $75,000 and $100,000, approximately three-quarters (73 percent) of
    children received the payment.

        Given the comparatively low coverage rates among the lowest-income
    families, it is unlikely that the initial effects of the CTC match the
    potential effects if coverage were greater, or the future effects
    assuming that coverage does, indeed, expand. As such, the results below
    should be interpreted as the immediate effects with imperfect coverage.
    Presumably, any effects observed in the results below will increase as
    more families receive the benefit in subsequent months.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Descriptive Findings

        Figure 2 presents descriptive trends from April 2021 through August
    2021 for each of the outcomes for childless households (dashed gray
    line) and households with children (solid black line) with 2019 pre-tax
    incomes below $35,000. The red vertical line in each figure marks the
    first payment of the expanded CTC.

        Food insufficiency (left panel) is consistently higher for low-
    income households with children relative to low-income childless
    households for the entire period considered. From April through to the
    end of June 2021, both groups see slight increases in food hardship,
    with low-income childless households reaching 19.5 percent in June
    compared to 29.8 percent for low-income households with children. After
    the first payment of the CTC, however, food insufficiency remains
    relatively stable for low-income childless households (around 19
    percent), but declines from 29.8 percent to 20.8 percent for households
    with children in late July 2021. In mid-August, the point estimate
    rises slightly to 21.8 percent. The change from late-June to mid-August
    marks an 8 percentage point, or 27 percent, decline in food
    insufficiency for low-income households with children.

        The middle panel shows that low-income households with children
    tend to face much higher rates of difficulty with expenses relative to
    childless households (in late June 2021, 59.9 percent to 45.5 percent,
    respectively). These gaps do not meaningfully change after the first
    payments of the CTC.

        Households with children are also more likely to have missed rent
    or mortgage payments (right panel) over the entire period considered.
    As with difficulty in meeting expenses, the gaps in missed rent or
    mortgage payments do not change notably after the initial CTC payments.

    Estimation Results

        Table 2 presents the results from our difference-in-differences
    estimates using our binary treatment (which, as described in the prior
    section, is set to a value of one for households with children) among
    our subsample of households with pre-tax income of $35,000 or less in
    2019.

        Our initial analysis, presented in Columns 1-3 of Table 2, assumes
    that all households with children under the $35,000 threshold are
    eligible to receive the CTC (regardless of whether they actually report
    receiving the benefit). The secondary analysis, presented in Columns 4-
    6 of Table 2, presents the 2SLS estimates of the treatment effect on
    the treated (those who report receiving the CTC payments).

      Table 2: Difference-in-Differences Estimate of Effect of Expanded CTC on Hardship Among Households With 2019
                                  Total Pre-Tax Income Below $35,000; Binary Treatment
    ----------------------------------------------------------------------------------------------------------------
                                     Intent to Treat Effect                Average Treatment Effect on the Treated
                         -------------------------------------------------------------------------------------------
                                                             3: Missed                                     6: Missed
                              1: Food       2: Difficulty     Rent or       4: Food       5: Difficulty     Rent or
                           Insufficiency     w/ Expenses     Mortgage    Insufficiency     w/ Expenses     Mortgage
    ----------------------------------------------------------------------------------------------------------------
    Household with               0.06***          0.11***     0.06***          0.06***          0.11***     0.07***
     Children                     (0.01)           (0.01)      (0.01)           (0.01)           (0.01)      (0.01)
    Post-July 15th                  0.01          0.05***       0.02*             0.01          0.05***       0.02*
                                  (0.01)           (0.01)      (0.01)           (0.01)           (0.01)      (0.01)
    Household with             -0.075***            -0.02        0.00         -0.14***            -0.05        0.01
     Children X Post-             (0.02)           (0.02)      (0.01)           (0.03)           (0.03)      (0.03)
     July 15th

    ----------------------------------------------------------------------------------------------------------------
    Pre-Treatment Mean             0.276            0.594       0.192            0.276            0.594       0.192
     Among HH w/
     Children in
     Subsample
    Reported CTC Receipt           52.7%            52.7%       52.9%            52.7%            52.7%       52.9%
     Among HH w/
     Children in
     Subsample
    ----------------------------------------------------------------------------------------------------------------
    Observations                  76,523           76,582      76,085           76,523           76,582     76,085
    ----------------------------------------------------------------------------------------------------------------
    Note: All models include state fixed effects and control for age, education, and sex of household head. Sample
      limited to respondents in Pulse reporting 2019 pre-tax income of below $35,000. Treatment effect on the
      treated measured using two-staged least squares regression with treated respondents (those reporting receipt
      of CTC) as the endogenous variable and treatment group (low-income households with children) as instrumental
      variable. Robust standard errors in parentheses.  p < 0.10, * p < 0.05, ** p < 0.01, *** p < 0.001.

        Consistent with the descriptive trends, our results suggest a
    significant decline in food insufficiency for households with children
    relative to childless households pre- versus post-rollout of the
    monthly CTC (see Column 1). Specifically, the results suggest that the
    intent-to-treat effect amounts to a 7.5 percentage point decline in
    food hardship for households with children relative to childless
    households after the treatment. This is consistent with the descriptive
    statistics observed before. For context, the effect size is around one-
    fourth the pre-treatment mean of food insufficiency among households
    with children in the sample (pre-treatment mean of 27.6 percent).
    Relative to the rate of food insufficiency in late June (29.8 percent),
    the effect of the CTC marks a 25 percent decline in this form of
    hardship.

        The effect of the CTC among the treated (families who report
    receiving the benefit), as shown in Column 4 of Table 2, is a 14-
    percentage point decline, or around 50 percent of the pre-treatment
    mean of food insufficiency for households with children in the sample.
    Put simply, the first two CTC payments are associated with a marked
    decline in food insufficiency among low-income households with
    children.

        Households with children also appear to experience a small decline
    in the difficulty with expenses relative to childless households (see
    Columns 2 and 5 of Table 2); however, the effects are not statistically
    significant. Moreover, the magnitude of the effect is notably smaller
    than that of food insufficiency, consistent with the descriptive
    trends.

        Similarly, our results suggest that the CTC does not have immediate
    effects on missed rent or mortgage payments among low-income households
    with children. This null effect is perhaps unsurprising given evidence
    that families receiving the benefit are more likely to have spent their
    payments on food items (Perez-Lopez, 2021), and that as of this writing
    our results estimate the effects of the initial CTC payments.

      Table 3: Difference-in-Differences Estimate of Effect of an Additional $100 of Expanded CTC on Hardship Among
           Households With 2019 Total Pre-Tax Income Below $35,000 (continuous measure of treatment intensity)
    ----------------------------------------------------------------------------------------------------------------
                                     Intent to Treat Effect                Average Treatment Effect on the Treated
                         -------------------------------------------------------------------------------------------
                                                             3: Missed                                     6: Missed
                              1: Food       2: Difficulty     Rent or       4: Food       5: Difficulty     Rent or
                           Insufficiency     w/ Expenses     Mortgage    Insufficiency     w/ Expenses     Mortgage
    ----------------------------------------------------------------------------------------------------------------
    Net Gain (in $100s)          0.03***          0.06***     0.04***          0.03***          0.06***     0.04***
     from CTC                     (0.00)           (0.00)      (0.00)           (0.00)           (0.00)      (0.00)
    Post-July 15th                  0.01          0.05***       0.02*             0.01          0.05***        0.02
                                  (0.01)           (0.01)      (0.01)           (0.01)           (0.01)      (0.01)
    Net Gain (in $100s)         -0.04***            -0.01        0.00         -0.06***            -0.01        0.00
     from CTC X Post-             (0.01)           (0.01)      (0.01)           (0.01)           (0.01)      (0.01)
     July 15th
    ----------------------------------------------------------------------------------------------------------------
    Pre-Treatment Mean             0.276            0.594       0.192            0.276            0.594       0.192
     Among HH w/
     Children in
     Subsample
    Reported CTC Receipt           52.7%            52.7%       52.9%            52.7%            52.7%       52.9%
     Among HH w/
     Children in
     Subsample
    Observations                  75,943           76,004      75,512           75,943           76,004     75,512
    ----------------------------------------------------------------------------------------------------------------
    Note: Treatment intensity indicators are divided by 100 for easier interpretation of coefficients. All models
      include state fixed effects and control for age, education, and sex of household head. Treatment effect on the
      treated measured using two-staged least squares regression with estimated received benefit value among
      families reporting receipt of the CTC as the endogenous variable and treatment indicator (potential net
      benefit value of CTC) as instrumental variable. Sample limited to respondents in Pulse reporting 2019 pre-tax
      income of below $35,000. Robust standard errors in parentheses.  p < 0.10, * p < 0.05, ** p < 0.01, *** p <
      0.001.

        Table 3 now applies our continuous indicator of treatment intensity
    for the CTC specifically among households with children. Recall that
    the treatment intensity indicator captures variation based on pre-tax
    income and household size (see Appendix B for more details). The
    findings are consistent with those from Table 2. Looking at food
    insufficiency, the results suggest that a $100 size-adjusted increase
    in CTC treatment intensity is associated with a 4-percentage point
    decline in food insufficiency among families with children (Column 1 of
    Table 3). The treatment effect on the treated (Column 4 of Table 3) is
    6 percentage points. Put differently, a $100 net increase in CTC
    benefits (adjusted for family size) is associated with a 6-percentage
    point, or roughly 22 percent, decline in food insufficiency for low-
    income families with children who report receiving the CTC.

        To contextualize this finding, note that a standard monthly benefit
    payment for a single parent with a 7-year-old child is $250, or $192
    after equivalizing for family size. Using the effect magnitude from the
    treatment effect on the treated estimates, a standard payment for this
    single parent is thus associated with an 11.5 percentage point (192 *
    0.06 /100) reduction in the likelihood of food insufficiency after
    receiving the initial CTC payments. The estimated reduction effect is,
    of course, even stronger for families with higher size-adjusted benefit
    values.

        In contrast to the CTC's effects on food insufficiency, however,
    its effects on difficulty with expenses and missed rent or mortgage
    payments are again smaller and insignificant (see Columns 2, 3, 5, and
    6 of Table 3).

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Recall that the sample in our primary analyses was limited to
    households with 2019 incomes under $35,000. Figure 3 relaxes that
    condition and instead visualizes the effect of the CTC across the
    income distribution. Each point in Figure 3 represents the coefficient
    from the interaction terms for our binary treatment (black circle) and
    continuous treatment (gray triangle) when including households with
    2019 incomes under $25,000, then between $25,000 to $35,000, $35,000 to
    $50,000, $50,000 to $100,000, and $100,000 to $200,000. The upper row
    presents the intent-to-treat effects, while the lower row presents the
    effects among families reporting receipt of the CTC.

        The findings, in short, demonstrate that the CTC is particularly
    effective at reducing food insufficiency for households with children
    with 2019 pre-tax incomes below $25,000 and between $25,000 to $35,000.
    At higher income bins, the policy has no statistically significant
    effect. The results are relatively consistent with examining the
    effects among the treated. These patterns emphasize that the CTC is
    particularly effective at reducing food hardship among lower-income
    families.

        The middle and right panels of Figure 3 show the null effects
    across the income distribution of the initial CTC payments on
    difficulty with expenses and missed rent or mortgage payments.

        Figure 4 presents the results by race and ethnicity. We again limit
    the sample the household heads of the specified race and ethnicity, and
    then apply the same treatment conditions as in our primary analysis.
    The upper-left panel suggests that the intent-to-treat effects of the
    CTC on food insufficiency are primarily channeled among Black,
    Hispanic, and White families. Similarly, the lower-left panel finds
    negative and significant reduction effects among Black, Hispanic, and
    White families, but not Asian families (though point estimates are
    negative for Asian families, though not statistically significant). Put
    differently, low-income Black, Hispanic, and White families alike saw
    decreases in food hardship as a result of the initial monthly CTC
    payments.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        The middle and right panels of Figure 4 again suggest that the
    first CTC payments did not have notable effects on missed difficulty
    with expenses or missed rent/mortgage payments.

    Sensitivity Tests

        A potential threat to our analysis is the effect of seasonality on
    differential hardship and wellbeing outcomes for households with
    children relative to childless households. For example, general
    conditions in July, such as summer vacation for many school-age
    children, may shape hardship in a way that affects our conclusions. Our
    read of the evidence suggests that this would bias away from our
    findings of reduced hardship: prior findings suggest that summer
    vacations tend to worsen food hardship for households with children,
    given the absence of school meals (Huang, Barnidge, and Kim, 2015).
    Nonetheless, to test for the effects of seasonality and to add a
    placebo test to our analysis, we replicate our results using the same
    months (April through early August) but using the 2020 version of the
    Pulse. We designate July 15, 2020, as the timing of our treatment and
    otherwise apply the same treatment specifications as in our primary
    analysis. The results, presented in Appendix D, show insignificant
    effects of either treatment for families of any income level (Figure
    D1) and for families of any race and ethnicity (Figure D2). These
    findings rule out that seasonality is driving our findings and
    strengthen the likelihood that the expanded CTC is, indeed, responsible
    for the improved economic conditions of households with children after
    July 15, 2021.

    DISCUSSION AND CONCLUSION

        The transformation of the Child Tax Credit into a more generous and
    inclusive monthly payment marks a historic, albeit temporary, shift in
    the treatment of low-income families with children within the U.S.
    welfare state. To identify the early impacts of the monthly payments on
    material hardship, this study applied a series of difference-in-
    differences estimates using microdata from the Census Household Pulse
    Survey (Pulse). The findings represent only the initial effects of the
    first two CTC payments; thus, they should not be interpreted as the
    final effects of the CTC, particularly given that coverage of the
    program will likely expand in subsequent months. Nonetheless, our
    findings from the initial payments lead to three primary conclusions.

        First, we find that the initial CTC payments strongly reduced food
    insufficiency among low-income families with children. Specifically, we
    found that the initial CTC payments are associated with a 7.5
    percentage point (25 percent) decline in food insufficiency. The effect
    size increases to 14 percentage points (around 50 percent) when
    evaluating the effect of the CTC on the families who report receiving
    the payments. Estimates from our treatment intensity indicator suggest
    that a $100 increase in size-adjusted CTC benefits is associated with a
    6-percentage point, or roughly 22 percent, decline in food
    insufficiency among families receiving the benefit. These changes mark
    substantial declines in food hardship. As a result, the share of all
    low-income families with children (regardless of whether they received
    the first CTC payments) experiencing food insufficiency dropped from
    29.8 percent just before the first CTC payment to 20.8 percent after
    the first payments. For all households with children (regardless of
    income), the rate of food insufficiency fell from 13.4 percent to 9.4
    percent. The first CTC payments did not appear to reduce the share of
    families who missed a rent or mortgage payment. This is perhaps
    unsurprising: rent arrears make up a much larger sum than the typical
    monthly CTC payment (Aurand and Threet, 2021), and most families
    receiving the CTC payment report spending the benefits on food items
    (Perez-Lopez, 2021).

        Second, we find the effects of the CTC on food insufficiency are
    concentrated among families with 2019 pre-tax incomes below $35,000;
    perhaps unsurprisingly, the first payments had little effect on food
    insufficiency among higher-income groups, as these income groups are
    less likely to face hardship in the first place. Moreover, the effects
    on food insufficiency are broadly consistent across low-income White,
    Black, and Hispanic families with children.

        We also find that increasing the coverage rate of the CTC would be
    necessary for material hardship to be further reduced. Though the
    Department of Treasury reports that around 83 percent of children in
    the U.S. received the second CTC payment, self-reported receipt from
    the Pulse is closer to two-thirds of all children (U.S. Department of
    Treasury, 2021a). Notably, the lowest-income families in the Pulse
    (those reporting 2019 pre-tax incomes of under $25,000) report the
    lowest receipt rate of the CTC. This aligns with concerns that children
    in households who have not filed recent federal taxes--including those
    in families with very low incomes, disconnected from work or public
    supports, and/or other challenges--are at greatest risk of missing out
    on the initial rounds of monthly payments (Cox et al., 2021). We
    acknowledge, however, that the number of children reached by the
    monthly payments is likely to increase with time. Consider that between
    July and August 2021, the number of children receiving the CTC
    increased by 1.6 million (U.S. Department of Treasury,

        Given the likelihood of rising coverage rates in the future, we
    anticipate that the results in the present analysis provide only a
    preview of the potential consequences of the CTC expansion. As more
    children receive the benefit in future months, food hardship, and
    perhaps other forms of material hardship, may decline further. From the
    present analysis, we nonetheless conclude that the first payments of
    the CTC were largely effective at reducing food insufficiency among
    low-income families with children.

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                                     ______

          Prepared Statement of Grant Collins, Senior Vice President
             for Workforce Development and President, Fedcap, Inc.
        Thank you, Chairman Wyden, Ranking Member Crapo, and distinguished
    members of the Senate Finance Committee, for inviting me to testify on
    anti-poverty and family support provisions in the tax code.

        I lead workforce development for The Fedcap Group, a nonprofit
    organization dedicated to improving the economic well-being of those
    with barriers to employment. I wish to offer insights from my current
    role and my former role as the Deputy Director of the Office of Family
    Assistance (OFA), the Federal agency that oversees the Temporary
    Assistance for Needy Families (TANF) program. Earlier this year, I
    appeared before the House Committee on Ways and Means where I discussed
    some of the current loopholes that impact that program, and I provided
    some recommendations on how we can address the needs of those with real
    barriers and needs for assistance. Specifically, I testified that TANF
    Maintenance of Effort (MOE) spending can be more directly tied to
    efforts that reward work and retention. (Source: Grant-Collins-Written-
    Testimony7.pdf, http://waysandmeans.house.gov/wp-content/uploads/2023/
    03/GRANT-COLLINS-WRITTEN-TESTIMONY7.pdf)

        Work and wages are critical to families and children and are a step
    toward reducing intergenerational poverty. Bipartisan welfare reform
    has been successful in improving incomes and reducing poverty through
    work.

        The Earned Income Tax Credit, or EITC, is one such work-focused
    incentive designed to assist workers with very limited means. As the
    largest Federal aid program targeted to the working poor, EITC
    encourages people to work without disincentivizing them by taking away
    portions of their wages or reducing their benefit.

        Thirty-one (31) States currently offer a State or local EIC, with
    varying degrees of refundable credits. (Source: States and Local
    Governments with Earned Income Tax Credit, Internal Revenue Service,
    https://www.irs.gov/credits-deductions/individuals/earned-income-tax-
    credit/states-and-local-governments-with-earned-income-tax-credit.)
    Added to the Federal EITC, State and local credits serve as an
    important tool to further reward work and improve real life chances for
    parents and children in the process.

        A National Institute's of Health report on the EITC in March of
    2022 detailed the following:

            Multiple studies have investigated the impacts of income
            supplements like the EITC for family well-being (e.g., Hoynes
            et al., 2015 \1\). Higher disbursements from the EITC have been
            linked to improved birth outcomes (Hamad and Rehkopf, 2015;\2\
            Hoynes et al., 2015), improved child achievement (Dahl and
            Lochner, 2012 \3\), increased likelihood of college enrollment
            (Manoli and Turner, 2018 \4\), short-term improvements in child
            behavior, home quality scores (Hamad and Rehkopf, 2016 \5\),
            and food security (Batra et al., 2021 \6\). Research on the
            EITC also finds some evidence of positive effects on adults
            (particularly mothers') physical and mental health
            (Gangopadhyaya et al., 2020;\7\ Lenhart, 2019 \8\), and that
            receipt of the EITC during childhood has sustained, positive
            effects on long-term educational attainment and economic
            outcomes (Bastian and Michelmore, 2018 \9\).
    ---------------------------------------------------------------------------
        \1\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8898557/#CR42.
        \2\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8898557/#CR35.
        \3\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8898557/#CR19.
        \4\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8898557/#CR53.
        \5\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8898557/#CR36.
        \6\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8898557/#CR6.
        \7\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8898557/#CR30.
        \8\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8898557/#CR52.
        \9\ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8898557/#CR5.

        I'd like to share several examples of States that used TANF funds
    to provide a State refundable EITC. In Louisiana, a strategic
    collaboration among agencies following Hurricane Katrina resulted in
    over $8 million in EITC payments and nearly another $3 million in Child
    Tax Credits. We were able to do this because of an intensive and
    effective EITC campaign aimed at reaching the many displaced
    residents--some of whom were plunged into poverty due to job and other
    losses following the hurricane. (Source: Earned Income Tax Credit
    (EITC) Louisiana Initiative: Helping Families Rebuild after Hurricane
    Katrina Final Report, U.S. Department of Health and Human Services,
    Administration for Children and Families, Office of Family Assistance,
    https://peerta.acf.hhs.gov/sites/default/files/public/uploaded_files/
    ---------------------------------------------------------------------------
    LA%20EITC.pdf.)

        While at HHS we continued our State efforts to drive higher uptake
    rates for those employed to help more enter and sustain work. We found
    it critically important to support local action campaigns like the one
    in Michigan (Benton Harbor), where locals went door to door to raise
    awareness about the EITC/CTC and increased the uptake rate for TANF
    adults from 48 percent to 84 percent. (Source: Strengthening Self
    Sufficiency Welfare Peer TA Report #146, U.S. Department of Health and
    Human Services, Administration for Children and Families, Office of
    Family Assistance, https://peerta.acf.hhs.gov/sites/default/files/
    public/uploaded_
    files/Final%20MO.pdf.pdf.) OFA sponsored additional events like this in
    Idaho, Kentucky, and Missouri where according to EITC experts ``at any
    given time 25 percent of the low-wage working population does not
    participate in the EITC program and 48 percent of working TANF adults
    that qualify do not either.''

        More recently States have chosen to implement additional credits or
    tax relief to eligible low-income families during times of extra
    hardship, such as many working families experienced as a result of the
    COVID-19 pandemic and subsequent economic fallout. In New York
    State,\10\ for example, in 2021, the State enacted a relief package to
    provide an additional average $270 per recipient. These efforts were
    paired with free tax preparation services to ensure that those who were
    eligible actually obtained the credits at no additional cost.
    ---------------------------------------------------------------------------
        \10\ https://www.governor.ny.gov/news/governor-hochul-announces-
    475-million-tax-relief-18-million-low-income-new-yorkers-and.

        In my role with The Fedcap Group, we have demonstrated that it is
    possible to remove barriers to employment for people who have not had a
    clear path, including people with physical or intellectual
    disabilities, people with mental health or are in recovery from
    substance use disorders, and people with previous justice system
    involvement. Over the past decade we have placed almost 170,000 people
    in jobs. (Source: 2022 Annual Report--The Fedcap Group, https://
    ---------------------------------------------------------------------------
    fedcapgroup.org/annual-report-2022/#2.)

        When government supports hardworking Americans through the tax code
    by rewarding work for lower-income earners that can help springboard
    them out of poverty--the individuals, their communities, and our Nation
    benefit.

        Thank you, Chairman Wyden, Ranking Member Crapo, for the
    opportunity to testify. I look forward to answering any questions you
    might have.

                                     ______

              Questions Submitted for the Record to Grant Collins
                   Questions Submitted by Hon. James Lankford
        Question. In your testimony, you highlighted the Earned Income Tax
    Credit (EITC) as a work incentive that benefits working families and is
    a tool toward reducing intergenerational poverty. You specifically
    referenced efforts in States and localities to both boost awareness of
    the EITC and supporting State efforts to provide State-level EITCs,
    some of which use TANF funds to supplement such credits. Oklahoma is
    one of the 31 States with a State Earned Income Tax Credit.

        What impact do State-level EITCs provide in terms of incentives to
    work and supporting the success and stability of families and children?

        Answer. Working Oklahomans are the primary beneficiaries of the
    State's decision to enact such an effective tax code policy. State
    EITCs build on the success of the Federal credit by helping to mitigate
    hardships for eligible working families and helping to keep people in
    work.

        State-level EITCs positively impact family economic circumstances.
    There is consistent evidence that State level EITCs increase labor
    market participation and help to reduce poverty (including child
    poverty). Additionally, these EITCs improve health outcomes among
    mothers and educational outcomes among children. These credits also
    show improvements in key infant health outcomes with greater outcomes
    associated with more generous EITCs.

        Overall, these State-level EITCs further incentivize work, while
    improving real health and life outcomes (educational attainment) for
    children.

        Question. Some research has shown that individuals delay marriage
    and having children because they are in or fear being in poverty. But
    data has shown that married couples with children are less likely to
    live in poverty than single parents. Specifically, Congressional
    Research Service tracked the poverty rate in 2021 as 8.8 percent. It
    declining to 4.8 percent for married couples, but grew to 23 percent
    for single moms and 12 percent for single dads. However, under the
    current rates, the EITC can result in a marriage penalty, depending on
    the income of the joint filers.

        Based on your experience, what impact do such economic impacts,
    such as marriage penalties, have on the decision for couples to marry?
    What steps can Congress take to support and incentivize things like
    marriage and family through the tax code to ensure we aren't punishing
    or disincentivizing marriage?

        Answer. On the issue of behavioral impacts, such as decisions to
    marry, little is well known. However, there is the issue of fairness,
    and obvious financial disincentives based on how the thresholds work.
    With the current framework, the EITC maximum benefit is greater for
    single filers with children. For example, in Tax Year 2020, the benefit
    starts to phase out when married filers reach $25,000 and singles reach
    $19,520. The EITC drops at a rate of 16 percent of additional income
    for families with one child and 21 percent for families with two or
    more children. Thus, if/when the low-income couples marries, the
    combined income pushes the earnings above the EITC threshold for
    married filers.

        To support marriage and family through the tax code, Congress could
    increase the income at which the benefit phases out for married
    couples. Others, such as Brooklyn College Professor Robert Cherry
    proposed reforming the credit in just this sort of way. Using Professor
    Cherry's model, the phase out for married couples could be increased to
    $40,000 and begin phasing the benefit out at a rate of 10 percent of
    additional income. This would eliminate the marriage penalty built into
    the current tax code and incentivize marriage and support hard working
    American families.

        Additionally, to further encourage work and marriage as pathways
    out poverty, Congress should combine the EITC and Child Tax Credit
    (CTC) into a new work-based ``family'' credit. Investing in working
    families through this combined credit would amplify the positive
    effects associated with work attachment and family formation.

                                     ______

                    Prepared Statement of Hon. Mike Crapo,
                           a U.S. Senator From Idaho
        Thank you, Mr. Chairman.

        Today we focus on anti-poverty and family support provisions in the
    tax code. It is important to have a conversation about existing
    provisions, what has worked in the past, and what more can be done.

        If there is one message to distill today, it is that if America is
    serious about reducing poverty and supporting families, work works.
    Without work, there is no chance society will achieve either aim.
    Successes here will be grounded in those from the past.

        In 1996, I joined a bipartisan, bicameral group of colleagues,
    including some in this room today, in voting to pass the welfare reform
    bill. In the decades since, this landmark legislation's reforms have
    led to undeniable intergenerational progress.

        One of welfare reform's key changes was to replace an ineffective
    cash handout system with one focused on incentivizing work, job
    training, and self-sufficiency.

        One of our witnesses, Bruce Meyer, has written extensively about
    the lessons of welfare reform and parallels for today. Another, Grant
    Collins, has extensive practical experience with pro-work anti-poverty
    interventions.

        The decisive, transformational results of welfare reform speak for
    themselves, including: marked increases in work and earnings for single
    mothers, almost doubling these for some cohorts; sharp poverty
    reductions, with consumption poverty declining by more than 70 percent
    since 1996 to just 3.7 percent in 2018; and broad declines in benefit
    dependence, including a fivefold reduction in those needing temporary
    assistance.

        As President Biden--who as a Senator voted in favor of welfare
    reform--said at the time: ``I think everyone here believes that work
    should be the premise of our welfare system.'' Not surprisingly, recent
    polling from May shows that nearly two-thirds of Americans support work
    requirements for recipients of government benefits.

        Welfare reform proves that we can exercise common sense, and be
    compassionate and fiscally responsible all at the same time. These
    lessons were applied, for example, when Republicans first proposed the
    Child Tax Credit in their Contract with America, and were retained when
    they enacted the credit in 1997, expanded it in 2001 and 2009, and
    doubled it in the momentous 2017 tax reform bill.

        In 2017, Republicans also doubled the standard deduction, lowered
    tax rates for the hundreds of millions of lower- and middle-class
    Americans, and stretched these lower rates further through expanded tax
    brackets. All of these changes put money back into the pockets of
    working families, and it is no surprise that after the bill's
    enactment, Americans' disposable personal income jumped, up nearly 87
    percent in the first quarter of 2018 over the last quarter of 2017.

        I look forward to hearing more from today's witnesses on the key
    lessons learned from these successes in reducing poverty and supporting
    working families. In recent years, some seem to have forgotten what
    previously worked and have pushed for changes to government assistance
    that appear generous but, in the end, will certainly not solve poverty,
    or even just child poverty.

        The direct costs for these ideas are enormous. Indirectly, data
    show they actually become an impediment to intergenerational growth and
    upward mobility.

        Just this past February, for example, results of a cash-allowance
    program being piloted in Spain arrived. The program has already had
    ``sizeable and adverse employment effects,'' with aid recipients being
    20 percent less likely to work and families receiving benefits 14
    percent less likely to have any family member working.

        As another example, in October 2022, the nonpartisan JCT evaluated
    Democrats' partisan, temporary changes to the Child Tax Credit, and
    they reached two critical conclusions. First, they estimated a
    staggering cost to continue them: more than $1.2 trillion in the budget
    window, to say nothing of the years beyond. Second, they confirmed that
    the provision disincentivizes work, with a ``dynamic'' cost estimate
    factoring in work and growth that approached $1.4 trillion--more than
    its headline estimate.

        Evidence is sometimes warped to manufacture contrary conclusions.
    But Professor Meyers and Mr. Collins will tell us that an honest
    accounting of the data is clear: unconditional, direct-transfer
    policies simply do not achieve their aim of actually reducing poverty
    and dependency, even if they are called a tax credit.

        There are many thoughtful, compassionate, and prudent ideas worth
    considering to ensure that our social safety net is strong for those
    who need it most. What makes no sense is to undo the good that has
    already been done through harmful policy--whether in the name of
    equity, morality, or anything else. Progress requires building upon
    yesterday's gains, not tearing them down.

        Thank you, Mr. Chairman.

                                     ______

          Prepared Statement of Melissa Lester, Resident, Galloway, OH
        Thank you for the chance to testify here today. I am Melissa
    Lester, a Columbus, OH mom of two girls: Olivia, 3, and Emma, 1. I'm a
    licensed social worker and have been working for the State of Ohio for
    over 8 years. I'm a very proud member of MomsRising.

        I'm here to talk about the Child Tax Credit, which was a godsend
    for my family. Even with two working parents, making ends meet is a
    real struggle for us, and child care has long been our biggest expense.
    The cost is astronomical. Every family I know struggles to pay for
    child care. Even before our second child was born, we were paying
    considerably more for child care than our mortgage.

        Today, with two little ones, child care costs us $2,504 per month.
    Our family's child care costs more than 1 year of tuition at The Ohio
    State University. The cost of child care just keeps rising.

        I see child care as a crisis in this country. There are fewer
    licensed programs. As expensive as our center is, the program isn't
    everything I would like. Staff turnover is high. But the wait lists and
    costs at higher-rated centers make it impossible to leave. One center
    told us it would be 14 months for our second daughter to get a spot.

        Moms like me face impossible choices: do I keep my job and leave my
    child at a program that isn't all it could be? Or do I leave the
    workforce entirely, risking hardships for my family.

        In 2021, a lot of those problems fell away and life became much
    more manageable when we began receiving the monthly Child Tax Credit
    payments for our oldest daughter. The $300 monthly checks were an
    enormous help. We used it to cover basic needs. It gave us a little bit
    of breathing room. Each month I was able to use the payments to help
    with various things such as birthday party, holiday gifts. And when we
    took our first-ever family vacation, to Kitty Hawk, I was able to use
    the $300 toward some of those expenses. It helped relieve the constant
    stress over finances. It was an amazing relief. We were even able to
    save a little in anticipation of the birth of our second daughter,
    since much of my maternity leave was unpaid.

        But then Congress ended those payments. For us, they ended when
    prices began to skyrocket. My family struggled terribly with the
    formula shortage. It isn't possible to budget when you have to buy
    whatever baby formula you can find, whatever the cost. I keep all my
    first daughter's clothes, toys, furniture for her baby sister to help
    cut expenses. I fear a very modest vacation is completely out of reach.
    Even though my family is considered middle class by government
    standards. Growing up I didn't experience family vacations; I came from
    a working/low-middle-income family. I want better for my children.

        Continuing the expanded Child Tax Credit and Child and Dependent
    Care Credit helped my family, so much. The current credit amounts to a
    few hundred dollars when we spend thousands on care. We need family-
    friendly policies.

        My employer's maternity benefits are grossly inadequate. By the
    birth of my second daughter I had long since drained all my paid leave,
    mostly due to COVID-
    related child-care closures. The first 2 weeks following my delivery, I
    received no income and then I received 4 weeks of pay at 70 percent.
    The next 6 weeks were unpaid. As we all know bills don't stop with a
    birth, they multiply. I'm still making payments for my delivery, a year
    later.

        I firmly believe that our failure to adopt family-friendly policies
    hurts families and hurts our country. The Child Tax Credit expansion
    was a glimmer of hope. It made moms like me feel like maybe, just
    maybe, it's possible for things to get better.

        If the Child Tax Credit payments were reinstated, it would be huge
    for all parents. It would give us just that little bit of space in our
    budget so we can breathe.

        Data shows the expanded Child Tax Credit dramatically reduced child
    poverty. I don't understand why Congress let it end. Certainly, they
    weren't looking out for families.

        Hardworking families like mine should matter to all of you. We need
    family-
    friendly policies like the expanded Child Tax Credit; affordable,
    quality child care; and paid leave--and we need them now.

        Thank you.

                                     ______

       Prepared Statement of Amy K. Matsui, Director of Income Security
                and Senior Counsel, National Women's Law Center
        Chair Wyden, Ranking Member Crapo, and members of the committee,
    thank you for the opportunity to testify. My name is Amy K. Matsui, and
    I am the director of income security and senior counsel at the National
    Women's Law Center (NWLC).

        NWLC fights for gender justice--in the courts, in public policy,
    and in our society--working across the issues that are central to the
    lives of women and girls. We use the law in all its forms to change
    culture and drive solutions to the gender inequity that shapes our
    society and to break down the barriers that harm all of us--especially
    women of color, LGBTQ people, and women and families with low incomes.

        My testimony today will address the historic impact of the American
    Rescue Plan Act's expansion of refundable tax credits in reducing
    poverty and supporting families through the tax code, and why it is
    critical for the well-being and economic security of women and families
    that these expansions are restored.

           the impact of covid-19 on the economic security of women,
               households of color, and families with low incomes

        Even before the pandemic, many women, households of color, and
    families with low incomes struggled to make ends meet from paycheck to
    paycheck. In 2019, women in the U.S. who worked full-time, year-round
    were typically paid only 82 cents for every dollar paid to their male
    counterparts, and wage gaps were even larger for Black women, Native
    women, and Latinas.\1\ Black and Latinx households have only a fraction
    of the wealth owned by White households, and single women of color
    likewise face a significant and persistent wealth gap compared to white
    men.\2\ Predictably but unfortunately, the women and communities of
    color who experienced the greatest disadvantages before the pandemic
    were hit the hardest by the COVID-19 health and economic crisis.\3\
    ---------------------------------------------------------------------------
        \1\ Brooke LePage and Jasmine Tucker, ``The Wage Gap: The Who, How,
    Why, and What to Do'' (National Women's Law Center, October 2020),
    https://nwlc.org/wp-content/uploads/2019/09/Wage-Gap-Who-how.pdf.
        \2\ Amy Matsui, Kathryn Menefee, and Amy Royce, ``Advancing Gender
    and Racial Equity by Taxing Wealth (National Women's Law Center, April
    2022), https://nwlc.org/wp-content/uploads/2022/04/NWLC-4.-Advancing-
    Gender-And-Racial-Equity-By-Taxing-Wealth.pdf.
        \3\ National Women's Law Center, ``A Year of Strength and Loss: The
    Pandemic, the Economy, and the Value of Women's Work'' (March 2021),
    https://nwlc.org/wpcontent/uploads/2021/03/
    Final_NWLC_Press_CovidStats.pdf; Dominique Derbigny, ``On the Margins:
    Economic Security for Women of Color through the Coronavirus Crisis and
    Beyond'' (Women's Wealth Gap, April 28, 2020), https://
    womenswealthgap.org/wp-content/uploads/2020/04/OnTheMargins_April
    2020_CWWG.pdf; Danyelle Solomon and Derrick Hamilton, ``The Coronavirus
    Pandemic and the Racial Wealth Gap'' (American Progress, March 19,
    2020), https://www.americanprogress.org/issues/race/news/2020/03/19/
    481962/coronavirus-pandemic-racial-wealth-gap/; Guillermo Cantor and
    Lebaron Sims Jr., ``The Unequal Impact of the COVID-19 Crisis on
    Households' Financial Stability: Who is More Likely to be Immediately
    Hurt and Why'' (Prosperity Now, April 2020), https://prosperitynow.org/
    resources/unequal-impact-covid-19-crisis-households-financial-
    stability; Connor Maxwell, ``The Coronavirus Crisis Is Worsening Racial
    Inequality'' (Center for American Progress, June 10, 2020), https://
    www.americanprogress.org/issues/race/news/2020/06/10/486095/
    coronavirus-(risis-worsening-racial-inequality/; Amanda M. Gutierrez,
    Jacob Hofstetter, and Mary Majumder, ``COVID-19 is a Perfect Storm of
    Hardship for U.S. Immigrant Communities'' (Petrie-Flom Center at
    Harvard Law School, May 4, 2020), https://blog.
    petrieflom.law.harvard.edu/2020/05/04/immigrant-communities-us-covid19-
    coronavirus/.

        As the American Rescue Plan Act was being debated in early 2021, it
    was clear that women, households of color, and families with low
    incomes were bearing the brunt of the pandemic's economic consequences.
    Women and people of color were overrepresented in the front-line
    workforce, making up the vast majority of workers risking their lives
    to provide health care, child care, and other essential services.\4\
    Between February 2020 and February 2021, moreover, 2.3 million women
    left the labor force altogether, meaning they were not working or
    looking for work.\5\ Increased caregiving responsibilities are likely
    to have been a major factor for many of these women, with schools
    operating remotely, child care providers closed or at reduced capacity,
    ill or elderly family members also needing care--and women
    disproportionately shouldering family caregiving responsibilities.\6\
    U.S. Census Bureau data show a strong correlation between the
    caregiving crisis and women's plummeting workforce participation.\7\
    ---------------------------------------------------------------------------
        \4\ National Women's Law Center, ``Women Make Up the Majority of
    Front Line Workers of the COVID-19 Crisis'' (March 2020), https://
    nwlc.org/wp-content/uploads/2020/05/final_NWLC
    _Frontlines_FactSheet-002.pdf; Hye Jin Rho, Hayley Brown, and Shawn
    Fremstad, ``A Basic Demographic Profile of Workers in Frontline
    Industries'' (Center for Economic and Policy Research, April 7, 2020),
    https://cepr.net/a-basic-demographic-profile-of-workers-in-frontline-
    industries/.
        \5\ Claire Ewing-Nelson and Jasmine Tucker, ``A Year Into the
    Pandemic, Women Are Still Short Nearly 5.1 Million Jobs (National
    Women's Law Center, March 2021), https://nwlc.org/wp-content/uploads/
    2021/03/Feb-Jobs-Day-v2.pdf.
        \6\ Diana Boesch and Shilpa Phadke, ``When Women Lose All the Jobs:
    Essential Actions for a Gender-Equitable Recovery'' (Center for
    American Progress, February 1, 2021), https://cdn.
    americanprogress.org/content/uploads/2021/01/29041540/WomenLoseJobs-
    brief.pdf?_ga=2.176
    240101.1575381012.1616382378-895177019.1605122818; Megan Cerullo,
    ``Nearly 3 million U.S. women have dropped out of the labor force in
    the past year,'' CBS News, February 5, 2021, https://www.cbsnews.com/
    news/covid-crisis-3-million-women-labor-force/; Helaine Olen, ``The
    pandemic is devastating a generation of working women,'' The Washington
    Post, February 5, 2021, https://www.washingtonpost.com/opinions/2021/
    02/05/pandemic-is-devastating-generation-working-women/.
        \7\ In August 2020, the Census Bureau found, ``around one in five
    (19.6 percent) of working-age adults said the reason they were not
    working was because COVID-19 disrupted their childcare arrangements.''
    Of those not working, ``women ages 25-44 are almost three times as
    likely as men to not be working due to childcare.'' Misty L. Heggeness
    and Jason M. Fields, ``Working Moms Bear Brunt of Home Schooling While
    Working During COVID-19'' (United States Census Bureau, August 18,
    2020), https://www.census.gov/library/stories/2020/08/parents-juggle-
    work-and-child-care-during-pandemic.html; Child Care Aware of America,
    ``Repairing our Child Care System'' (2021), https://
    info.childcareaware.org/hubfs/2022-03-FallReport-
    FINAL%20(1).pdf?utm_campaign=Budget%20Reconciliation%20Fall%202021&utm_s
    ource=web
    site&utm_content=22_demandingchange_pdf_update332022.

        Even before the pandemic, many families struggled to access
    affordable, high-quality child care that met their family's needs. In
    more than half of States, care for an infant in a child care center
    costs more than in-State college tuition,\8\ and in one study, over 80
    percent of two-child families spent more on child care than rent.\9\
    Additionally, low-income families spend an average of 35 percent of
    their income on child care, which amounts to five times what is
    considered affordable.\10\ Child care is especially unaffordable for
    Black and Latinx working families with low incomes.\11\ Only one in six
    children eligible for child care assistance under Federal law were
    served by the Child Care and Development Block Grant (CCDBG) and
    related Federal child care programs in 2019 (the most recent year for
    which data are available).\12\ The pandemic laid bare and exacerbated
    the deep inequities of a child care system that relies on families
    paying unaffordable sums and early educators being paid poverty-level
    wages, and that leaves too many communities across the country without
    a sufficient workforce or facilities to meet child care demands. In
    early 2021, families faced even more challenges finding and paying for
    child care, millions of child care workers had lost their jobs, and
    providers--who operate on razor-thin margins--were struggling to keep
    their doors open. Child Care Aware of America report found that nearly
    16,000 child care providers across the U.S. permanently closed between
    December 2019 and March 2021 in 37 States with data.\13\
    ---------------------------------------------------------------------------
        \8\ Child Care Aware of America, ``Price of Care: 2022 Child Care
    Affordability Analysis'' (2022), https://info.childcareaware.org/hubfs/
    2022_CC_Afford_Analysis.pdf, 24-25.
        \9\ Elise Gould and Tanyell Cooke, ``High Quality Child Care is Out
    of Reach for Working Families'' (Economic Policy Institute, October
    2015), http://www.epi.org/publication/child-care-affordability/, 2.
        \10\ Rasheed Malik, ``60 Percent of Families Are Spending More than
    Twice as Much on Child Care as What the U.S. Government Considers
    Affordable'' (Center for American Progress, June 2019), https://
    www.americanprogress.org/issues/early-childhood/reports/2019/06/20/
    471141/working-families-spending-big-money-child-care/, 3.
        \11\ Maura Baldiga, Pamela Joshi, Erin Hardy, and Dolores Acevedo-
    Garcia, ``Data-for-Equity Research Brief: Child Care Affordability for
    Working Parents'' (Diversity Data Kids, November 2018), https://
    www.diversitydatakids.org/research-library/research-brief/child-care-
    affordability-working-parents.
        \12\ Nina Chien, ``Factsheet: Estimates of Child Care Eligibility
    and Receipt for Fiscal Year 2019'' (U.S. Department of Health and Human
    Services, September 2022), https://aspe.hhs.gov/sites/default/files/
    documents/1d276a590ac166214a5415bee430d5e9/cy2019-child-care-subsidy-
    eligibility.pdf.
        \13\ Child Care Aware of America, ``16,000 childcare providers shut
    down in the pandemic. It's a really big deal,'' February 9, 2022,
    https://info.childcareaware.org/media/16000-childcare-providers-shut-
    down-in-the-pandemic.-its-a-really-big-deal.

        The COVID-19 pandemic further revealed alarming racial disparities
    in access to health care. Latinx, Black, and Native American
    communities have experienced significantly higher rates of COVID-19
    infection, hospitalization, and death.\14\ Sizeable shares of Latinx,
    Black, and Native American households were unable to get medical care
    when they needed it during the pandemic, resulting in negative health
    and economic consequences.\15\
    ---------------------------------------------------------------------------
        \14\ Centers for Disease Control and Prevention, ``Hospitalization
    and Death by Race/Ethnicity'' (May 25, 2023), https://www.cdc.gov/
    coronavirus/2019-ncov/covid-data/investigations-discovery/
    hospitalization-death-by-race-ethnicity.html.
        \15\ Robert Wood Johnson Foundation, ``The Impact of Coronavirus on
    Households, by Race/
    Ethnicity'' (Harvard University T.H. Chan School of Public Health,
    September 2020), https://www.hsph.harvard.edu/wp-content/uploads/sites/
    94/2020/09/NPR-Harvard-RWJF-Race-Ethnicity-Poll_091620.pdf.

        In sum, the pandemic put millions of families on the brink of full-
    fledged economic disaster. The pandemic and related job losses were
    especially devastating for Black and Latinx households,\16\ who have
    historically suffered from higher unemployment rates, lower wages, and
    lower incomes. Majorities of Latinx, Black, and Native American
    households (72 percent, 60 percent, and 55 percent respectively)
    reported facing serious financial problems, such as depleting their
    savings, in the first year of COVID.\17\ Households with low incomes
    were especially likely to accrue debt, with more than three in four (77
    percent) SNAP recipients reporting incurring some kind of new debt
    during the early months of the pandemic-induced shutdown.\18\
    ---------------------------------------------------------------------------
        \16\ NWLC Analysis of U.S. Census Bureau COVID-19 Household Pulse
    Surveys, https://nwlc.org/resource/nwlc-analysis-of-u-s-census-bureau-
    covid-19-household-pulse-surveys/.
        \17\ Robert Wood Johnson Foundation, ``The Impact of Coronavirus on
    Households, by Race/
    Ethnicity'' (Harvard University T.H. Chan School of Public Health,
    September 2020), https://www.hsph.harvard.edu/wp-content/uploads/sites/
    94/2020/09/NPR-Harvard-RWJF-Race-Ethnicity-Poll_091620.pdf.
        \18\ Diana Enriquez and Adam Goldstein, ``COVID-19's Socioeconomic
    Impact on Low-Income Benefit Recipients: Early Evidence from Tracking
    Surveys,'' Socius: Sociological Research for a Dynamic World 6 (2020),
    https://doi.org/10.1177/2378023120970794.

        This is the context in which the American Rescue Plan Act was
    enacted.
        arpa's expansion of refundable tax credits reduced poverty and
          supported the financial security of women and their families
        The American Rescue Plan Act of 2021 (ARPA) was a historic piece of
    legislation that provided needed relief for women and families. This
    relief included temporary expansions of three Federal income tax
    credits that benefit families, including the refundable Child Tax
    Credit (CTC), the refundable Earned Income Tax Credit (EITC), and the
    temporarily refundable Child and Dependent Care Tax Credit (CDCTC).

        Tax credits wipe out tax liability, and a refundable tax credit
    provides a refund if the tax filer lacks sufficient tax liability to
    use up the full amount of the credit. This allows families with low and
    moderate incomes, among whom women supporting families on their own and
    households of color are overrepresented, to benefit. Both the EITC and
    CTC have a long track record of supporting women, families of color,
    and families with low incomes. Both credits serve a greater proportion
    of households of color, though a larger number of white households
    receive the credits.\19\ The income boosts from the CTC and EITC have
    been proven to support working women, especially single working
    mothers.\20\ Additionally, refunds from the credits have been shown to
    improve children's well-being, health outcomes, and education
    outcomes.\21\
    ---------------------------------------------------------------------------
        \19\ Chye-Ching Huang and Roderick Taylor, ``How the Federal tax
    code Can Better Advance Racial Equity'' (Center on Budget and Policy
    Priorities, July 25, 2019), https://www.cbpp.org/research/federal-tax/
    how-the-federal-tax-code-can-better-advance-racial-equity.
        \20\ Chuck Marr, Chye-Ching Huang, Arloc Sherman, and Brandon
    Debot, ``EITC and Child Tax Credit Promote Work, Reduce Poverty, and
    Support Children's Development, Research Finds'' (Center on Budget and
    Policy Priorities, October 1, 2015), https://www.cbpp.org/research/
    federal-tax/eitc-and-child-tax-credit-promote-work-reduce-poverty-and-
    support-childrens.
        \21\ Hilary Hoynes, Doug Miller, and David Simon, ``Income, the
    Earned Income Tax Credit, and Infant Health,'' American Economic
    Journal: Economic Policy 7, no. 1 (2015), https://www.
    aeaweb.org/articles?id=10.1257/pol.20120179; Irwin Garfinkel, Laurel
    Sariscsany, Elizabeth Ananat, Sophie M. Collyer, Robert Paul Hartley,
    Buyi Wang, and Christopher Wimer, ``The Benefits and Costs of a U.S.
    Child Allowance'' (National Bureau of Economic Research, March 2022),
    https://www.nber.org/system/files/working_papers/w29854/w29854.pdf;
    Andrew Barr, Jonathan Eggleston, and Alexander A. Smith, ``Investing in
    Infants: The Lasting Effects of Cash Transfers to New Families,''
    Quarterly Journal of Economics 137, no. 4 (2022), https://
    academic.oup.com/qje/article-abstract/137/4/2539/
    6571263?redirectedFrom=fulltext.

        Policymakers have expanded refundable tax credits during economic
    downturns in order to support families as well as stimulate the
    economy. Researchers in 2021 ``estimate[d] that the CTC expansion will
    boost consumer spending by $27 billion, generate $1.9 billion in
    revenues from State and local sales taxes, and support the equivalent
    of over 500,000 full-time jobs at the median wage.''\22\ In 2021, the
    ARPA expanded and strengthened the CTC, EITC, and CDCTC.
    ---------------------------------------------------------------------------
        \22\ Samuel Hammond and Robert Orr, ``Report: Measuring the Child
    Tax Credit's Economic and Community Impact'' (Niskanen Center, August
    2, 2021), https://www.niskanencenter.org/report-measuring-the-child-
    tax-credits-economic-and-community-impact/.
    ---------------------------------------------------------------------------
    The Child Tax Credit
        The CTC helps families with the cost of raising children and has
    long been a critical source of income support for women and families.
    For tax year 2023, the CTC is worth up to $2,000 per child under age
    17, and families can receive up to $1,600 of that amount as a
    refundable tax credit if they have at least $2,500 in earned
    income.\23\ Due to their overrepresentation among families with low
    incomes, families headed by women of color especially benefit from the
    refundable portion of the CTC. In 2019, the refundable portion of the
    CTC benefited the families of 7 million women of color, with 21 percent
    of Latinas and 14 percent of Black women benefiting respectively,
    compared to 6 percent of White women.\24\ However, because the CTC is
    not fully refundable, families with low incomes who have limited or no
    tax liability--including a disproportionate number of women-headed
    households and households of color--cannot receive the full value of
    the CTC.
    ---------------------------------------------------------------------------
        \23\ Elaine Maag, ``Options to Improve the Child Tax Credit for
    Low-Income Families,'' Tax Policy Center, December 14, 2022, https://
    www.taxpolicycenter.org/taxvox/options-improve-child-tax-credit-low-
    income-
    families#::text=To%20receive%20the%20full%20%241%2C600,refundable%
    20portion%20of%20the%20credit.
        \24\ Chuck Marr and Yixuan Huang, ``Women of Color Especially
    Benefit From Working Family Tax Credits'' (Center on Budget and Policy
    Priorities, September 9, 2019), https://www.
    cbpp.org/research/federal-tax/women-of-color-especially-benefit-from-
    working-family-tax-credits.

        For tax year 2021, the ARPA made the CTC fully refundable, allowing
    families with low incomes to benefit from the full credit. The size of
    the credit was also increased: families received up to $3,600 per
    qualifying child ages 0 to 5 and up to $3,000 per child ages 6 to 17
    (up from the previous age limit of 16). Finally, the ARPA allowed
    families to receive up to half their CTC credit amount in monthly
    installments between July and December 2021, with the second half
    ---------------------------------------------------------------------------
    received when they filed their tax returns in early 2022.

        Almost 38 million families received the first half of their CTC as
    advance monthly payments, and the average total amount (across the six
    payments) was $2,466.\25\ In 2022, nearly 47 million families received
    the CTC when they filed their tax returns for the 2021 tax year, and
    the average amount was $2,569.\26\ For many families, this amount
    represented half of their total CTC, as they had received the first
    half in advance payments. In comparison, families in tax year 2020--
    before the ARPA expansion--received the entirety of their CTC in their
    tax returns with an average amount of $2,441.\27\
    ---------------------------------------------------------------------------
        \25\ Sarah Hassmer, Amy Matsui, Kathryn Menefee, and Shengwei Sun,
    ``By the Numbers: Data on Key Programs for the Well-Being of Women and
    Their Families'' (National Women's Law Center, May 2023), https://
    nwlc.org/resource/by-the-numbers-data-on-key-programs-for-the-well-
    being-of-women-lgbtq-people-and-their-families/.
        \26\ Ibid.
        \27\ National Women's Law Center calculations based on the Joint
    Committee on Taxation, ``Estimates of Federal Tax Expenditures for
    Fiscal Years 2020-2024'' (November 5, 2020), https://www.jct.gov/
    publications/2020/jcx-23-20/.

        The expanded CTC had a tremendous anti-poverty impact, especially
    for families of color. It lifted 1.5 million women above Supplemental
    Poverty Measure (SPM)\28\ poverty in 2021, including 575,000 Latinas
    and 351,000 Black women.\29\ Additionally, the monthly payments reduced
    child poverty by about 30 percent during the 6 months of 2021 when they
    were being issued.\30\
    ---------------------------------------------------------------------------
        \28\ U.S. Census Bureau, ``Supplemental Poverty Measure'' (last
    reviewed October 31, 2022), https://www.census.gov/topics/income-
    poverty/supplemental-poverty-measure.html.
        \29\ Hassmer et al., ``By the Numbers.''
        \30\ Zachary Parolin, Sophie Collyer, and Megan A. Curran,
    ``Absence of Monthly Child Tax Credit Leads to 3.7 Million More
    Children in Poverty in January 2022'' (Center on Poverty and Social
    Policy, February 17, 2022), https://www.povertycenter.columbia.edu/
    news-internal/monthly-poverty-january-2022.

        This reduction in poverty was also associated with an increased
    ability for families to meet their basic needs. Analysis of the Census
    Household Pulse Survey demonstrated that, while families were receiving
    advance payments, food insufficiency dropped by almost 20 percent among
    families with children.\31\ Families used their payments to help pay
    for necessities like groceries, rent, and child care, and Black women
    and Latinas were especially likely to report using their payments to
    purchase food.\32\ This increased economic security was also associated
    with improved mental health. Another analysis of the Census Household
    Pulse survey demonstrated that adults with low incomes who received the
    CTC payments experienced fewer anxiety and depressive symptoms.\33\
    Finally, a national survey found that nearly 70 percent of families who
    received the advance payments reported that the payments reduced their
    financial stress--and this percent was even larger among Latinx
    respondents.\34\
    ---------------------------------------------------------------------------
        \31\ Zachary Parolin, Elizabeth Ananat, Sophie Collyer, Megan A.
    Curran, and Christopher Wimer, ``The Differential Effects of Monthly
    and Lump-Sum Child Tax Credit Payments on Food and Housing Hardship''
    (Center on Poverty and Social Policy, September 2, 2022), https://
    static1.squarespace.com/static/610831a16c95260dbd68934a/t/
    632dec8900629f3bdf310b91/1663
    954058776/CTC-Payments-on-Food-and-Housing-CPSP-2022.pdf.
        \32\ Brooke LePage and Sarah Javaid, ``Black, Non-Hispanic Women
    and Latinas Use Advance Child Tax Credit to Cover Necessities and Pay
    Down Debt in the Last Month of Payments'' (National Women's Law Center,
    January 2022), https://nwlc.org/wp-content/uploads/2022/01/
    PulseWeek40FS-1.pdf.
        \33\ Akansha Batra, Kaitlyn Jackson, and Rita Hamad, ``Effects of
    the 2021 Expanded Child Tax Credit on Adults' Mental Health: A Quasi-
    Experimental Study,'' Health Affairs, 41, no. 1 (January 2023), https:/
    /www.healthaffairs.org/doi/10.1377/hlthaff.2022.00733.
        \34\ Center for Law and Social Policy, ``The Expanded Child Tax
    Credit is Helping Families, But National Survey Shows Continued
    Outreach Remains Essential'' (April 2022), https://www.clasp.org/wp-
    content/uploads/2022/04/2022_National-CTC-Survey-Round-2_Full-
    Report.pdf.

        The advance payments also helped parents balance caregiving needs
    and work. This balance is especially critical to women, who
    disproportionately shoulder caregiving responsibilities and are more
    likely than men to take time off paid work to provide care for family
    members.\35\ In a national survey, over one-quarter of families who
    received the payments reported that the payments helped them work more,
    and Black respondents were twice as likely as White respondents to do
    so.\36\ Parents interviewed for the survey specified that the advance
    payments helped them pay for transportation and cover the child care
    they needed to work additional hours.\37\ In October 2021, three
    million fewer CTC-eligible parents reported they were unemployed
    because they had to care for children, than in the months before the
    CTC was expanded. Low- and moderate-income parents were more likely to
    report this shift.\38\
    ---------------------------------------------------------------------------
        \35\ Tanya Byker, Elena Patel, and Shanthi Ramnath, ``Who Cares?
    Paid Sick Leave Mandates, Care-Giving, and Gender'' (Federal Reserve
    Bank of Chicago, April 2023), https://www.
    chicagofed.org/publications/working-papers/2023/2023-14.
        \36\ Center for Law and Social Policy, ``The Expanded Child Tax
    Credit.''
        \37\ Ibid.
        \38\ Humanity Forward, ``Study Finds the Expanded, Monthly Child
    Tax Credit Supports Work and Promotes Small Business Formation''
    (November 2022), https://humanityforward.com/wp-content/uploads/2021/
    11/Humanity-Forward-Report-One-Pager-v4.pdf.
    ---------------------------------------------------------------------------
    The Earned Income Tax Credit
        The EITC is a refundable tax credit that benefits workers with low
    and moderate incomes. For tax year 2023, the EITC is worth a maximum of
    $7,430 for families with children and $600 for families not claiming
    children for the credit.\39\ Eligibility and credit amounts depend on a
    worker's income, number of children claimed, and marital status. Women
    of color and single mothers, who are more likely to be paid low wages,
    especially benefit from this credit: in 2019, 21 percent of Black women
    and Latinas benefited (more than double the 9 percent of White, non-
    Hispanic women who did so).\40\ In 2019, the EITC boosted the incomes
    of 9 million women of color above the poverty line.\41\ And single
    mothers receive almost half of EITC credit amounts.\42\
    ---------------------------------------------------------------------------
        \39\ Center on Budget and Policy Priorities, ``Policy Basics: The
    Earned Tax Income Credit,'' April 28, 2023, https://www.cbpp.org/
    research/federal-tax/the-earned-income-tax-credit.
        \40\ Marr and Huang, ``Women of Color Especially Benefit.''
        \41\ Ibid.
        \42\ Bruce Meyer, ``The Effects of the Earned Income Tax Credit and
    Recent Reforms,'' Tax Policy and the Economy 24, no. 1 (2010), https://
    www.journals.uchicago.edu/doi/full/10.1086/649
    831#::text=In%20addition%20to%20directly%20raising,liability%20that%20t
    he%20credit%20off
    sets.

        However, the EITC only provides a very small benefit--or no benefit
    at all--to workers who do not claim children, including noncustodial
    parents and parents with older children. In 2020, the average benefit
    for this group was $295.\43\ The EITC for childless workers, moreover,
    is limited to those ages 25-64, meaning that many younger and older
    workers are prevented from receiving the credit at all. This harms
    young adults trying to get a foothold in the workforce; they are
    generally ineligible for other State and Federal benefits and face high
    rates of poverty.\44\ Older adults are also impacted: one in five older
    adults over age 65 is still in the workforce, many for financial
    reasons,\45\ and the earnings of women over age 65 are only 77 percent
    of older men's.\46\ In fact, childless workers with low incomes are the
    only group that is pushed into--or further into--poverty by their
    Federal taxes, largely because their EITC is too small to offset their
    income and payroll taxes. It is estimated that this group comprises
    almost 6 million workers ages 19 and older--who, among other things, do
    essential work as cashiers, home health aides, child-care workers, and
    more.\47\
    ---------------------------------------------------------------------------
        \43\ Center on Budget and Policy Priorities, ``Policy Basics.''
        \44\ Teon Dolby, Ashley Burnside, and Whitney Bunts, ``EITC for
    Childless Workers: What's at Stake for Young Workers'' (Center for Law
    and Policy, June 2022), https://www.clasp.org/publications/report/
    brief/eitc-childless-workers-2022/.
        \45\ S. Kathi Brown, ``Widespread Support of Tax Relief for Workers
    Ages 65-Plus,'' AARP Research, April 2023, https://www.aarp.org/
    research/topics/economics/info-2023/earned-income-tax-credit.html.
        \46\ National Council on Aging, ``Get the Facts on Economic
    Security for Seniors,'' June 8, 2023, https://ncoa.org/article/get-the-
    facts-on-economic-security-for-seniors; Brooke LePage and Jasmine
    Tucker, ``A Window Into the Wage Gap: What's Behind It and How to Close
    It'' (National Women's Law Center, January 2023), https://nwlc.org/wp-
    content/uploads/2023/01/2022-Wage-Gap-Factsheet-1.10.23.pdf.
        \47\ Center on Budget and Policy Priorities, ``Policy Basics.''

        In 2021, the ARPA addressed these shortcomings by expanding the
    EITC for workers not claiming children.\48\ The maximum credit was
    tripled, from around $500 to $1,502, and the income limits for claiming
    the credit were increased from about $16,000 to around $21,000 for
    single adults ($27,000 for married couples). Additionally, the lower
    age limit was reduced to 19 in most cases and the upper age limit was
    removed. These expansions made 11 million people newly eligible for the
    credit,\49\ including 2 million older adults.\50\
    ---------------------------------------------------------------------------
        \48\ Chuck Marr, ``Another Tax Day Message for Congress: Time to
    Expand EITC for Adults Without Children,'' Center on Budget and Policy
    Priorities, April 12, 2022, https://www.cbpp.org/blog/another-tax-day-
    message-for-congress-time-to-expand-eitc-for-adults-without-children.
        \49\ Ibid.
        \50\ Nancy A. LeaMond, ``An Age Cap in the tax code Harms Older
    Workers,'' AARP, April 13, 2023, https://blog.aarp.org/fighting-for-
    you/eitc-age-cap-older-workers.

        For tax year 2021, 31 million workers and families received the
    EITC overall (both those claiming children and those who did not).\51\
    The credit reached roughly 6 million more workers and families than in
    2020.\52\ The 2021 EITC also moved 2.6 million people out of SPM
    poverty, including 946,000 women (180,000 of whom are Black and 434,000
    of whom are Latina).\53\
    ---------------------------------------------------------------------------
        \51\ Internal Revenue Service, ``Statistics for Tax Returns with
    the Earned Income Tax Credit (EITC),'' March 17, 2023, https://
    www.eitc.irs.gov/eitc-central/statistics-for-tax-returns-with-eitc/
    statistics-for-tax-returns-with-the-earned-income.
        \52\ Ibid.
        \53\ Hassmer et al., ``By the Numbers.''

    The Child and Dependent Care Tax Credit
        The CDCTC is a nonrefundable tax credit that helps families meet
    their out-of-pocket, work-related child and dependent care expenses. In
    tax year 2023, the CDCTC allows families to claim $3,000 in expenses
    for one child or dependent, and $6,000 for two or more children or
    dependents. The percentage of eligible expenses that a family may
    claim--ranging from 20 to 35 percent--is based on a sliding scale that
    declines with income.\54\ Currently, the CDCTC is theoretically worth a
    maximum of $1,050 for one child or dependent, and $2,100 for two or
    more children or dependents.
    ---------------------------------------------------------------------------
        \54\ Tax Policy Center, ``How Does the Tax System Subsidize Child
    Care Expenses?'' (May 2020), https://www.taxpolicycenter.org/briefing-
    book/how-does-tax-system-subsidize-child-care-expenses.

        But because the CDCTC is nonrefundable under current law, the
    credit provides little actual benefit to families with low incomes who
    incur out-of-pocket expenses for child care, even though these expenses
    represent a significant share of their household budgets. Indeed, a
    2022 analysis by the Tax Policy Center showed that less than 1 percent
    of the benefits from the CDCTC went to families with adjusted gross
    income of $30,000 or less.\55\ This limits the credit's benefit to many
    households of color and women-headed households, who are
    overrepresented among households with low incomes.
    ---------------------------------------------------------------------------
        \55\ Tax Policy Center, ``T22-0246--Tax Benefit of the Child and
    Dependent Care Credit (CDCTC), Baseline: Current Law, Distribution of
    Federal Tax Change by Expanded Cash Income Percentile, 2022'' (December
    28, 2022), https://www.taxpolicycenter.org/model-estimates/individual-
    income-tax-expenditures-december-2022/t22-0246-tax-benefit-child-and.

        The ARPA expanded and improved the CDCTC for tax year 2021, most
    importantly by making it refundable. This meant that more low- and
    moderate-income families were able to benefit from the credit, and in
    fact, some families were able to claim the CDCTC for the first time.
    The ARPA also increased the amount of expenses that could be claimed
    for the credit, and families could claim up to 50 percent of these
    expenses for the credit.\56\ Under the ARPA, the CDCTC was worth a
    maximum of $4,000 for one child or dependent, and $8,000 for two or
    more children or dependents. In 2022, nearly 6.5 million families
    received the expanded CDCTC when they filed their tax returns for the
    2021 Tax Year.\57\ This was 288,000 more families than received the
    CDCTC in 2020, before the ARPA expansions.\58\
    ---------------------------------------------------------------------------
        \56\ Congressional Research Service, ``The American Rescue Plan Act
    of 2021 (ARPA; Pub. L. 117-2): Title IX, subtitle G--Tax Provisions
    Related to Promoting Economic Security'' (March 16, 2021), https://
    crsreports.congress.gov/product/pdf/R/R46680, 8-9.
        \57\ Hassmer et al., ``By the Numbers.''
        \58\ National Women's Law Center calculations based on U.S.
    Congress, ``Estimates of Federal Tax Expenditures for Fiscal Years
    2020-2024'' (Joint Committee on Taxation, November 5, 2020), https://
    www.jct.gov/getattachment/ec4fb616-771b-4708-8d16-f774d5158469/x-23-
    20.pdf, 40 (Table 3). There is reason to believe even more families
    would claim the credit if these expansions were restored. Because the
    credit was previously unavailable to families with low incomes, it is
    likely that many eligible families did not know to claim the credit in
    2021; a barrier that could be remedied with awareness campaigns.
    Additionally, the child care industry experienced massive job losses in
    2021 and child care was more difficult to access, meaning that fewer
    families may have incurred out-of-pockets child care costs during that
    time. Claire Ewing-Nelson, ``Another 275,000 Women Left the Labor Force
    in January'' (National Women's Law Center, February 2021), https://
    nwlc.org/wp-content/uploads/2021/02/January-Jobs-Day-FS.pdf, 2.
    Finally, some tax returns from 2021 still have not been processed.
    Kelly Phillips Erb, ``IRS Processing Updates Include Up to 20-Week Wait
    for Amended Tax Returns,'' Forbes, May 22, 2023, https://
    www.forbes.com/sites/kellyphillipserb/2023/05/22/irs-issues-processing-
    updates-including-20-week-wait-for-amended-tax-returns/
    ?sh=3c8e8658176e.
    ---------------------------------------------------------------------------
    The Expiration of ARPA's Tax Credit Expansions Increased Poverty,
            Harmed the Economic Security and Well-Being of Women and
            Families, and Once Again Limited the Support the Tax Code
            Provides to the Families That Need It Most

        The ARPA's expansions to the CTC, EITC, and CDCTC expired at the
    end of 2021, and the impact on women and families was immediate and
    severe. In early 2022, after the CTC payments had expired, poverty
    among children and families had already begun to increase. The overall
    monthly child poverty rate rose sharply between December 2021 and
    January 2022, from 12.1 percent to 17 percent. This means there were
    3.7 million more children living below the poverty line in January 2022
    than in December 2021.\59\ Children of color were hit the hardest: 1.25
    million more Latinx children and 600,000 more Black children
    experienced poverty in the months after the payments expired.\60\ These
    elevated poverty rates, after a brief dip in March when families
    received their tax refunds, remained high throughout 2022.\61\
    ---------------------------------------------------------------------------
        \59\ Parolin, Collyer, and Curran, ``Absence of Monthly Child Tax
    Credit.''
        \60\ Megan A. Curran, ``Research Roundup of the Expanded Child Tax
    Credit: One Year On,'' Poverty and Social Policy Report 6 no. 9
    (November 15, 2022), https://static1.squarespace.com/static/
    610831a16c95260dbd68934a/t/63732dd8efcf0e5c76aea26e/1668492763484/
    Child-Tax-Credit-Research-Roundup-One-Year-On-CPSP-2022.pdf, 20.
        \61\ Center on Poverty and Social Policy at Columbia University,
    ``Monthly Poverty Data'' (December 2022), https://
    www.povertycenter.columbia.edu/forecasting-monthly-poverty-data.

        The expiration of the CTC has also made it more difficult for
    families to meet their basic needs. After the CTC payments stopped,
    households with children experienced a 25 percent increase in food
    insufficiency.\62\ Nearly two in three parents reported that it has
    been more difficult for their families to meet expenses after the
    payments expired, with Latinx and low-income parents especially likely
    to report difficulty. Parents also reported more challenges affording
    high quality foods and visiting food banks or pantries more
    frequently.\63\
    ---------------------------------------------------------------------------
        \62\ Bovell-Ammon, Allison, Nicole C. McCann, Martha Mulugeta,
    Stephanie Ettinger de Cuba, Julia Raifman, and Paul Shafer,
    ``Association of the Expiration of Child Tax Credit Advance Payments
    with Food Insufficiency in U.S. Households,'' JAMA Network Open 5, no.
    1 (2022), https://jamanetwork.com/journals/jamanetworkopen/fullarticle/
    2797549.
        \63\ Ashley Burnside, Bruce Fuller, and Qifan Zhang, ``How Parents
    Use the Child Tax Credit and Implications of Ended Monthly Payments:
    Key Findings, July 2022 Continental U.S. Survey'' (The Center for Law
    and Social Policy, September 12, 2022), https://www.clasp.org/wp-
    content/uploads/2022/09/Continental-CTC-Survey-3-Topline-Findings-1-
    1.pdf, 2.

        The fact that the CTC is no longer fully refundable is especially
    harmful to the families most in need of support. About 19 million
    children under age 17 live in families that do not receive the full CTC
    under current law because their family is not paid enough \64\--
    including almost half of Black and Latinx children.\65\ A majority of
    children in households headed by a single parent, who are most often
    women, also do not receive the full credit now that the expansions have
    expired.\66\
    ---------------------------------------------------------------------------
        \64\ Tax Policy Center, ``T22-0123--Distribution of Tax Units and
    Qualifying Children by Amount of Child Tax Credit (CTC), 2022''
    (October 18, 2022), https://www.taxpolicycenter.org/model-estimates/
    children-and-other-dependents-receipt-child-tax-credit-and-other-
    dependent-tax.
        \65\ Jacob Goldin and Katherine Michelmore, ``Who Benefits from the
    Child Tax Credit,'' National Tax Journal 75, no 1 (2022).
        \66\ Zachary Parolin, Elizabeth Ananat, Sophie M. Collyer, Megan
    Curran, and Christopher Wimer, ``The Initial Effects of the Expanded
    Child Tax Credit on Material Hardship'' (National Bureau of Economic
    Research, September 2021), http://www.nber.org/papers/w29285.

        Additionally, the expiration of the EITC's and the CDCTC's
    expansions made these credits less beneficial, or even inaccessible, to
    many families and workers with low incomes. The more than 17 million
    people estimated to have received additional benefit from the expanded
    EITC in 2021--including 3.6 million Latinx workers and 2.7 million
    Black workers--are now only eligible for much smaller credits or no
    credit at all.\67\ And families with low incomes are effectively shut
    out of the CDCTC entirely, despite the increasingly high cost of child
    care. Limiting the benefit these credits provide to families with low
    incomes, moreover, disproportionately impacts women and families of
    color.
    ---------------------------------------------------------------------------
        \67\ Marr, ``Another Tax Day Message.''
    ---------------------------------------------------------------------------
    Congress Should Reinstate the ARPA's Expansions to Refundable Tax
            Credits

        The ARPA's expansion of the CTC, EITC, and CDCTC provided effective
    and targeted relief during a devastating economic downturn. In 2021,
    the three expanded credits boosted nearly 9.7 million people out of SPM
    poverty, including nearly 2.9 million adult women and over 4.9 million
    children.\68\
    ---------------------------------------------------------------------------
        \68\ Hassmer et al., ``By the Numbers.''

        The relief provided by the ARPA and other legislation helped
    mitigate the worst impacts of the pandemic on women, communities of
    color, and families with low incomes. But inequities in the job market
    and other economic systems that predated the pandemic have persisted,
    and in some cases have grown. The economic recovery has been uneven for
    many women, households of color, and families with low incomes.
    Women,\69\ including women of color \70\ and older women,\71\ lagged
    behind in job gains. In May 2023, over one in five unemployed women
    were long-term unemployed, meaning they had been out of work for 6
    months or longer.\72\ In addition, many women--especially Latinas and
    Black women--continue to work part-time involuntarily, because they
    cannot find full-time work or for other economic reasons.\73\
    ---------------------------------------------------------------------------
        \69\ Beth Almeida and Isabela Salas-Betch, ``Fact Sheet: The State
    of Women in the Labor Force in 2023'' (Center on American Progress,
    February 6, 2023), https://www.americanprogress.org/article/fact-sheet-
    the-state-of-women-in-the-labor-market-in-2023/.
        \70\ Sarah Jane Glynn and Mark DeWolf, ``Black Women's Economic
    Recovery Continues to Lag'' (U.S. Department of Labor, February 9,
    2022), https://blog.dol.gov/2022/02/09/black-womens-economic-recovery-
    continues-to-lag; Jared Bernstein and Janelle Jones, ``The Impact of
    the COVID-19 Recession on the Jobs and Incomes of Persons of Color''
    (Groundwork Collaborative, May 13, 2020), https://
    groundworkcollaborative.org/wp-content/uploads/2020/05/Groundwork-
    Bernstein-Jones-paper_5.13.pdf; Megan Cassella, ``Black Workers,
    Hammered by Pandemic, Now Being Left Behind in Recovery,'' POLITICO,
    March 23, 2021, https://www.politico.com/
    news/2021/03/23/black-workers-pandemic-recovery-477640.
        \71\ Catherine Hill and Gretchen Livingston, ``Two Years into the
    Pandemic, Women Aged 65 and Older Had Yet to Recover Their COVID-
    Related Employment Losses'' (Women's Bureau, U.S. Department of Labor,
    (2021), https://www.dol.gov/sites/dolgov/files/WB/media/
    Two%20Years%20into%20the%20Pandemic_Women%20Ages%2065.pdf.
        \72\ Sarah Javaid and Brooke LePage, ``Despite Strong Job Gains in
    May, Black Women's Unemployment Rate Jumps Nearly a Full Percentage
    Point'' (National Women's Law Center, June 2023), https://nwlc.org/wp-
    content/uploads/2023/06/May-Jobs-Day-6.2.23v2.pdf.
        \73\ Ibid.

        With Federal relief expiring, families are struggling to make ends
    meet, with households of color and those with low and moderate incomes
    reporting larger declines in their financial well-being in 2022.\74\ In
    2022, a substantial minority of households were unable to cover their
    monthly bills in full, or would have been unable to meet an unexpected
    emergency of $400.\75\ There is also evidence that women of color
    continue to face higher rates of material hardship. In November 2022,
    nearly one in five Latinas and over one in seven Black women were in
    households that lost employment income, and nearly one in five Black
    women and over one in seven Latinas did not have enough food to
    eat.\76\ This exacerbates the pandemic's impact on mental health.
    ---------------------------------------------------------------------------
        \74\ The Federal Reserve, ``Economic Well-Being of U.S. Households
    in 2022'' (May 2023), https://www.federalreserve.gov/publications/
    files/2022-report-economic-well-being-us-households-202305.pdf.
        \75\ Ibid, 2.
        \76\ Sarah Javaid and Shengwei Sun, ``Lacking Robust Supports,
    Black, Non-Hispanic Women, Latinas, LGBT Adults, and Disabled Women
    Endure Persistent Hardship'' (National Women's Law Center, March 2023),
    https://nwlc.org/resource/lacking-robust-supports-black-non-hispanic-
    women-latinas-lgbt-adults-and-disabled-women-endure-persistent-
    hardship/.

        Between July 2021 and May 2022, one in three women had anxiety or
    depressive symptoms, and this share was much higher among women who did
    not have food, could not afford rent, or did not have child care.\77\
    ---------------------------------------------------------------------------
        \77\ Sarah Javaid, ``A Mental Health Epidemic: The COVID-19
    Pandemic's Effect on Anxiety and Depression Among Women and LGBT
    Adults'' (National Women's Law Center, 2022), https://nwlc.org/wp-
    content/uploads/2023/06/NWLC_Report_MentalHealthReport-1.pdf.

        Negative long-term effects of the pandemic on the incomes, wealth,
    health and well-being, and overall economic security of women,
    children, and families will likely continue to reveal themselves. For
    example, an estimated 245,000 children across the United States have
    been orphaned during COVID,\78\ and may well face significant mental
    health, educational, and financial needs in the coming years.
    Researchers have also found that long COVID is impacting people's
    employment \79\ and have estimated that people with long COVID face
    average additional health costs of about $9,000 per year.\80\ In
    addition, research suggests that younger workers entering the job
    market in a period of high unemployment, such as that which occurred
    during the pandemic, may experience reduced earnings for up to 10 years
    and reduced job mobility, both of which will affect lifetime
    earnings.\81\ Women can ill afford these reductions: based on today's
    wage gap, women will already lose almost $400,000 over a 40-year
    career, with the lifetime loss of earnings for Black women totaling
    nearly $1 million and the lifetime losses for Latinas exceed $1
    million.\82\ Moreover, many families exhausted their savings, fell
    behind on bills, or accrued debt.\83\ It will take time and resources
    for these families to dig themselves out of this financial hole, and
    the accumulated debt may impact their credit, and their future ability
    to purchase a car or a home, invest in their children's education, or
    save for their own retirement.
    ---------------------------------------------------------------------------
        \78\ Timothy Pratt, ``COVID has Left Thousands of U.S. Children
    Orphans. Few States are Addressing the Crisis,'' The Guardian, April 8,
    2023, https://www.theguardian.com/world/2023/apr/08/covid-orphans-us.
        \79\ New York State Insurance Fund, ``NYSIF Releases Report on
    Long-Term Impacts of COVID-19'' (January 24, 2023), https://
    ww3.nysif.com/en/FooterPages/Column1/AboutNYSIF
    /NYSIF_News/2023/20230124LongCovid.
        \80\ Greg Iacurci, ``Millions Suffer from Long COVID and It Costs
    Them $9,000 a Year in Health-care Expenses, on Average'' (CNBC,
    December 1, 2022), https://www.cnbc.com/2022/12/01/long-covid-costs-
    patients-an-average-9000-a-year-in-medical-expenses.html.
        \81\ Catherine Bosley, Max Reyes, Jeff Green, and Bloomberg, ``How
    Millennials Are Being Set Back by Back-to-Back Financial Crises,''
    Fortune, April 11, 2020, https://fortune.com/2020/04/11/millennials-
    coronavirus-great-recession-economy-personal-finance/; NY Times,
    ``Facing Adulthood With an Economic Disaster's Lasting Scars,'' May 19,
    2020, https://www.nytimes.com/2020/05/19/business/economy/coronavirus-
    young-old.html; Janet Adamy, ``Millennials Slammed by Second Financial
    Crisis Fall Even Further Behind,'' Wall Street Journal, August, 9,
    2020, https://www.wsj.com/articles/millennials-covid-financial-crisis-
    fall-behind-jobless-11596811470.
        \82\ National Women's Law Center, ``The Lifetime Wage Gap, State by
    State'' (March 2023), https://nwlc.org/resources/the-lifetime-wage-gap-
    state-by-state/.
        \83\ Kim Parker, Rachel Minkin, and Jesse Bennett, ``Economic
    Fallout From COVID-19 Continues to Hit Lower-Income Americans the
    Hardest'' (Pew Research Center, September 24, 2020).

        Accordingly, in order to reduce poverty and support families
    through the tax code, policymakers should reinstate the ARPA's
    ---------------------------------------------------------------------------
    expansions to the CTC, EITC, and CDCTC.

        In particular, the full refundability of the CTC should be a
    priority. The limits on the CTC's refundability exclude those who are
    most disadvantaged in the labor market--for example, those who face
    gender, racial, or other discrimination and harassment in the
    workplace, have work-limiting disabilities, have significant unpaid
    caregiving responsibilities, or experience extended spells of
    unemployment during a particular tax year. Permanently removing those
    limits would benefit households headed by women of color, who have
    higher poverty rates, face wide and persistent wage gaps, have limited
    access to caregiving supports, and are overrepresented in poorly paid
    jobs. Additionally, evidence from the ARPA showed that full
    refundability greatly reduces child poverty; it is estimated that full
    refundability drove 87 percent of the expanded CTC's anti-poverty
    impact in 2021.\84\ Restoring full refundability for the CTC would once
    again drive historic reductions in child poverty and ensure millions of
    children in low-income households could receive the full benefit of the
    CTC.\85\ One 2022 study estimated that restoring the ARPA's CTC
    expansions would increase the number of children eligible for the full
    credit from 64 percent to nearly 97 percent of all children, including
    98 percent of Black and Latinx children.\86\
    ---------------------------------------------------------------------------
        \84\ Chuck Marr, Kris Cox, and Arloc Sherman, ``Build Back Better's
    Child Tax Credit Changes Would Protect Millions From Poverty--
    Permanently'' (Center on Budget and Policy Priorities, November 2021),
    https://www.cbpp.org/research/federal-tax/build-back-betters-child-tax-
    credit-changes-would-protect-millions-
    from#::text=Altogether%20Build%20Back%20Better's%20Child,
    would%20be%20without%20the%20expansion.
        \85\ Gregory Acs and Kevin Werner, ``Expanding the Child Tax Credit
    Could Lift Millions of Children out of Poverty'' (Urban Institute, June
    2022), https://www.urban.org/sites/default/files/2022-06/expanding-the-
    child-tax-credit-could-lift-millions-of-children-out-of-poverty.pdf.
        \86\ Goldin and Michelmore, ``Who Benefits from the Child Tax
    Credit?''

        Policymakers should consider making the ARPA's other expansions to
    the CTC, which especially benefited women, households of color, and
    families with low incomes, permanent as well. For example, providing
    families with the option of monthly payments would help many families
    better manage their expenses, compared to waiting for a lump-sum
    payment after taxes are filed.\87\ In a national survey, 55 percent of
    respondents preferred the monthly payments compared to 26 percent who
    didn't (and 19 percent who did not know).\88\ Families with lower
    incomes were more likely to prefer the monthly payments, with survey
    responses indicating that the predictability and flexibility of the
    payments allowed these families to fill gaps in their budget and put
    the money toward their most pressing expenses.\89\ Women of color were
    especially likely to use the payments to pay for basic expenses, such
    as groceries and rent payments, and monthly cash payments are more
    useful than a lump sum delivered once yearly to meet such ongoing needs
    as they arise.\90\ The increased credit amounts for young children,
    moreover, will help ameliorate the impact of the higher costs of
    raising very young children--which show no signs of abating--on
    families with low and moderate incomes.
    ---------------------------------------------------------------------------
        \87\ Leah Hamilton, Stephen Roll, Mathieu Despard, Elaine Maag,
    Yung Chun, Laura Brugger, and Michal Grinstein-Weiss, ``The Impacts of
    the 2021 Expanded Child Tax Credit on Family Employment, Nutrition, and
    Financial Well-Being: Findings from the Social Policy Institute's Child
    Tax Credit Panel (Wave 2)'' (Brookings Institute, April 13, 2022),
    https://www.
    brookings.edu/research/the-impacts-of-the-2021-expanded-child-tax-
    credit-on-family-employment-nutrition-and-financial-well-being/.
        \88\ Amy Matsui, ``Families Prefer Receiving Monthly CTC Payments''
    (National Women's Law Center, January 14, 2022), https://nwlc.org/
    families-prefer-receiving-monthly-ctc-payments/.
        \89\ Elaine Maag and Michael Karpman, ``Many Adults with Lower
    Incomes Prefer Monthly Child Tax Credit Payments'' (Urban Institute,
    July 27, 2022), https://www.taxpolicycenter.org/publications/many-
    adults-lower-income-prefer-monthly-child-tax-credit-payments.
        \90\ LePage and Javaid, ``Black, Non-Hispanic Women.''

        Research conducted during the ARPA expansions found that the
    advance CTC payments allowed many parents to work more hours.\91\
    Moreover, the vast majority of families who received the monthly credit
    payments in 2021 did not work less than other families.\92\ A national
    survey found no statistically significant changes in employment between
    CTC-eligible households and CTC-ineligible households over the 6 months
    of advance CTC payments.\93\ Another analysis found that adults that
    received the CTC had similar changes to employment and hours of work
    from 2020 to 2021 as those who did not.\94\
    ---------------------------------------------------------------------------
        \91\ Humanity Forward and Washington University in St. Louis Social
    Policy Institute, ``Child Tax Credit: Promoting Work, Responsibility,
    and Economic Growth'' (September 2022), https://humanityforward.com/wp-
    content/uploads/2021/10/humanity-forward-report-9-17-1.pdf; Stephen
    Roll, Leah Hamilton, and Yung Chun, ``Expanded Child Tax Credit
    Payments Have Not Reduced Employment'' (Humanity Forward, January
    2022), https://humanityforward.com/wp-content/uploads/2022/01/CTC-and-
    Employment-012620221.pdf.
        \92\ Elizabeth Ananat, Benjamin Glasner, Christal Hamilton, and
    Zachary Parolin, ``Effects of the Expanded Child Tax Credit on
    Employment Outcomes: Evidence from Real-world Data from April to
    December 2021'' (National Bureau of Economic Research, March 2022),
    https://www.nber.org/system/files/working_papers/w29823/w29823.pdf.
        \93\ Leah Hamilton, Stephen Roll, Mathieu Despard, Elaine Maag,
    Yung Chun, Laura Brugger, and Michal Grinstein-Weiss, ``The Impacts of
    the 2021 Expanded Child Tax Credit on Family Employment, Nutrition, and
    Financial Well-Being: Findings from the Social Policy Institute's Child
    Tax Credit Panel (Wave 2)'' (Brookings Institute, 2022), https://
    www.brookings.edu/wp-content/uploads/2022/04/Child-Tax-Credit-Report-
    Final_Updated.pdf.
        \94\ Michael Karpman, Elaine Maag, Stephen Zuckerman, and Doug
    Wissoker, ``Child Tax Credit Recipients Experienced Larger Decline in
    Food Insecurity and a Similar Change in Employment as Nonrecipients
    between 2020 and 2021'' (Urban Institute, May 9, 2022), https://
    www.urban.org/research/publication/child-tax-credit-recipients-
    experienced-larger-decline-food-insecurity-and.

        Similarly, numerous studies have shown that making the CTC
    expansion permanent would not greatly impact employment. One 2022 study
    surveyed programs that provide benefits similar to the CTC--including
    the EITC and annual income supports in Alaska--and found that there is
    ``not much empirical evidence that moderately sized shocks to household
    income led to substantial declines in labor supply.'' The study further
    modeled the impact of a permanently expanded CTC and estimated that
    less than one percent of working parents would leave the workforce.\95\
    An Urban Institute study likewise estimated that any reduction of
    employment would be minimal and would not affect the credit's anti-
    poverty impact.\96\ Further, recent research by Barnard College,
    Columbia University, and the Open Sky Policy Institute estimates that
    making the ARPA CTC expansions permanent would provide $982 billion in
    social benefits by improving children's future earnings, health, and
    longevity, outweighing any losses from employment reductions and
    translating into up to 10 dollars of social benefit for every dollar
    invested in the CTC.\97\ Given the positive effects of the expanded CTC
    on children, families, and society more broadly, expanding this policy
    is warranted.
    ---------------------------------------------------------------------------
        \95\ Jacob Goldin, Elaine Maag, and Katherine Michelmore,
    ``Estimating the Net Fiscal Cost of a Child Tax Credit Expansion,'' Tax
    Policy and the Economy 36 (2022), https://www.journals.
    uchicago.edu/doi/abs/10.1086/
    718953?journalCode=tpe#::text=We%20find%20that%20making
    %20the,cost%20approximately%20%2421%20billion%20annually. Other studies
    modeling the employment impact of a permanent CTC have had similar
    findings. Jacob Bastian, ``How Would a Permanent 2021 Child Tax Credit
    Expansion Affect Poverty and Employment?'' (April 23, 2023), https://
    drive.google.com/file/d/1H5iNZZO_YFRIDz-3Tip4C-BpnD85bUjH/view; Alex
    Brill, Kyle Pomerleau, and Grant M. Seiter, ``CTC Labor Response''
    (2021), https://grantseiter.com/CTC-Labor-Response/content.html.
        \96\ Gregory Acs and Kevin Werner, ``How a Permanent Expansion of
    the Child Tax Credit Could Affect Poverty'' (Urban Institute, July 29,
    2021), https://www.urban.org/research/publication/how-permanent-
    expansion-child-tax-credit-could-affect-poverty.
        \97\ Garfinkel et al., ``The Benefits and Costs.''

        Restoring the ARPA's expansions to the EITC for workers not
    claiming children would also help many low-income households, among
    whom women and people of color are overrepresented. It is estimated
    that the expanded EITC would provide additional benefit to 17.4 million
    workers,\98\ including 5 million young workers. This group of younger
    workers is comprised of many young workers of color: nearly a million
    young Latinx individuals and 600,000 young Black people would have
    their incomes lifted by $765 million and $470 million in total EITC
    benefits, respectively.\99\ Additionally, 204,000 Black and 187,000
    Latinx workers over the age of 65 would have their EITC eligibility
    restored.\100\ The expansion would also benefit a broad range of women
    workers, including working mothers with older children, women workers
    caring for family members who are seniors or people with disabilities,
    and older women who are approaching retirement.
    ---------------------------------------------------------------------------
        \98\ Marr, ``Another Tax Day Message.''
        \99\ Aidan Davis, ``Federal EITC Enhancements Help More Than One in
    Three Young Workers'' (Institute on Taxation and Economic Policy,
    February 8, 2022), https://itep.org/federal-eitc-enhancements-help-
    more-than-one-in-three-young-workers/.
        \100\ LeaMond, ``An Age Cap.''

        Policymakers should also restore expansions to the CDCTC. Families
    with low and moderate incomes continue to struggle to access and afford
    child care in the absence of sustained public investments that would
    strengthen the fragile and inequitable child-care system. The lack of
    affordable, available child care has hampered women's return to the
    workforce.\101\ Reinstating some of the ARPA's improvements to the
    CDCTC, most especially refundability, would benefit families with
    children who are struggling to meet child care expenses. It should be
    noted that increased support to individual families through the tax
    code would not supplant the need for robust public investments in child
    care, home- and community-based services. While tax credits can relieve
    some of the financial burden of care, they alone cannot make care
    affordable nor build the needed supply and workforce to provide that
    care.\102\
    ---------------------------------------------------------------------------
        \101\ Liana Christin Landivar and Mark deWolf, ``Mothers'
    Employment Two Years Later: An Assessment of Employment Loss and
    Recovery During the COVID-19 Pandemic'' (U.S. Department of Labor, May
    2022), https://www.dol.gov/sites/dolgov/files/WB/media/Mothers-
    employment-2%20-years-later-may2022.pdf; Mitchell Hartman, ``Women's
    Return to Work a Stop-and-Start Struggle,'' Marketplace, October 6,
    2022, https://www.marketplace.org/2022/10/06/womens-return-to-work-a-
    stop-and-start-struggle/.
        \102\ Katherine Gallagher Robbins, Melissa Boteach, and Julie
    Kashen, ``Why Child Care Needs Direct Spending, Not Just Tax Credits,
    During COVID and Beyond'' (Center for Law and Social Policy, January
    28, 2021), https://www.clasp.org/publications/fact-sheet/child-care-
    direct-spending-tax-credits/; ``Cutting Costs for Women and Families
    Depends on Public Investments'' (National Women's Law Center, March
    2022), https://nwlc.org/wp-content/uploads/2022/03/PublicInvestmentFS-
    1.pdf.

        Finally, policymakers should restore and increase IRS funding--
    including the funding from the Inflation Reduction Act that was
    recently reduced. The IRS will need to hire and train staff and develop
    agency initiatives to improve experiences for taxpayers more generally,
    but specifically to help ensure that low- and moderate-income tax
    filers know about, and can access, tax benefits for which they are
    eligible. In addition, increasing funding for IRS enforcement with an
    emphasis on the wealthiest will ensure that the country is not deprived
    of tax revenues from unpaid taxes--an estimated $600 billion per year
    \103\--and that EITC claimants are not audited at disproportionate
    rates.\104\
    ---------------------------------------------------------------------------
        \103\ Julia Cusick, ``RELEASE: 88 Organizations Call for Stronger
    Tax Enforcement for Wealthy Individuals and Corporations'' (Center for
    American Progress, February 18, 2021), https://
    www.americanprogress.org/press/release/2021/02/18/496075/release-88-
    organizations-call-stronger-tax-enforcement-wealthy-
    individualscorporations/; Galen Hendricks and Seth Hanlon, ``Better Tax
    Enforcement Can Advance Fairness and Raise More than $1 Trillion of
    Revenue'' (Center for American Progress, April 19, 2021), https://
    www.americanprogress.org/issues/economy/reports/2021/04/19/498311/
    better-tax-enforcement-can-advance-fairness-raise1-trillion-revenue/.
        \104\ U.S. Government Accountability Office, ``Tax Compliance:
    Trends of IRS Audit Ratios and Results for Individual Taxpayers by
    Income'' (May 2022), https://www.decligao.gov/assets/gao-22-104960.pdf;
    Congressional Research Service, ``EITC Audits: By the Numbers'' (June
    13, 2022), https://crsreports.congress.gov/product/pdf/IN/IN11952.
    ---------------------------------------------------------------------------
                                   conclusion
        The evidence is clear that expanded refundable tax credits are a
    targeted and effective way to reduce poverty and support families
    through the tax code. While the ARPA expansions provided substantial
    relief to families in the depth of the COVID recession, decades of
    research, bolstered by recent evidence about the impact of the expanded
    credits in 2021, show the irrefutable benefit of these credits in all
    economic circumstances, especially for families with low and moderate
    incomes, families headed by women, and Black and Latinx families. For
    example, the Urban Institute estimates that in a typical year the
    expanded CTC, by itself, would reduce child poverty by over 40
    percent--and would cut Black child poverty in half.\105\ Moreover,
    expanded refundable tax credits can correct for systemic inequities--
    especially if combined with robust public investments in the care
    infrastructure, health care, affordable and accessible housing, and a
    livable wage.\106\ In short, women and families needed the expanded
    refundable tax credits before the pandemic, especially benefited from
    them in 2021 and 2022, and continue to need them today and in the
    foreseeable future.
    ---------------------------------------------------------------------------
        \105\ Gregory Acs and Kevin Werner, ``How a Permanent Expansion of
    the Child Tax Credit Could Affect Poverty'' (Urban Institute, July 29,
    2021), https://www.urban.org/research/publication/how-permanent-
    expansion-child-tax-credit-could-affect-poverty.
        \106\ Melissa Boteach, Amy K. Matsui, Indivar Dutta-Gupta, Kali
    Grant, Funke Aderonmu, and Rachel Black, ``A tax code for the Rest of
    Us: A Framework and Recommendations for Advancing Gender and Racial
    Equity Through Tax Credits'' (National Women's Law Center, November
    2019), https://nwlc.org/wp-content/uploads/2019/11/NWLC-GCPI-Tax-Code-
    for-the-Rest-of-Us-Nov14.pdf.

        Policymakers should reduce poverty and support families by
    expanding refundable tax credits that women and families rely on,
    ---------------------------------------------------------------------------
    following the successful model of the American Rescue Plan Act.

                                     ______

               Question Submitted for the Record to Amy K. Matsui
               Question Submitted by Hon. Catherine Cortez Masto
        Question. The Tax Cuts and Jobs Act of 2017 denied the Child Tax
    Credit to roughly 1 million low-income children in immigrant families
    who lack a Social Security number, even though their parents face
    payroll and other taxes on their income.

        These are some of the most in need children in our country. What is
    the long-term impact if these children are continued to be denied
    benefits?

        Answer. The Child Tax Credit (CTC) supports the economic security
    of families with children and lifts millions of children out of poverty
    every year; in 2018, the CTC lifted 2.3 million children above the
    poverty line.\1\ However, under current law, many children in immigrant
    families with low incomes cannot benefit from the credit at all.
    ---------------------------------------------------------------------------
        \1\ Center on Budget and Policy Priorities, ``Policy Basics: The
    Child Tax Credit'' (December 7, 2022), https://www.cbpp.org/research/
    federal-tax/the-child-tax-credit.

        The Tax Cuts and Jobs Act--signed into law in 2017--prohibits
    taxpayers from claiming children with Individual Tax Identification
    Numbers (ITINs) for the CTC. This prevents roughly 1 million children
    from receiving the credit, overwhelmingly ``Dreamers'' who were brought
    to this country by their parents,\2\ many of whom are Latinx.\3\ This
    prohibition is particularly harmful for immigrant families with low
    incomes and few resources, who may not be eligible to receive other
    income supports. Continuing to bar 1 million children from the anti-
    poverty impact of the CTC imperils their well-being over the long term.
    Poverty severely harms children's development.\4\ In contrast, numerous
    studies have found that refunds from refundable tax credits like the
    CTC improve children's well-being, health outcomes, and education
    outcomes. One study found that children whose families received a one-
    time benefit of $1,300 when they were infants experienced increased
    earnings in young adulthood.\5\
    ---------------------------------------------------------------------------
        \2\ Chye-Ching Huang, ``Fundamentally Flawed 2017 Tax Law Largely
    Leaves Low- and
    Moderate-Income Americans Behind'' (Center on Budget and Policy
    Priorities, February 2019), https://www.cbpp.org/federal-tax/
    fundamentally-flawed-2017-tax-law-largely-leaves-low-and-moderate-
    income-americans.
        \3\ Wyatt Clarke, Kimberly Turner, and Lina Guzman, ``One Quarter
    of Hispanic Children in the United States Have an Unauthorized
    Immigrant Parent'' (National Research Center on Hispanic Children and
    Families, October 2017), https://www.hispanicresearchcenter.org/wp-
    content/uploads/2019/08/Hispanic-Center-Undocumented-Brief-FINAL-
    V21.pdf.
        \4\ Nicole L. Hair, Jamie L. Hanson, Barbara L. Wolfe, and Seth D.
    Pollak, ``Association of Child Poverty, Brain Development, and Academic
    Achievement,'' JAMA 169, no. 9 (2015), https://www.ncbi.nlm.nih.gov/
    pmc/articles/PMC4687959/.
        \5\ Andrew Barr, Jonathan Eggleston, and Alexander A. Smith,
    ``Investing in Infants: The Lasting Effects of Cash Transfers to New
    Families,'' The Quarterly Journal of Economics 137, no. 4 (2022),
    https://academic.oup.com/qje/article-abstract/137/4/2539/6571263.

        The American Rescue Plan Act's temporary expansion made the CTC's
    anti-
    poverty impact even more tremendous, reducing child poverty by about 30
    percent during the 6 months of 2021 when the payments were being
    issued. As the Congress considers expansions to the CTC, policymakers
    should ensure that children with ITINs are no longer left out of the
    credit. Children's immigration status should not exclude them from
    benefits that might lift them out poverty and improve their lives, as
    well as support their families, communities, and the economy as a
    ---------------------------------------------------------------------------
    whole.

                                     ______

       Prepared Statement of Bruce D. Meyer, Ph.D., McCormick Foundation
     Professor, Harris School of Public Policy, University of Chicago; and
             Nonresident Fellow, American Enterprise Institute \1\
    ---------------------------------------------------------------------------
        \1\ The American Enterprise Institute (AEI) is a nonpartisan,
    nonprofit, 501(c)(3) educational organization and does not take
    institutional positions on any issues. The views expressed in this
    testimony are those of the author.
    ---------------------------------------------------------------------------
        Chairman Wyden, Ranking Member Crapo, and distinguished members of
    committee, thank you for the opportunity to testify. My name is Bruce
    D. Meyer, and I am the McCormick Foundation Professor of Public Policy
    at the University of Chicago Harris School of Public Policy.

        I have spent 40 years researching the effects of government
    programs for those suffering disadvantage or with low incomes. My
    approach is to see what the facts say, not presuppose answers to policy
    questions. While I am testifying on behalf of the Republican minority,
    I am not a partisan individual. Federal Election Commission data will
    tell you that I have never donated to Republicans and frequently
    donated to Democrats. I was proud to work with a little-known Illinois
    State Senator in the late 1990s, Barack Obama, to pass a State Earned
    Income Tax Credit because my research suggested that such a credit
    would reduce poverty and encourage work at the same time.\2\ I thought
    it was a good use of evidence when President Clinton cited that same
    research.\3\ President Clinton also signed bipartisan legislation to
    convert a welfare system that discouraged work and prolonged poverty
    into one that promoted work and financial independence.\4\ Times have
    changed. This legislative body came within a vote of reversing the pro-
    work incentives of the existing Child Tax Credit (CTC). I am
    specifically talking about the replacement of the CTC with a child
    allowance as included in Build Back Better Act of 2021 and other
    proposals. Such proposals would largely reverse the bipartisan welfare
    reforms of the 1990s that encouraged work, reduced poverty, and
    encouraged responsible parenting. I refer specifically to proposals
    that would make the CTC completely refundable as a child allowance,
    essentially converting the CTC from a credit against taxes to a cash
    welfare program administered by the Internal Revenue Service,
    conditioned neither on work nor payment of taxes.
    ---------------------------------------------------------------------------
        \2\ ``Make Work Pay in Illinois,'' a 2000 video promoting an
    Illinois State Earned Income Tax Credit featuring Bruce Meyer, Barack
    Obama, and others, https://voices.uchicago.edu/brucemeyer/media/.
        \3\ Bruce D. Meyer and Dan T. Rosenbaum, 2001, ``Welfare, the
    Earned Income Tax Credit, and the Labor Supply of Single Mothers.'' The
    Quarterly Journal of Economics 116 (3); and Bruce D. Meyer and Dan T.
    Rosenbaum, 2000, ``Making Single Mothers Work: Recent Tax and Welfare
    Policy and Its Effects.'' National Tax Journal 53, 1027-1062.
        \4\ President Clinton's statement on the Personal Responsibility
    and Work Opportunity Act of 1996: ``A long time ago I concluded that
    the current welfare system undermines the basic values of work,
    responsibility, and family, trapping generation after generation in
    dependency and hurting the very people it was designed to help.''
    https://www.nytimes.com/1996/08/01/us/text-of-president-clinton-s-
    announcement-on-welfare-legislation.html

        Times have changed, but I do not believe I have, except to
    acknowledge that the evidence in favor of pro-work social policy has
    only gotten stronger. I believe it is my responsibility to push back
    against policy changes that have been advocated on the basis of limited
    and faulty evidence. In my testimony today, I will summarize the
    historical evidence on policies supporting low-income individuals and
    families; describe the likely impacts of the proposed child allowance;
    and argue that there are pronounced weaknesses in the evidence
    underpinning support for such an allowance.
                       history provides the best evidence
        The best evidence on the likely effects of proposed tax and benefit
    changes comes from similar changes in the past affecting the same
    population. Large policy changes make determining the causal impact of
    policy changes more obvious as other factors become relatively less
    important. Examining the responses over many years is more likely to
    show the long run effects after the target population has understood
    and responded to the policy changes. Some of the social trends that are
    crucial likely involve changing norms that may take decades to be fully
    evident.\5\
    ---------------------------------------------------------------------------
        \5\ Thomas J. Nechyba, 2001, ``Social approval, values, and AFDC: A
    reexamination of the illegitimacy debate.'' Journal of Political
    Economy 109, no. 3 (January): 637-72. https://doi.org/10.1086/321020.
    ---------------------------------------------------------------------------
    Welfare Reform Increased Work, Raised Living Standards, and Reduced
            Poverty
        During the 1990s a series of policy changes shifted the emphasis of
    support from unconditional cash assistance to assistance conditioned on
    work for most single mothers.\6\ While much of the attention is on
    PRWORA, other policy changes during this time also increased the
    incentives to work, including significant expansions to the Earned
    Income Tax Credit (EITC) between 1990 and 1996.\7\ Collectively, these
    policy changes served to increase work effort, raise incomes and living
    standards, and reduce poverty, particularly among low-education single
    mothers, those most likely to be affected by these changes.
    ---------------------------------------------------------------------------
        \6\ For detailed discussions of these policy changes, see Grogger
    and Karoly (2005) and Ziliak (2016).
        \7\ Other relevant policy changes include expanded childcare and
    job training as well as other noncash assistance. In addition, policies
    that significantly impacted single mothers continued to be implemented
    during and well after the welfare reform period, including expansions
    in Medicaid, the introduction of the Child Tax Credit in 1997, allowing
    a portion of the CTC to be refundable in 2001, expanded access to
    health insurance through the ACA, as well as other changes in tax and
    transfer policy. Some of these policies reduce work incentives, such as
    the refundability of the CTC and the expanded availability of health
    insurance through Medicaid without work.
    ---------------------------------------------------------------------------
                Employment
        A number of studies have shown a direct tie between the replacement
    of Aid to Families with Dependent Children (AFDC) with Temporary
    Assistance to Needy Families (TANF) as well as expansions of the
    generosity of the EITC in the 1990s and the employment of single
    mothers.\8\
    ---------------------------------------------------------------------------
        \8\ Bruce D. Meyer and Dan T. Rosenbaum, 2001, ``Welfare, the
    Earned Income Tax Credit, and the Labor Supply of Single Mothers.'' The
    Quarterly Journal of Economics 116 (3); Bruce D. Meyer and Dan T.
    Rosenbaum, 2000, ``Making Single Mothers Work: Recent Tax and Welfare
    Policy and Its Effects.'' National Tax Journal 53, 1027-1062; Jeffrey
    Grogger, 2003, ``The Effects of Time Limits, the EITC, and Other Policy
    Changes on Welfare Use, Work, and Income among Female-Headed
    Families.'' Review of Economics and Statistics 85 (2): 394-408; Diane
    Whitmore Schanzenbach and Michael Strain. 2020. ``Employment Effects of
    the Earned Income Tax Credit: Taking the Long View.'' w28041.
    Cambridge, MA: National Bureau of Economic Research; Henrik Kleven,
    2019, ``The EITC and the Extensive Margin: A Reappraisal.'' w26405.
    Cambridge, MA: National Bureau of Economic Research.

        This link is evident in Figure 1, which reports the fraction of
    single mothers that were employed at any point in the year by
    educational attainment. The most striking feature of these patterns is
    the 1990s sharp rise in employment rates for single mothers without a
    high school degree--the group most likely to be affected by welfare
    reform, the EITC, or the replacement of the CTC with a child allowance.
    The changes largely take place between 1990 and 1999--a period that
    spans the largest EITC expansions and welfare reform as well as other
    pro-work policies. There are only small changes in other periods prior
    to and after the period of welfare reform and EITC expansion. This
    pattern of rising employment in the 1990s is also evident, but to a
    much lesser extent, for single mothers with a high school degree or
    some college. Past work has shown that this rise in employment for low-
    educated single mothers contrasts sharply with the pattern for
    childless single women.\9\ There was some reduction in employment for
    these groups in the 2000s that mirrored the changes for other groups,
    such as single women without children, but most of the increase in
    employment was permanent. For single mothers with a college degree,
    however, the employment rates have been both higher and remarkably flat
    over the past 35 years. Overall, between 1990 and 1999, the employment
    of single mothers rose by 1.2 to 1.4 million people.\10\
    ---------------------------------------------------------------------------
        \9\ Bruce D. Meyer, 2010, ``The Effects of the Earned Income Tax
    Credit and Recent Reforms.'' Tax Policy and the Economy 24 (1): 153-80;
    Robert Moffitt and Stephanie Garlow, 2018, ``Did Welfare Reform
    Increase Employment and Reduce Poverty?'' Stanford Center on Poverty
    and Inequality.
        \10\ Jeehoon Han, Bruce D. Meyer, and James X. Sullivan, NTJ 2021.
    The range of estimates is due to a choice of whether to control for the
    education of single mothers (which greatly increased over this period)
    or not, and if so, what year to use for the base year distribution.
    Some of this increase is likely due to the improvement in economic
    conditions over this period, but not a large share given the lack of
    reversion to lower employment during the recessions of the 2000s.
    ---------------------------------------------------------------------------
                Living Standards
        While this sizeable and permanent increase in involvement in the
    labor market led to increased earnings for single mothers, it is not
    immediately clear whether the increase in employment led to
    improvements in economic well-being given the sharp decline in the
    receipt of cash welfare, as well as other concerns such as the greater
    need for childcare due to increased work. The evidence is that living
    standards at the bottom did increase substantially, as indicated by
    both consumption and income measures that account for survey
    underreporting. Furthermore, when one accounts for the underreporting
    of transfers by either using consumption measures of well-being or
    relying on broader measures of income, researchers have found that
    poverty fell and well-being at the bottom rose following welfare
    reform.\11\ Han, Meyer, and Sullivan (2021) find that what single
    mothers could afford in terms of housing, food, clothing and other
    goods--their consumption--rose sharply. Consumption on average rose for
    low-educated single mothers over time, in both absolute terms and
    relative to comparison groups of highly educated single mothers, single
    women without children, and married mothers. Even those with the fewest
    resources tended to fair better, as consumption for those at low
    percentiles of the consumption distribution for single mothers rose
    more than those at middle or high percentiles. While looking at what
    individuals were actually able to afford might be preferred given the
    underreporting of income in surveys,\12\ evidence from income data also
    is consistent with these spending patterns. When joined with
    administrative data to reduce underreporting problems, survey income
    data show that for single mothers over this period there was a
    reduction in poverty and deep poverty consistent with the consumption
    evidence.\13\ Other research has supported this conclusion.\14\
    ---------------------------------------------------------------------------
        \11\ Bruce D. Meyer and James X. Sullivan, 2008, ``Changes in the
    Consumption, Income, and Well-Being of Single Mother Headed Families.''
    American Economic Review 98 (5): 2221-41; Scott Winship, 2016,
    ``Poverty after Welfare Reform.'' Washington, DC: Manhattan Institute;
    Jeehoon Han, Bruce D. Meyer, and James X. Sullivan, 2021, ``The
    Consumption, Income, and Well-Being of Single Mother-Headed Families 25
    Years After Welfare Reform.'' National Tax Journal, September.
        \12\ Bruce D. Meyer and Wallace K.C. Mok, 2015, ``Household Surveys
    in Crisis.'' Journal of Economic Perspectives, 29(4), 199-226; Meyer,
    Mok and Sullivan. Bruce D. Meyer and Nikolas Mittag. 2019. ``Using
    Linked Survey and Administrative Data to Better Measure Income:
    Implications for Poverty, Program Effectiveness and Holes in the Safety
    Net.'' American Economic Journal: Applied Economics, 11(2): 176-204.
        \13\ Kevin Corinth, Bruce D. Meyer, and Derek Wu, 2022, ``The
    Change in Poverty from 1995 to 2016 Among Single-Parent Families.''
    American Economic Association Papers and Proceedings, 112: 345-350;
    Bruce D. Meyer, Derek Wu, Victoria Mooers, and Carla Medalia, 2021,
    ``The Use and Misuse of Income Data and Extreme Poverty in the United
    States.'' Journal of Labor Economics 39 (S1): S5-58 find that the
    extreme poverty rate was so low after welfare reform for families with
    children that it could not have substantially increased after welfare
    reform.
        \14\ Richard V. Burkhauser, Kevin Corinth, James Elwell, and Jeff
    Larrimore, forthcoming, ``Evaluating the Success of the War on Poverty
    Since 1963 Using an Absolute Full-Income Poverty Measure.'' Journal of
    Political Economy (forthcoming), https://doi.org/10.1086/725705, and
    Dana Thomson, Renee Ryberg, Kristen Harper, James Fuller, Katherine
    Paschall, Jody Franklin, and Lina Guzman, 2023, ``Lessons From a
    Historic Decline in Child Poverty, Child Trends.''
    ---------------------------------------------------------------------------
                Poverty
        The decline in poverty for single mothers due to their increased
    connection to work is one of the most pronounced successes in poverty
    reduction over the last 50 years. The fall in poverty for other
    demographic groups over this period has been due to increased receipt
    of government benefits. Single mothers, on the other hand, have seen
    large improvements in their living standards due to their own efforts
    complemented by government work supports like the EITC and CTC.\15\
    ---------------------------------------------------------------------------
        \15\ Richard V. Burkhauser, Kevin Corinth, James Elwell, and Jeff
    Larrimore, forthcoming, ``Evaluating the Success of the War on Poverty
    Since 1963 Using an Absolute Full-Income Poverty Measure.'' Journal of
    Political Economy (forthcoming), https://doi.org/10.1086/725705.

        Finally, I note that the current safety net still has many safety
    valves for those unable to work. Currently, over 1.9 million
    individuals receive TANF, 41 million individuals receive SNAP and 8.5
    million individuals receive Supplemental Security Income (SSI), to name
    a few programs. Not everyone should be expected to work. However, we
    learned in the 1990s that more people could work than many thought
    possible.
    Welfare Reform Was Associated With a Decline in Single Parenthood
        Figure 2 reproduces a figure from the U.S. Census Bureau on the
    living arrangements of children in the U.S. since 1960. Note the
    decline in the share of those living with two parents. Expressed in a
    more telling way, there was a tripling of the share of children living
    without two parents between 1960 and the early 1990s. In the following
    years, the pattern was essentially flat, with a decline in the share
    without two parent in the first decade of the 2000s. Thus, the share of
    children with a single parent stabilized and then started to fall after
    welfare reform, reversing a more than 30-year trend.\16\ While the
    evidence on causal links here is less definitive, the time pattern is
    strongly suggestive. It is also consistent with the empirical evidence
    that economic incentives have an influence on marriage decisions.\17\
    ---------------------------------------------------------------------------
        \16\ See https://www.census.gov/data/tables/time-series/demo/
    families/children.html. A good visual summary is provided by https://
    www.census.gov/content/dam/Census/library/visualizations/time-series/
    demo/families-and-households/ch-1.pdf.
        \17\ Melissa S. Kearney, ``The Two-Parent Privilege,'' University
    of Chicago Press, forthcoming 2023.

      the institution of a child allowance would largely reverse welfare
                                     reform
        I begin by comparing the magnitude of the changes in incentives
    under proposals such as the Build Back Better Act of 2021 that would
    replace the current Child Tax Credit with a child allowance to the
    changes instituted under welfare reform in the 1990s.
    Work Incentives
        Welfare reform had many features, but the two most salient were the
    expansion of the EITC which increased the financial return to work, and
    the elimination of unconditional cash aid under the TANF program. The
    replacement of the CTC with a child allowance incorporates these two
    main features of welfare reform, but in the opposite direction,
    reducing the financial return to work and providing unconditional cash
    aid with no restriction to an even larger group than under the former
    AFDC program.

        To interpret the applicability of the experience of welfare reform
    to the change to a child allowance, it is helpful to scale the relative
    size of the changes in work incentives and unconditional aid. In 1990,
    AFDC provided aid to 3.8 million adults and their children in a typical
    month, but the number had declined to 1.9 million by 1999.\18\ Thus,
    the number of adults receiving aid declined by about 1.9 million. The
    child allowance would reach several multiples of that count, including
    about 9.6 million single parents, excluding cohabiting couples.\19\
    Under the pre-PRWORA welfare system, a nonworking single parent with
    two children in January of 1996 received 846-1484 dollars monthly from
    AFDC and Food Stamps (in 2023 dollars, depending on the which of the
    lower 48 States in which they lived). In 2023, the child allowance plus
    SNAP benefit (the replacement for Food Stamps) would have been higher
    even after accounting for inflation than the old welfare benefits in 32
    States and the District of Columbia. These States with higher benefits
    for nonworking families contained 63 percent of the 2020 population.
    These benefits for families with a nonworking head would be in addition
    to those under PRWORA, housing assistance and other programs. The cash
    assistance provided by the IRS through a child allowance would be much
    more widely available and more taken advantage of than AFDC given its
    ease of receipt and universality. However, it should be noted that a
    child allowance would not bring back the high implicit marginal tax
    rates under AFDC that applied to many more recipients prior to welfare
    reform than after.
    ---------------------------------------------------------------------------
        \18\ U.S. Department of Health and Human Services. 2004a.
    ``Caseload Data 1990 (AFDC Total).'' Office of the Administration for
    Children and Families.
        \19\ United States Census Bureau. 2020. ``America's Families and
    Living Arrangements: 2020.''

        The relative size of the EITC and child allowance work incentives
    can be seen in Figure 3. The figure reports the EITC incentives to work
    for a single parent with two children as well as the incentives of the
    CTC that would be reversed by a child allowance. The CTC work
    incentives are a substantial share of the EITC incentives at very low
    earnings, and exceed EITC incentives at earnings above $30,000. But
    this figure for the EITC in 2021 reflects increases in the EITC prior
    to 1990 to which we cannot attribute the increase in employment of
    single mothers in the 1990s. In 1990 the maximum credit was already
    $1,934 (in 2021 dollars) compared to the $5,920 in Figure 3. Thus, the
    change in the EITC incentives (along with TANF changes) during the
    1990s were only a share of the EITC incentives indicated in Figure 3
    and more comparable to the CTC work incentives that would be eliminated
    by the change to a child allowance available for nonworkers.
    Employment and Poverty
        While the visual evidence is fairly compelling, a large body of
    evidence concludes that some combination of welfare reform and EITC
    expansions were responsible for the large rise in employment among
    single mothers during the 1990s, beyond the effect of a strong
    economy.\20\ While there is some argument as to the relative importance
    of the EITC and welfare reform there is no argument that the combined
    change in policies was responsible for the increase in employment.
    Whether thought of as reversing welfare reform or eliminating a program
    similar to the EITC, the change to a child allowance could be expected
    to reverse most or all of the employment gains of the 1990s.
    ---------------------------------------------------------------------------
        \20\ Bruce D. Meyer and Dan T. Rosenbaum, 2001, ``Welfare, the
    Earned Income Tax Credit, and the Labor Supply of Single Mothers.'' The
    Quarterly Journal of Economics 116 (3); Jeffrey Grogger, 2003, ``The
    Effects of Time Limits, the EITC, and Other Policy Changes on Welfare
    Use, Work, and Income among Female-Headed Families.'' Review of
    Economics and Statistics 85 (2): 394-408; Diane Whitmore Schanzenbach
    and Michael Strain. 2020. ``Employment Effects of the Earned Income Tax
    Credit: Taking the Long View.'' w28041. Cambridge, MA: National Bureau
    of Economic Research; Henrik Kleven, 2019, ``The EITC and the Extensive
    Margin: A Reappraisal.'' w26405. Cambridge, MA: National Bureau of
    Economic Research.

        The similarity of replacing the CTC with a child allowance to
    reversing the welfare reforms of the 1990s has implications for the
    effects of the child allowance on poverty. If bringing back
    unconditional cash aid and eliminating substantial work incentives can
    be thought of as reversing welfare reform, it would likely undo the
    beneficial effects of welfare reform on poverty.
        the case for a child allowance has been based on faulty evidence
    Forecasted Effects on Work and Poverty
        The CTC produces strong work incentives because the credit is
    generally available only to parents who work. Eliminating the CTC would
    therefore reduce employment participation by decreasing the return to
    work.\21\
    ---------------------------------------------------------------------------
        \21\ Replacing the CTC with a child allowance (akin to a universal
    basic income-type benefit for children) and increasing the maximum
    benefit amount would further reduce employment by increasing the
    incomes of all families working and nonworking (through what economists
    call an income effect).
    ---------------------------------------------------------------------------
                Work Incentives
        Rather than looking to the experience of welfare reform, a number
    of studies have forecasted the anti-poverty effects of replacing the
    CTC with a child allowance through simulations.\22\ In addition to
    relying solely on survey data, most of the studies do not incorporate
    the impact of the decline in work resulting from changes in the CTC
    when modeling impacts on income and poverty.\23\ The National Academy
    of Sciences (2019) analyzed the employment and hours effects of a
    similar policy and is often cited as evidence that the replacement of
    the CTC with a child allowance would have minimal employment
    effects.\24\ However, it omitted the effects on employment and poverty
    of eliminating the work incentives of the CTC, basing its calculations
    on a child allowance in its simplest form without preexisting work
    incentives. It included such work incentives when forecasting the
    effect of expanding the EITC. This gives the appearance of the NAS
    including employment effects when they supported policies it promoted,
    while excluding them when they made favored policies look less
    promising.
    ---------------------------------------------------------------------------
        \22\ These studies include Acs and Werner 2021; Brill, Pomerleau,
    and Seiter 2021; Collyer et al. 2021; Congressional Research Service
    2021; Marr et al. 2021.
        \23\ Following the insight of Corinth et al, some recent papers
    have responded by including labor supply responses on the participation
    margin, e.g., Goldin et al. and Bastian 2022, but they have tended to
    use a responsiveness to tax credits far from the central tendency of
    the work on tax credits for those with low incomes.
        \24\ One report notes: ``An expert panel convened by the National
    Academy of Sciences projected that under a child credit policy similar
    to the expanded Child Tax Credit, 99.5 percent of working parents would
    continue to work, and few would substantially reduce their hours''
    (Sherman, Marr, and Hingten 2021). Some previous studies simulating the
    anti-poverty effects of replacing the CTC with a child allowance cite
    the NAS report as a justification for not incorporating labor supply
    effects (e.g., Acs and Werner 2021; Collyer et al. 2021). A letter from
    462 economists submitted to congressional leaders on September 15, 2021
    argues that replacing the CTC with a child allowance would lead to
    minimal work reduction based on the NAS report, stating: ``Indeed, the
    panel of experts who reviewed this issue for the National Academy of
    Sciences concluded that a universal child allowance would have a
    negligible effect on employment.''
    ---------------------------------------------------------------------------
                Surveys Alone Are Insufficient to Measure Poverty
        Furthermore, relying on surveys alone to measure income may bias
    estimates of the anti-poverty effects of proposed policies. Survey-
    reported values of income have been found to understate true incomes
    for both market income sources and government benefits.\25\ This error
    can lead survey data to not only overstate the level of poverty but
    also understate the anti-poverty effects of existing government
    programs.\26\ To address the misreporting of income and other
    information in surveys, the Comprehensive Income Dataset (CID) links
    major household surveys with an extensive set of tax records and
    administrative government program data sources.\27\ The CID improves
    upon existing efforts to simulate proposed policies by calculating a
    more accurate distribution of baseline incomes, modeling the
    replacement of the CTC with a child allowance more accurately, and
    enabling more accurate comparisons of the child allowance to existing
    programs.
    ---------------------------------------------------------------------------
        \25\ See Adam Bee and Joshua Mitchell. 2017. ``Do Older Americans
    Have More Income Than We Think?'' SESHD Working Paper SESHD-WP2017-39.
    Bureau of the Census (U.S.) for the impact of underreporting of market
    income sources and Bruce D. Meyer and Nikolas Mittag. 2019. ``Using
    Linked Survey and Administrative Data to Better Measure Income:
    Implications for Poverty, Program Effectiveness, and Holes in the
    Safety Net.'' American Economic Journal: Applied Economics 11 (2): 176-
    204 for underreporting of government benefits.
        \26\ Bruce D. Meyer and Derek Wu. 2018. ``The Poverty Reduction of
    Social Security and Means-Tested Transfers.'' ILR Review 71 (5): 1106-
    53; Shantz, Katherine, and Liana E. Fox. 2018. ``Precision in
    Measurement: Using State-Level Supplemental Nutrition Assistance
    Program and Temporary Assistance for Needy Families Administrative
    Records and the Transfer Income Model (TRIM3) to Evaluate Poverty
    Measurement.'' Washington, DC: U.S. Census Bureau.
        \27\ Bruce D. Meyer, Derek Wu, Victoria Mooers, and Carla Medalia,
    2021, ``The Use and Misuse of Income Data and Extreme Poverty in the
    United States.'' Journal of Labor Economics 39 (S1): S5-58; Kevin
    Corinth, Bruce D. Meyer, and Derek Wu, 2022, ``The Change in Poverty
    from 1995 to 2016 Among Single-Parent Families.'' American Economic
    Association Papers and Proceedings, 112: 345-350.
    ---------------------------------------------------------------------------
                Simulations
        In simulating the effects of a child allowance on poverty, it is
    important to account for any resulting reductions in employment. While
    other behavioral responses may be important, such as changes in private
    transfers and living arrangements, the response for which we have the
    best evidence is labor supply. The most reliable way to simulate the
    employment effects of a change to a child allowance is by relying on
    values of the responsiveness to taxes that have been used by the NAS,
    the Congressional Budget Office, and are reported in academic surveys
    of the responsiveness of low-income individuals to tax credit changes.
    I report estimates here that use a degree of responsiveness that is in
    fact lower than that implied by some of the most notable studies.\28\
    ---------------------------------------------------------------------------
        \28\ See Appendix A of Kevin Corinth, Bruce D. Meyer, Matthew
    Stadnicki, and Derek Wu, 2022, ``The Anti-Poverty, Targeting, and Labor
    Supply Effects of Replacing a Child Tax Credit with a Child
    Allowance.'' NBER Working Paper 29366 (revised March 2022).

        In work with Corinth, Stadnicki, and Wu, I estimate that the
    decreased return to work would lead 1.32 million working parents to
    exit the labor force, while the income effect would reduce employment
    by a further 0.14 million, for a total employment loss of 1.46 million
    ---------------------------------------------------------------------------
    workers (constituting 2.6 percent of all working parents).

        Our estimate of employment loss due to the change to a child
    allowance differs markedly from the corresponding estimate in a 2019
    NAS report, which concludes that replacing the CTC with a child
    allowance similar to that proposed under the Build Back Better Act of
    2021 would reduce employment by 0.15 million workers.\29\ NAS (2019)
    obtains a much smaller employment reduction because it does not account
    for the decrease in the return to work, despite accounting for such an
    effect when analyzing reforms to the EITC. Instead, the NAS report only
    estimates employment loss due to an income effect, which is similar in
    magnitude to our estimate of the income effect. If the NAS had applied
    to the CTC the methods it used to simulate changes to the EITC, it
    would have found an estimate larger than ours.\30\
    ---------------------------------------------------------------------------
        \29\ National Academies of Sciences, Engineering, and Medicine.
    2019. A Roadmap to Reducing Child Poverty. Edited by Greg Duncan and
    Suzanne Le Menestrel. Washington, DC: National Academies Press.
        \30\ See Appendix B of Kevin Corinth, Bruce D. Meyer, Matthew
    Stadnicki, and Derek Wu, 2022, ``The Anti-Poverty, Targeting, and Labor
    Supply Effects of Replacing a Child Tax Credit with a Child
    Allowance.'' NBER Working Paper 29366 (revised March 2022).

        Additional evidence on the plausibility of our employment responses
    comes from the two studies that I am aware of that directly examine the
    employment effects of the CTC, a 2019 study by U.S. Treasury economist
    Kye Lippold \31\ and a 2022 working paper by Hyein Kang.\32\ Lippold
    estimates that when a child turns 17 and thus loses eligibility for the
    CTC--prior to the more generous TCJA version taking effect--low-income
    parents' probability of employment falls by 8.4 percentage points,
    implying a work responsiveness considerably larger than what we
    principally assumed in our simulations. Kang finds a responsiveness of
    single mothers' employment to the maximum CTC amount only slightly
    smaller than others have found for the maximum EITC benefit. She also
    finds a response of hours worked conditional on working at all.
    ---------------------------------------------------------------------------
        \31\ Kye Lippold. ``The Effects of the Child Tax Credit on Labor
    Supply.'' SSRN Electronic Journal, 2019.
        \32\ Hyein Kang, 2022, ``The Child Tax Credit and Labor Market
    Outcomes of Mothers,'' working paper, University of Kentucky, https://
    www.hyeinkang.com/uploads/1/3/9/3/139322079/jmp.pdf.

        My paper has generated some pushback. The arguments have generally
    been that we have assumed too high a responsiveness to taxes. In fact,
    our estimates tend to be lower than those of our most vociferous
    critics. The assumed responsiveness was lower than that used by the
    NAS. It is claimed that the responsiveness of individuals to taxes has
    fallen over time. However, the evidence is based on a decline since the
    early 1970s, not since the late 1980s and early 1990s from which most
    of the evidence is derived.\33\
    ---------------------------------------------------------------------------
        \33\ See Appendix A of Kevin Corinth, Bruce D. Meyer, Matthew
    Stadnicki, and Derek Wu, 2022, ``The Anti-Poverty, Targeting, and Labor
    Supply Effects of Replacing a Child Tax Credit with a Child
    Allowance.'' NBER Working Paper 29366 (revised March 2022).
    ---------------------------------------------------------------------------
                Implications of My Research
        Labor force exits due to the child allowance would have important
    implications for the anti-poverty effect of the policy change. Allowing
    for behavioral responses, we estimate that the effect of the change to
    a child allowance on child poverty would fall from 34 percent based on
    our simulation ignoring employment changes to at most 22 percent based
    on simulations allowing for a change in employment. Moreover, we
    estimate that replacing the CTC with a child allowance would have no
    effect on deep child poverty after allowing for labor supply responses,
    in stark contrast to the 39 percent reduction in deep poverty based on
    our simulation without employment changes.
    Evidence From the Advance CTC of 2021
        Monthly child allowance payments were made during the second half
    of 2021 under the American Rescue Plan Act. Many analyses of poverty
    and employment during this period have been done. This section
    discusses income, expenditures, and employment during the second half
    of 2021. One should keep in mind that given the temporary nature of the
    policy change, that it was likely poorly understood, and that
    individuals will likely change their behavior to a greater degree in
    the long run. Thus, analyses of this period should not be taken as the
    likely effects of a permanent child allowance. Long run responses would
    include changes in many behaviors including employment and living
    arrangements, as well as changes in support from fathers, other family
    members and boyfriends.
                Evidence of Poverty Reductions
        Two highly cited sources suggest a substantial short-run decline in
    poverty in response to the temporary institution of the monthly child
    allowance payments during the second half of 2021. Researchers at the
    Columbia University Center on Poverty and Social Policy (CPSP) have
    simulated an effect of a child allowance on monthly poverty. Their
    approach does not use any income data from 2021, but uses data from
    previous years to predict a monthly measure of poverty. They conclude
    that child poverty was 25-percent lower in July 2021 as the result of
    the CTC expansion.\34\ The CPSP researchers subsequently claimed that
    poverty rose by over 40 percent in January after the expiration of the
    monthly payments. These findings have been frequently cited by
    policymakers and the press in discussions of extending Advance CTC
    benefits. One of the key differences between the poverty measures that
    I emphasize is that the CPSP measure allows a very limited effect of
    behavioral responses to the substitution of a Child Tax Credit with a
    child allowance.
    ---------------------------------------------------------------------------
        \34\ See https://www.povertycenter.columbia.edu/publication/
    monthly-poverty-july-2021, https://www.povertycenter.columbia.edu/
    publication/monthly-poverty-january-2022, and https://www.nytimes.com/
    2022/05/02/opinion/child-tax-credit.html. 2021. ``The Initial Effects
    of the Expanded Child Tax Credit on Material Hardship.'' NBER Working
    Paper 29285. National Bureau of Economic Research, Cambridge, MA.

        The Census Bureau in its recent report indicates a large decline in
    poverty in response due to the CTC in 2021 using the Supplemental
    Poverty Measure (SPM).\35\ The Census Bureau also does not use a direct
    measure of income incorporating tax credits received in 2021 in this
    poverty measure. Rather, it attributes predicted income tax returns
    received during 2022 and applies them to 2021. Such an approach is not
    likely to induce large errors when tax returns received in a given year
    are similar to those received in the following year, but 2021 was not
    such a year. Furthermore, the Census imputations of taxes have been
    found to suffer from measurement error.\36\ While I suspect there has
    been a short-run decline in poverty due the expenditure of an
    additional $100 billion under ARPA to make the CTC completely
    refundable, the evidence is overstated as in much of the CTC debate.
    ---------------------------------------------------------------------------
        \35\ U.S. Census Bureau, Poverty in the U.S.: 2021, John Creamer,
    Emily A. Shrider, Kalee Burns, and Frances Chen, Report Number P60-277.
        \36\ Bruce D. Meyer, Grace Finley, Patrick Langetieg, Carla
    Medalia, Mark Payne, and Alan Plumley. 2020. ``The Accuracy of Tax
    Imputations: Estimating Tax Liabilities and Credits Using Linked Survey
    and Administrative Data.''
    ---------------------------------------------------------------------------
                Alternative Poverty Measures
        The two sources of direct evidence on cash income of households or
    their expenditures and consumption do not suggest sharp declines in
    poverty during the Advance CTC period. In particular, one can construct
    a measure of income poverty that can be updated on a monthly basis
    using reports of total money income received over the past 12 months
    from the Census Bureau survey that is the source of official employment
    statistics.\37\ This measure does clearly register other pandemic tax
    credits, specifically the Economic Impact Payments, but shows little
    effect of the Advance CTC.
    ---------------------------------------------------------------------------
        \37\ Han, Jeehoon, Bruce D. Meyer, and James X. Sullivan. 2021.
    ``The Consumption, Income, and Well-Being of Single Mother-Headed
    Families 25 Years After Welfare Reform.'' National Tax Journal,
    September.

        A second source of direct information does not require predicting
    income or taxes and comes from the Bureau of Labor Statistics. These
    consumption and expenditure poverty measures directly rely on
    individuals reports of the goods and services they were able to
    purchase for their families, rather than making an educated guess as to
    the resources that they have available. In Figure 4 I report quarterly
    measures of expenditure and consumption poverty. The expenditure
    measure is directly calculated from household responses as to the goods
    and services they purchased over a quarter. The consumption measure is
    largely based on actual expenditures, but it also incorporates a value
    of the service provided by the ownership of a home or a car, since the
    owner has their use without paying directly for them.\38\ This series
    again shows a fairly steady pattern of slow improvement in poverty
    during the years preceding and during the Advance CTC period of the
    second half of 2021.
    ---------------------------------------------------------------------------
        \38\ The methods are described in Bruce D. Meyer and James X.
    Sullivan, 2012, ``Winning the War: Poverty from the Great Society to
    the Great Recession.'' Brookings Papers on Economic Activity, Fall:
    133-200.
    ---------------------------------------------------------------------------
                Employment
        Short-run employment responses to the ARPA changes should have been
    small given incomplete understanding of the CTC incentives as well as
    other features of the changes. The 2021 changes also affected calendar
    year decisions for a year that was already in its third month when the
    policy was signed and implemented. It was also known to be temporary.
    Using CPS data, we examine changes in employment around the time of the
    CTC payments. We find a decline in the employment of adults with
    children (the group expected to be affected by the change in tax
    credits based on prior research) relative to those without children
    beginning shortly after the passage of the American Rescue Plan Act in
    March 2021. This decline is only apparent for those with a high school
    education or less. There is little change for those with at least some
    college education. The decline begins to reverse in the last quarter of
    2021, and by early 2022, the difference between those with and without
    children disappears. The magnitude of the change is about one-third of
    the long-run change we predicted, which does not seem unreasonable.

        There have been other analyses of employment changes with the
    temporary replacement of the CTC. There are important drawbacks to
    these studies that limit their usefulness. Two of the most-cited
    studies focus on the time after payments started (either July or August
    depending on the study) rather than March when the work incentives
    changed with full refundability.\39\ This misalignment of the measures
    with the policy changes is particularly problematic given that the
    program was temporary and available for only a short time. This
    mischaracterization of the work incentives also points to the
    difficulty of inferring long-run effects from a temporary program that
    was likely not well understood. One of these researchers also
    conditioned on a measure of the outcome, which makes the results
    unlikely to be valid.
    ---------------------------------------------------------------------------
        \39\ Elizabeth Ananat, Benjamin Glasner, Christal Hamilton, and
    Zachary Parolin. 2021. ``Effects of the Expanded Child Tax Credit on
    Employment Outcomes: Evidence from Real-World Data from April to
    September 2021.'' Poverty and Social Policy Discussion Paper, October;
    see Kevin Corinth and Bruce D. Meyer, 2021, ``A Note on Ananat,
    Glasner, Hamilton, and Parolin's, ``Effects of the Expanded Child Tax
    Credit on Employment Outcomes,'' Harris School of Public Policy,
    https://bpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/a/3122/files/
    2021/10/Note-on-Ananat-et-al-2021.pdf for a discussion of the
    additional weaknesses of the Ananat et al. paper; Brandon Enriquez,
    Damon Jones, and Ernest V. Tedeschi, 2023, ``The Short-Term Labor
    Supply Response to the Expanded Child Tax Credit.'' NBER Working Paper
    31110.
    ---------------------------------------------------------------------------
    Other Evidence of Potential Child Allowance Effects
        Potential long-run effects of the change to a child allowance are
    also important to consider alongside short-run effects. Increased
    support for low-income children could improve their long-run outcomes.
    Researchers have found that children's access to food stamps in the
    1960s and 1970s led to improved outcomes when they became adults,
    including higher earnings (though not increased employment), better
    health, less incarceration, and less dependence on welfare
    programs.\40\ Much of this evidence comes from a period when other
    safety net programs were much less generous than current aid, so the
    marginal effects might be lower today. Much of the recent evidence of
    positive long-term effects of income support comes from work on the
    EITC. Larger EITC payments for children have increased their
    educational attainment and their employment and earnings as adults.\41\
    But in the case of the EITC, the policy being examined is a combination
    of more income and higher employment through work incentives. That
    aspect of the CTC would be eliminated by a child allowance.
    ---------------------------------------------------------------------------
        \40\ Hilary Hoynes, Diane Whitmore Schanzenbach, and Douglas
    Almond. 2016. ``Long-Run Impacts of Childhood Access to the Safety
    Net.'' American Economic Review 106 (4): 903-34; Marianne Bitler and
    Theodore F. Figinski. 2019. ``Long-Run Effects of Food Assistance:
    Evidence from the Food Stamp Program.'' ESSPRI Working Paper Series.
    Economic Self-Sufficiency Policy Research Institute.
        \41\ Jacob Bastian and Katherine Michelmore. 2018. ``The Long-Term
    Impact of the Earned Income Tax Credit on Children's Education and
    Employment Outcomes.'' Journal of Labor Economics 36 (4): 1127-63;
    Andrew C. Barr, Jonathan Eggleston, and Alexander A. Smith, ``Investing
    in Infants: The Lasting Effects of Cash Transfers to New Families.''
    NBER Working Paper 30373.
    ---------------------------------------------------------------------------
                Changes in Single Parenthood
        The change to a child allowance could also affect behavior in less
    favorable ways, for example by changing rates of marriage or divorce.
    The most methodologically sound research on this topic has found large
    effects of unconditional aid on single parenthood.\42\ Consistent with
    this microdata evidence, the share of children with a single parent
    stabilized and then reversed after welfare reform, reversing a more
    than 30-year trend.\43\ Single parenthood has been found to lead to
    many negative outcomes, for example, to lower levels of educational
    attainment and higher incarceration rates of children in the long
    run.\44\
    ---------------------------------------------------------------------------
        \42\ Jeffrey Grogger and Stephen G. Bronars. 2001. ``The Effect of
    Welfare Payments on the Marriage and Fertility Behavior of Unwed
    Mothers: Results from a Twins Experiment.'' Journal of Political
    Economy 109 (3): 529-45.
        \43\ See https://www.census.gov/library/stories/2021/04/number-of-
    children-living-only-with-their-mothers-has-doubled-in-past-50-
    years.html.
        \44\ Saul D. Hoffman and Rebecca A. Maynard. 2008. Kids Having
    Kids: Economic Costs and Social Consequences of Teen Pregnancy, Second
    Edition. Washington, DC: The Urban Institute Press.
    ---------------------------------------------------------------------------
                The Child Allowance as a Universal Basic Income
        Replacement of CTC with child allowance can be thought of as
    instituting a universal basic income (UBI) for families with children.
    A broad group of liberal and conservative economists have opposed a
    UBI.\45\ The basic argument is that the current safety net targets
    those who are most in need while a UBI does not. A UBI would also be
    expensive. If the benefits are set so they are affordable, they do not
    provide sufficient benefits for the most need. If the benefit level is
    set high enough to serve those most in need, the program would be so
    costly that the taxes needed to finance it would sharply discourage
    work among the able, reducing the size of the pie to be shared. One of
    the most lucid presentations of this argument was written 40 years ago
    by the husband of the current Treasury Secretary.\46\ A child allowance
    has this feature as it is not well targeted and is expensive. It would
    reduce poverty at a higher cost than almost all other anti-poverty
    programs.\47\
    ---------------------------------------------------------------------------
        \45\ Recent statements of this case are Magne Mogstand and Melissa
    S. Kearney, 2019, ``Universal Basic Income (UBI) as a Policy Response
    to Current Challenges.'' Aspen Strategy Group; and Hilary Hoynes and
    Jesse Rothstein, 2019, ``Universal Basic Income in the United States
    and Advanced Countries.'' Annual Review of Economics, 11:929-958.
        \46\ George A. Akerloff, 1978, ``The Economics of `Tagging' as
    Applied to the Optimal Income Tax, Welfare Programs, and Manpower
    Planning,'' American Economic Review, 68 (1), March.
        \47\ Kevin Corinth, Bruce D. Meyer, Matthew Stadnicki, and Derek
    Wu, 2022, ``The Anti-
    Poverty, Targeting, and Labor Supply Effects of Replacing a Child Tax
    Credit with a Child Allowance.'' NBER Working Paper 29366 (revised
    March 2022).
    ---------------------------------------------------------------------------
                                  conclusions
        Social science tends to be inconclusive. I cannot tell you I am
    sure what is the right policy. But I do know that a child allowance has
    been sharply oversold by its proponents. We are in danger of going down
    the same road we did with AFDC, discouraging work, encouraging
    dependence. This route is not a long-run solution to poverty and risks
    encouraging the formation of family units that cannot adequately
    support their children. We are also potentially backing into universal
    unconditional benefits that have been widely rejected as expensive and
    poor targeted.

     [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                     __

                     Prepared Statement of Hon. Ron Wyden,
                           a U.S. Senator From Oregon
        The Finance Committee meets this morning to talk about tax policy
    tools for helping children and families climb the economic ladder.
    There are a lot of policy issues involved here, but in my view, it all
    comes down to one basic question.

        Congress has a proven strategy for lifting millions of American
    children out of poverty and ensuring their families have a stronger
    opportunity to get ahead. Should we act on it? In my view, that ought
    to be an easy call.

        The reality is, helping more Americans get ahead and encouraging
    people to work are not mutually exclusive. Those priorities go hand in
    hand, as the committee is going to hear firsthand today.

        First, a bit of recent history on this issue. In 2021 as part of
    the American Rescue Plan, Democrats in Congress passed landmark
    expansions of key sources of financial support for lower-income
    families. The Child Tax Credit got the biggest expansion. Previously it
    was worth $2,000 per child each year, and lower-income families who
    needed more help actually got less than higher-income families.

        After the expansion, the CTC gave families $3,600 for each child up
    to age 5 and $3,000 up to age 17. For the first time, Democrats made it
    fully refundable, which means the lowest-income taxpayers got the full
    value of the credit. No more discriminating against the most
    vulnerable.

        Democrats also modernized the system to pay out much of the credit
    in monthly installments rather than all at once during tax filing
    season. That gave families a reliable boost to their monthly take-home
    pay.

        The American Rescue Plan also expanded the Earned Income Tax Credit
    to encourage even more people to work, and it boosted the tax credit
    for child and dependent care. What was the effect of this expansion?
    According to researchers at Columbia University, expanding the CTC
    lifted 3.7 million American children out of poverty. Child hunger fell
    by nearly a quarter. And other research shows that when families escape
    poverty, kids are healthier, they do better in school, and their
    earnings are higher as adults.

        I'll share a few stories from Oregon. A single mother in Myrtle
    Creek wrote that she was finally able to save up enough to move her
    three kids out of a run-down apartment into a better home.

        A single mom in Portland wrote that she was relieved to be able to
    cover the bills and save enough to have a nice Christmas with her kids.

        Another mom in Eugene who lives with extended family wrote that she
    was finally able to save up for a place where she and her son could
    live on their own.

        Millions of people all across the country had their own stories
    like these. For the first time in a long time, maybe for the first time
    ever, they felt some financial relief. Unfortunately, these landmark
    enhancements to the tax code expired at the end of 2021. Congress has
    been unable to agree on fixing that, but Democrats are fighting to keep
    children out of poverty and help families get ahead.

        Today Senator Brown and Senator Bennet, who are some of the real
    champions of tax policy supporting children and families, are
    introducing the Working Families Tax Relief Act, which I'm proud to
    cosponsor. It would make the 2021 expansions of the Child Tax Credit
    and the Earned Income Tax Credit permanent. Today there are 19 million
    kids whose families don't currently get the full Child Tax Credit--
    disproportionately Black and Latino families. Under the Brown-Bennet
    proposal, those families would no longer get shortchanged. This is pro-
    family, pro-opportunity legislation. My view is that it ought to
    interest many more Senators than just Democrats.

        Republicans, however, argue that this kind of proposal actually
    discourages work. That claim just doesn't pass the smell test, nor is
    it backed by reliable research. Hundreds of economists have looked into
    this issue in the last few years. The Federal Reserve recently did too.
    The overwhelming majority of experts agree that the CTC expansion did
    not hurt employment in any meaningful way. In fact, in some cases, it
    actually helped more parents enter the labor force because it helped
    them pay for things like child care and transportation that are
    necessary prerequisites for holding a job.

        In July 2021, when the first payments under the expanded Child Tax
    Credit went out, the unemployment rate was 5.4 percent. In December of
    that year, after 6 monthly payments had gone out, the unemployment rate
    was 3.9 percent. It's awfully hard to see how the CTC kept people out
    of the workforce in 2021.

        There's also a big double standard at the heart of this Republican
    argument. If the tax system being less generous to low-income Americans
    encourages work and productivity, why doesn't the same logic apply to
    the wealthy? The reality is that all Americans want to work hard and
    provide for their families. That's part of what makes our country and
    our economy so dynamic and durable. This Republican double standard
    that punishes lower-income Americans and favors the wealthy, in the
    long run, only limits opportunity and makes it harder for a lot of
    people to get ahead. That's an issue that Democrats want to change.

        So there's a lot to discuss today. I want to thank our witnesses
    for being here, and I look forward to Q&A.

                                     ______

                                 Communications

                                  ----------

                            Center for Fiscal Equity

                            14448 Parkvale Road, #6

                           Rockville, Maryland 20853

                          fiscalequitycenter@yahoo.com

                        Statement of Michael G. Bindner

    Chairman Wyden and the Ranking Member Crapo, thank you for the
    opportunity to submit these comments for the record. These comments
    restate those made to the Ways and Means Work and Welfare Committee in
    March regarding work requirements. As you might guess from our prior
    comments from the record, we challenged the main assumption of the
    hearing.

    The short answer to using work to lift families out of poverty is to
    make work pay, which sounds like a good topic for a hearing before this
    Subcommittee. Indeed, there is a term for making people go to work for
    inadequate pay: slavery.

    First and foremost, wages must be adequate. In 2021, the House proposed
    increasing the minimum wage to $15 per hour as part of reconciliation.
    Until the Senate Parliamentarian ruled that this was out of order and
    the votes did not exist to overrule her, the Republican Minority
    counter-offered $10 per hour.

    American workers would appreciate putting that counter-offer back on
    the table, while ending the tipped wage subminimum rate. American
    customers are not nearly generous enough for this to be at all just.
    Wherever either (or both) options are proposed as ballot initiatives,
    they pass. In some states, higher minimums have been enacted and more
    economic activity, rather than less, has occurred. The reason is
    obvious--when lower income people have more income they spend it all
    back into the economy. When wealthier people get a tax cut, they take
    it out of the economy and into Wall Street speculation. The sad irony
    is that it is in the so-called ``Red States'' where the minimum wage
    has not been raised where the economy lags.

    Franchise holders have a history of paying low wages and justifying
    their opposition to wage increases because their wages would be
    squeezed out. This is not the case because, again, sales will increase
    to compensate. That being said, the conditions of franchise employment
    and franchise agreements deserve attention, as well as the tactic of
    using the franchise system to avoid unionization and paying for such
    things as health insurance. If the onus on providing health care and
    voting for representation is shifted to the franchisor, some firms will
    decide that turning franchise and gig employment into full-time
    employment is better. That would be a socially desirable outcome.

    The second way to make work pay is to increase the already existing
    Child Tax Credit. To increase the incentive to work and grow the
    economy, the credit must be made fully refundable. People do not seek
    out low wage jobs because the credit is too generous. Just the opposite
    is true. When family wages are adequate, people make investments in
    themselves, like further education and skills training, so that they
    can move up the economic ladder.

    The President's Budget proposes that the Child Tax Credits enacted as
    part of the American Recovery Plan Act be restored. During that period,
    payment of the Child Tax Credit was in advance of the annual tax
    filing. This is appropriate and will change the culture of such
    credits, which should be for continuing support, not an annual bonus.

    We agree with increasing the CTC to at least American Rescue Plan Act
    levels and refundability. We would make it $1,000 per month and phase
    it out from the median income to the 90th percentile. During the
    pandemic, the IRS managed payments. This had the ``stink of welfare''
    that even some Democratic Senators objected to, which led to its
    discontinuance.

    I submit that, over the long term, it would be more acceptable to
    distribute them either through other government subsidies, such as
    Unemployment Insurance, Disability Insurance, or a training stipend OR
    through wages.

    For middle-income taxpayers whose increased credits are less than their
    annual tax obligation, a simple change in withholding tables is
    adequate. Procedures are already in place to deliver refundable credits
    to larger families.

    Employers can work with their bankers to increase funds for payroll
    throughout the year while requiring less money for their quarterly tax
    payments (or estimated taxes) to the IRS. The main issue is working out
    those situations where employers owe less than they pay out. This is
    especially true for labor intensive industries and even more so for low
    wage employers. A higher minimum wage would make negative quarterly tax
    bills less likely.

    Tax reform can be used to facilitate this process. Instead of having
    each family file to collect their Child Tax Credits and EITC (as an end
    of the year bonus), enact an employer-paid subtraction value-added tax
    and make Child Tax Credits and health insurance tax benefits an offset
    to the payment of this tax and remove most families from having to file
    at all. Tax offsets could also be created to fund paid family medical
    leave, sick leave and childcare provided through employers.

    Please see the attachment for the latest details of our tax reform
    plan. This approach is superior to the prebate mechanism proposed for
    the Fair Tax and for the same reason. The government should not be the
    national paymaster for every family.

    When I graduated from Loras College and began graduate studies at the
    American University, the Washington Area Consortium of Universities
    held a conference on poverty. Every speaker in every topic area cited
    education as the key avenue to upward mobility.

    Poor people need to work longer hours to make ends meet. Their
    opportunity costs to seek education are, therefore, high because
    education cost is competing with food and shelter (both of which are
    inadequate for workers and their families at current wage levels). If
    the Subcommittee is serious about getting people to work their way out
    of poverty, it must give them the tools to do so, which means paid
    educational opportunity.

    Providing minimum wage pay to attend school will assure that, when the
    wage is increased, those without skills will not be priced out of the
    economy--as some fear when opposing raising the wage. One reason to
    raise the minimum wage is precisely so no one lives only on their Child
    Tax Credit proceeds. There are some in both parties who believe that
    the Child Tax Credit should have a work requirement. I agree if that
    work includes being paid to go to school.

    Paid training must be provided to those whom the education system and
    the former culture of dependency has failed. The caricature of the
    welfare cheat was never reality, however those who were and are trapped
    in poverty usually have educational deficits, as well as a history of
    family incarceration due to the war on drugs and its disproportionate
    penalties for Black and Hispanic men.

    Paid training must not only make failed students whole, but advance all
    students to either vocational training or the completion of the first
    two years of college (both community and residential). Students with
    families would also receive the Child Tax Credit. In either case,
    wages, the CTC payment, health insurance (rather than Medicaid) and any
    social services, should be delivered through the training provider.

    English as a Second Language should not only be free, but workers
    should be paid to attend, irrespective of immigration status. Part-time
    workers should also be eligible for this benefit.

    Technical training should be covered as well at both public and
    accredited private schools, including religious schools. In Espinoza v.
    Montana, prohibitions on funding private schools (Blaine Amendments)
    were found to be unconstitutional. New (and existing) funding should
    reflect that fact.

    The homeless find it impossible to get jobs and hard to get benefits.
    This is why the ``housing first'' approach is essential to getting
    people back into the workforce or to channel them into the appropriate
    educational program--including those associated with drug court and
    disability insurance. Such individuals should be required to attend
    either long-term recovery programs, occupational therapy or psychiatric
    rehabilitation programs--but be paid to do so.

    With a higher minimum wage, payment for training and rehabilitation and
    a decent sized Child Tax Credit, housing will be affordable without
    additional subsidies (save possibly for those with permanent
    disability--but even they should be paid to attend training and such
    training should not be time limited by payment through Medicaid).

    What will society gain for all of this generosity, aside from higher
    economic growth? This should be obvious--indeed, it has even been
    proposed by the Senator from Utah--albeit clumsily. Food Stamps, TANF
    and even Medicaid for the non-elderly poor, as well as governmentally
    provided case management could be abolished in the vast majority of
    cases. Dependency would not only end--it would be both impossible and
    unnecessary.

    To encourage work in good jobs, unemployment insurance must be less
    punitive, particularly where younger workers are concerned. In lower
    wage jobs, the preference is to find potential supervisors (whose
    compensation is usually subpar as well) and keep a file of infractions
    to justify firing workers who do not work out. A punitive work
    environment that does not exactly make any kind of work attractive.

    In certain circumstances, unemployment compensation should be available
    on a no-fault basis. Better still, employees should be allowed to
    voluntarily leave firms with a history of quickly dismissing employees
    without penalty. There should be no expendable jobs or workers.

    Lastly, to make work pay better, quit overpaying the few through
    inflation adjustments. Households making under the 90th percentile have
    been losing ground for almost half a century, while incomes above that
    amount have increased on a regular basis.

    The source of inequality, aside from abandoning the 91% top marginal
    tax rate, is granting raises at an equal percentage rather than by an
    equal amount. When the 91% rate was repealed, incomes were fairly
    equal, so it was not an issue.

    The federal government plays an outsized role in how salaries are
    determined through percentage based cost-of-living adjustments to
    government workers, beneficiaries, government contractors. The
    government can change this with the stroke of a pen. The private sector
    will follow suit with a higher minimum wage, adequate Child Tax Credits
    (as described below) and paying individuals in training from ESL to
    community college the minimum wage to purse their studies.

    From here on in, adjust for cost of living on a per dollar an hour
    rather than on a percentage basis (or dollars per month or week for
    federal beneficiaries). Calculate the dollar amount based on inflation
    at the median income level. No one gets more dollars an hour raise, no
    one gets less dollars per hour in increases. Increase the minimum wage
    as above and consider decreasing high end salaries paid to government
    employees and contractors. Even without decreases, simply equalizing
    raises will soon reduce inequality. Why is this necessary?

    Prices chase the median dollar. The median dollar of income is actually
    at the 90th percentile, rather than the 77th percentile (which is about
    where the median is). This strategy will reduce inflation in both the
    long and short terms as prices adjust to decreases in higher salaried
    income. Let me repeat this--prices chase income dollars, not income
    earners.

    Thank you for the opportunity to address the committee. We are, of
    course, available for direct testimony or to answer questions by
    members and staff.

    Attachment--Tax Reform, Center for Fiscal Equity, March 24, 2023

    Synergy: The President's Budget for 2024 proposes a 25% minimum tax on
    high incomes. Because most high income households make their money on
    capital gains, rather than salaries, an asset value-added tax replacing
    capital gains taxes (both long and short term) would be set to that
    rate. The top rate for a subtraction VAT surtax on high incomes (wages,
    dividends and interest paid) would be set to 25%, as would the top rate
    for income surtaxes paid by very high income earners. Surtaxes
    collected by businesses would begin for any individual payee receiving
    $75,000 from any source at a 6.25% rate and top out at 25% at all such
    income over $375,000. At $450,000, individuals would pay an additional
    6.25% on the next $75,000 with brackets increasing until a top rate of
    25% on income over $750,000. This structure assures that no one games
    the system by changing how income is earned to lower their tax burden.

    Individual payroll taxes. A floor of $20,000 would be instituted for
    paying these taxes, with a ceiling of $75,000. This lower ceiling
    reduces the amount of benefits received in retirement for higher-income
    individuals. The logic of the $20,000 floor reflects full-time work at
    a $10 per hour minimum wage offered by the Republican caucus in
    response to proposals for a $15 wage. The majority needs to take the
    deal. Doing so in relation to a floor on contributions makes adopting
    the minimum wage germane in the Senate for purposes of Reconciliation.
    The rate would be set at 6.25%.

    Employer payroll taxes. Unless taxes are diverted to a personal
    retirement account holding voting and preferred stock in the employer,
    the employer levy would be replaced by a goods and receipts tax of
    6.25%. Every worker who meets a minimum hour threshold would be
    credited for having paid into the system, regardless of wage level. All
    employees would be credited on an equal dollar basis, rather than as a
    match to their individual payroll tax. The tax rate would be adjusted
    to assure adequacy of benefits for all program beneficiaries.

    High-income Surtaxes. As above, taxes would be collected on all
    individual income taxes from salaries, income and dividends, which
    exclude business taxes filed separately, starting at $400,00 per year.
    This tax will fund net interest on the debt (which will no longer be
    rolled over into new borrowing), redemption of the Social Security
    Trust Fund, strategic, sea and non-continental U.S. military
    deployments, veterans' health benefits as the result of battlefield
    injuries, including mental health and addiction and eventual debt
    reduction.

    Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes
    and the estate tax. It will apply to asset sales, exercised options,
    inherited and gifted assets and the profits from short sales. Tax
    payments for option exercises, IPOs, inherited, gifted and donated
    assets will be marked to market, with prior tax payments for that asset
    eliminated so that the seller gets no benefit from them. In this
    perspective, it is the owner's increase in value that is taxed. As with
    any sale of liquid or real assets, sales to a qualified broad-based
    Employee Stock Ownership Plan will be tax-free. These taxes will fund
    the same spending items as high-income and subtraction VAT surtaxes.
    There will be no requirement to hold assets for a year to use this
    rate. This also implies that this tax will be levied on all eligible
    transactions.

    The 3.8% ACA-SM tax will be repealed as a separate tax, with health
    care funding coming through a subtraction value-added tax levied on all
    employment and other gross profit. The 25% rate is meant to be a
    permanent compromise, as above. Any changes to this rate would be used
    to adjust subtraction VAT surtax and high-
    income surtax rates accordingly. This rate would be negotiated on a
    world-wide basis to prevent venue seeking for stock trading.

    Subtraction Value-Added Tax (S-VAT). Corporate income taxes and
    collection of business and farm income taxes will be replaced by this
    tax, which is an employer paid Net Business Receipts Tax. S-VAT is a
    vehicle for tax benefits, including

          Health insurance or direct care, including veterans' health care
    for non-
    battlefield injuries and long-term care.
          Employer-paid educational costs in lieu of taxes are provided as
    either
    employee-directed contributions to the public or private unionized
    school of their choice or direct tuition payments for employee children
    or for workers (including ESL and remedial skills). Wages will be paid
    to students to meet opportunity costs.
          Most importantly, a refundable Child Tax Credit at median income
    levels (with inflation adjustments) distributed with pay.

    Subsistence-level benefits force the poor into servile labor. Wages and
    benefits must be high enough to provide justice and human dignity. This
    allows the ending of state administered subsidy programs and
    discourages abortions, and as such enactment must be scored as a must
    pass in voting rankings by pro-life organizations (and feminist
    organizations as well). To assure child subsidies are distributed, S-
    VAT will not be border adjustable.

    As above, S-VAT surtaxes are collected on all income distributed over
    $75,000, with a beginning rate of 6.25%. replace income tax levies
    collected on the first surtaxes in the same range. Some will use
    corporations to avoid these taxes, but that corporation would then pay
    all invoice and subtraction VAT payments (which would distribute tax
    benefits). Distributions from such corporations will be considered
    salary, not dividends.

    Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on
    purchase invoices. The rate varies according to what is being financed.
    If Medicare for All does not contain offsets for employers who fund
    their own medical personnel or for personal retirement accounts, both
    of which would otherwise be funded by an S-VAT, then they would be
    funded by the I-VAT to take advantage of border adjustability.

    I-VAT forces everyone, from the working poor to the beneficiaries of
    inherited wealth, to pay taxes and share in the cost of government. As
    part of enactment, gross wages will be reduced to take into account the
    shift to S-VAT and I-VAT, however net income will be increased by the
    same percentage as the I-VAT. Inherited assets will be taxed under A-
    VAT when sold. Any inherited cash, or funds borrowed against the value
    of shares, will face the I-VAT when sold or the A-VAT if invested.

    I-VAT will fund domestic discretionary spending, equal dollar employer
    OASI contributions, and non-nuclear, non-deployed military spending,
    possibly on a regional basis. Regional I-VAT would both require a
    constitutional amendment to change the requirement that all excises be
    national and to discourage unnecessary spending, especially when
    allocated for electoral reasons rather than program needs. The latter
    could also be funded by the asset VAT (decreasing the rate by from
    19.25% to 13%).

    Carbon Added Tax (C-AT). A Carbon tax with receipt visibility, which
    allows comparison shopping based on carbon content, even if it means a
    more expensive item with lower carbon is purchased. C-AT would also
    replace fuel taxes. It will fund transportation costs, including mass
    transit, and research into alternative fuels. This tax would not be
    border adjustable unless it is in other nations, however in this case
    the imposition of this tax at the border will be noted, with the U.S.
    tax applied to the overseas base.

                                     ______

                        Center for Law and Social Policy

                           1310 L St., NW, Suite 900

                              Washington, DC 20005

                                 (202) 906-8000

                             https://www.clasp.org/

        The Center for Law and Social Policy (CLASP) is a national,
    nonpartisan, anti-poverty nonprofit organization advancing solutions to
    improve the lives of people with low incomes. For over fifty years, our
    organization has promoted policy solutions at the legislative and
    administrative level to improve economic prosperity for individuals and
    families with low incomes. We use research and analysis to advance
    effective policy solutions that disrupt structural and systemic racism
    and sexism and remove barriers blocking people from economic security
    and opportunity. CLASP has advocated for tax credit expansions to
    support individuals and families with low incomes, as well as promoting
    access to benefits for immigrant children and families who make vital
    contributions to our economy and society.

        CLASP appreciates the opportunity to submit a written statement for
    the record for the United States Senate Committee on Finance hearing
    titled ``Anti-Poverty and Family Support Provisions in the tax code.''
    The tax code provides an opportunity to advance equity and to reduce
    poverty for individuals and families, and we applaud the Senate Finance
    Committee for discussing these topics. To address poverty among
    families, we appreciate the introduction of the Working Families Tax
    Relief Act, but we urge lawmakers to restore Child Tax Credit (CTC)
    eligibility for children who have Individual Taxpayer Identification
    Numbers (ITINs) in the bill. CLASP believes in promoting opportunity
    for individuals regardless of their immigration status, and leaving out
    kids with ITINs from the policy will only reduce the anti-poverty
    effects of the legislation.

        Expanding the CTC and making it fully refundable reduces poverty
    for children and families through the tax code. The temporary expansion
    of the credit in 2021 led to unprecedented reductions in child
    poverty,\1\ reduced food hardship for families with children,\2\ and
    decreased financial stress among parents.\3\ CLASP, along with other
    partner organizations and in collaboration with Ipsos, surveyed a
    nationally represented sample of adults to evaluate the effects of the
    expanded CTC on families with children. We administered three rounds of
    the survey to assess the impacts on families before, during, and after
    the distribution of the monthly, expanded CTC payments. Families who
    received the monthly CTC payments reported having an easier time
    affording their basic needs, and used the payments toward expenses like
    monthly bills, food and groceries, and their rent or mortgage
    payment.\4\ Once the expanded monthly CTC payments expired, these
    positive trends reversed for families.\5\
    ---------------------------------------------------------------------------
        \1\ Priya Pandey et al., ``Historic 2021 Decline in Child Poverty
    Proves Effectiveness of Federal Investments,'' CLASP, September 2022,
    https://www.clasp.org/publications/report/brief/historic-2021-decline-
    in-child-poverty-proves-effectiveness-of-federal-investments/.
        \2\ Daniel J. Perez-Lopez, ``Economic Hardship Declined in
    Households with Children as Child Tax Credit Payments Arrived,'' United
    States Census Bureau, August 2021, https://www.census.gov/library/
    stories/2021/08/economic-hardship-declined-in-households-with-children-
    as-child-tax-credit-payments-arrived.html.
        \3\ Ashley Burnside, ``The Expanded Child Tax Credit is Helping
    Families, But National Survey Shows Continued Outreach Remains
    Essential,'' CLASP, April 2022, https://www.clasp.org/publications/
    report/brief/the-expanded-child-tax-credit-is-helping-families-but-
    national-survey-shows-continued-outreach-remains-essential/.
        \4\ Ibid.
        \5\ Ashley Burnside, Bruce Fuller, and Qifan Zhang, ``Child Tax
    Credit: Key Findings from July 2022 National Survey,'' CLASP, September
    2022, https://www.clasp.org/publications/report/brief/child-tax-credit-
    poll-3/.

        We applaud the introduction of the Working Families Tax Relief Act
    by Senators Brown, Bennet, Booker, Warnock, and Wyden, which would
    permanently expand the CTC for families with children, in addition to
    making positive improvements in the Earned Income Tax Credit (EITC).
    But we are disappointed that the bill does not restore CTC eligibility
    for children who have ITINs. For the credit to most effectively reduce
    ---------------------------------------------------------------------------
    child poverty, it must be inclusive of all children in need.

        Children of immigrants make up 1 in 4 of all children in the
    country and while the vast majority are U.S. citizens, many are part of
    mixed-status families where one or more family members may be
    undocumented or have another immigration status.\6\ Additionally, about
    1 million undocumented children growing up in the United States file
    their taxes with an ITIN. These children, also referred to as ``Little
    Dreamers,'' previously had access to the CTC until they were excluded
    under the Tax Cuts and Jobs Act of 2017.\7\ As a result, these
    children, as well as their families, have gone without critical
    economic support, even during the height of the COVID-19 pandemic.
    Research shows the significant impact more inclusive tax policies would
    have on alleviating child poverty nationally, and in particular for
    Latino children, who are over-represented among ITIN-holding children
    currently excluded from the CTC.\8\ While this problematic exclusion is
    expected to sunset in 2025, each year that goes by represents a loss in
    the potential for positively impacting a child's long-term development.
    ---------------------------------------------------------------------------
        \6\ Migration Policy Institute tabulation from U.S. Census Bureau,
    2021 American Community Survey (ACS) and 1990 Decennial Census, https:/
    /www.migrationpolicy.org/programs/data-hub/charts/children-immigrant-
    families.
        \7\ Marco Guzman, ``Inclusive Child Tax Credit Reform Would Restore
    Benefit to 1 Million Young `Dreamers,' '' Institute on Taxation and
    Economic Policy, April 2021, https://itep.org/inclusive-child-tax-
    credit-reform-would-restore-benefit-to-1-million-young-dreamers/.
        \8\ UnidosUS, ``Hispanic Children and the Child Tax Credit,'' June
    2021, https://unidosus.org/wp-content/uploads/2021/08/
    unidosus_hispanicchildrenandctc.pdf. Dolores Acevedo-Garcia et al., ``A
    Policy Equity Analysis of the Earned Income Tax Credit: Fully Including
    Children in Immigrant Families and Hispanic Children in this Key Anti-
    Poverty Program,'' Diversity Data Kids.Org and Brandeis University,
    April 2022, https://www.diversitydatakids.org/sites/default/files/file/
    ddk_a_policy_equity_analysis_of_the_earned_income_tax_credit_5.24.22_0.p
    df.

        We appreciate that the Working Families Tax Relief Act would make
    the CTC fully refundable, making the credit equally available to
    families with the lowest incomes. Full refundability in the CTC
    especially benefits Black and Latinx families who are likelier to be
    left out of receiving the full CTC under current law due to earning too
    little income.\9\ The bill also would increase the CTC amount given to
    families and provide a higher amount for children under age six.
    Research has concluded that providing families with increased income
    during these pivotal stages of early child development will result in
    positive long-term outcomes for the child.\10\ Providing the CTC
    payments monthly also allows parents to use the payments for monthly
    expenses their family needs to maintain economic stability--expenses
    like bills, food, household cleaning supplies, transportation costs and
    car repairs. Implementing all of these CTC expansions on a permanent
    basis will promote positive outcomes for children and invest in
    families.
    ---------------------------------------------------------------------------
        \9\ Sophie Collyer, David Harris, and Christopher Wilmer, ``Left
    Behind: The One-Third of Children in Families Who Earn Too Little to
    Get the Full Child Tax Credit,'' Center on Poverty and Social Policy,
    Volume 3. Number 6, May 2019, https://www.povertycenter.columbia.edu/
    news-internal/leftoutofctc.
        \10\ Bradley L. Hardy, ``Child Tax Credit Has a Critical Role in
    Helping Families Maintain Economic Stability,'' Center on Budget and
    Policy Priorities, April 2022, https://www.cbpp.org/research/federal-
    tax/child-tax-credit-has-a-critical-role-in-helping-families-maintain-
    economic.

        We also applaud the inclusion of expansions to the EITC for workers
    with low-and moderate- incomes in the Working Families Tax Relief Act.
    These changes to the EITC would increase the credit for workers without
    dependent children, who under current law are taxed deeper into
    poverty, partly due to the meager credit they are eligible to receive
    from the EITC.\11\ The bill also would support younger workers and
    older workers. The EITC is an effective anti-poverty tool because it
    reaches workers who are paid low wages and allows them to save money,
    as well as help them cover essential expenses, like an emergency car
    repair.\12\ These EITC changes would reach an estimated 17 million
    workers who are paid low wages.\13\
    ---------------------------------------------------------------------------
        \11\ Chuck Marr, Kris Cox, Stephanie Hingtgen, Katie Windham, and
    Arloc Sherman, ``American Rescue Plan Act Includes Critical Expansions
    of Child Tax Credit and EITC,'' Center on Budget and Policy Priorities,
    March 2021, https://www.cbpp.org/research/federal-tax/american-rescue-
    plan-act-includes-critical-expansions-of-child-tax-credit-and.
        \12\ Teon Hayes, Ashley Burnside, and Whitney Bunts, ``EITC for
    Childless Workers: What's at Stake for Young People,'' CLASP, June
    2022, https://www.clasp.org/publications/report/brief/eitc-childless-
    workers-2022/.
        \13\ Ibid.

        The Working Families Tax Relief Act provides an exciting
    opportunity to reduce child poverty and to support low- and moderate-
    income workers and families through our tax code by expanding the CTC
    and the EITC. But we urge lawmakers to include CTC eligibility for
    children with ITINs. The tax code should promote equity, and continuing
    these harmful eligibility restrictions would reduce the bill's anti-
    ---------------------------------------------------------------------------
    poverty impacts.

        We thank you for the opportunity to submit this written statement
    for the record. If you have any questions regarding this topic, please
    feel free to contact Ashley Burnside, Senior Policy Analyst with the
    Income and Work Support Team at CLASP at aburnside@clasp.org.

                                     ______

                             Children's HealthWatch

                          801 Albany Street, 3rd Floor

                                Boston, MA 02119

                               Phone 617-414-6366

                                Fax 617-414-7915

                       https://childrenshealthwatch.org/

    June 27, 2023

    RE: Full Committee Hearing: Anti-Poverty and Family Support Provisions
    in the tax code, June 14, 2023

    Chair Wyden, Ranking Member Crapo, and Members of the Committee:

    Thank you for organizing the recent full committee hearing, Anti-
    Poverty and Family Support Provisions in the tax code, and for your
    recognition of the present need and opportunity to examine tax policy
    as a tool to reduce child poverty and promote financial stability. On
    behalf of Children's HealthWatch, a network of pediatricians, public
    health researchers, and policy and child health experts, we write today
    to share our research on the significant impact of the 2021 expanded
    Child Tax Credit (CTC) among families with young children, to urge
    members to restore eligibility for children who have Individual Tax
    Identification Numbers (ITIN), and to highlight the health impact of
    expanding this credit as well as the evidence-based Earned Income Tax
    Credit (EITC).

    Children's HealthWatch seeks to achieve health equity for young
    children and their families by advancing research to transform policy.
    We accomplish this mission by interviewing caregivers of young children
    on the frontlines of pediatric care in urban emergency departments and
    primary care clinics in four cities: Boston, Minneapolis, Little Rock,
    and Philadelphia. Since 1998, we have interviewed over 80,000
    caregivers and analyzed data from those interviews to determine the
    impact of public policies on the health and development of young
    children.

    The CTC and EITC are two evidence-based policies that work together to
    support the health and financial stability of low-wage workers and
    caregivers. Boosting income through these credits maintains families'
    freedom to prioritize their own basic needs and to make choices that
    are best for their family. Research shows that families use their EITC
    benefit and other direct cash to purchase healthy foods, afford basic
    goods, make necessary home or car repairs, pay bills including rent and
    utility arrearages, and save for the future.\1\, \2\
    Children's HealthWatch research similarly found that the 2021 expanded
    CTC helped families with young children catch up on rent, improved food
    security, protected parents' health, and supported mothers' mental
    health.\3\, \4\ This is consistent with the growing body of
    evidence over the past year demonstrating that the fully refundable and
    inclusive federal CTC expansion helped families meet basic needs,
    reduced child poverty, and improved child and caregiver health.\5\
    However, there were notable disparities in health outcomes based on
    which families received the CTC, demonstrating opportunities for future
    improvement.\4\
    ---------------------------------------------------------------------------
        \1\ Bruce C, Bovell-Ammon A, Sheward R, Le-Scherban S, Frank DA,
    Poblacion A, Ettinger de Cuba S, Cook J. The Earned Income Tax Credit
    and Child Tax Credit: Building on success for healthy families.
    Children's HealthWatch. 2020. Available at https://
    childrenshealthwatch.org/wp-content/uploads/CHW-EITC-2020-web.pdf.
        \2\ New census data shows families spent first Child Tax Credit
    payments on basic needs. Economic Security Project. 2021. Available at
    https://www.economicsecurityproject.org/wp-content/uploads/2021/08/New-
    Census-Data-Shows-Families-Spent-First-Child-Tax-Credit-Payments-on-
    Basic-Needs.pdf.
        \3\ Bovell-Ammon A, Burnett D, Ettinger de Cuba S, Gupta-Barnes S,
    Banks J, Bates E, Coleman S, Bruce C, Le-Scherban S. ``I didn't have to
    worry'': How the Child Tax Credit helped families catch up on rent and
    improved health. 2022. Available at https://childrenshealthwatch.org/
    wp-content/uploads/CTC-Report-Aug-2022-Final.pdf.
        \4\ Bovell-Ammon A, Ettinger de Cuba S, Le-Scherban S, Gupta-Barnes
    S, Rateau L, Bruce C, Sheward R, Frank DA. The Child Tax Credit
    Benefits Whole Families: Preliminary data show improved food security
    and parental health.
        \5\ Center on Poverty and Social Policy at Columbia University.
    Publications Archive: Child Tax Credit. Updated 2023. Available at
    https://www.povertycenter.columbia.edu/child-tax-credit-archive.

    We applaud the introduction of the Working Families Tax Relief Act
    (WFTRA) by Senators Brown, Bennet, Booker, Warnock, and Wyden. This
    bill would permanently expand the CTC for families with children and
    make improvements to the EITC. By reaching overlapping but different
    populations, these tax credits provide targeted relief to low-wage
    workers and caregivers of children. However, we are disappointed that
    the bill does not restore CTC eligibility to the estimated 1 million
    children who have an ITIN, as proposed last session, nor does it
    restore EITC eligibility for workers who pay taxes using an ITIN. For
    these credits to most effectively reduce poverty and improve health,
    ---------------------------------------------------------------------------
    they must be inclusive of all children and families.

    The EITC and CFTC are effective at reaching communities of color, and
    expansions have historically had a larger net positive impact for
    people of color--particularly Black and Latinx families and women--who
    are overrepresented among low income workers and disproportionately
    experience higher rates of poverty and associated poor health outcomes
    compared to white families.\6\ We appreciate that the WFTRA would make
    the CTC fully refundable and available to families with the lowest
    incomes, amplifying this equity effect. However, Children's HealthWatch
    research found that explicit exclusion of children with ITINs--combined
    with ongoing concerns among immigrant families about participating in
    public programs--may have contributed to significant disparities in
    receipt of the 2021 advance CTC among eligible immigrant families (for
    example, among mixed status families with citizen
    children).\4\,\7\ Furthermore, when immigrant children and
    families are left out of benefits or face threat of consequences for
    participating, immigrant family participation across public assistance
    programs among those eligible.\8\, \9\ An inclusive CTC that
    ensures all children are eligible regardless of immigration status
    would begin to address this and further the health, anti-poverty, and
    equity impact of the credit.
    ---------------------------------------------------------------------------
        \6\ Marr C, Huang Y. Women of color especially benefit from working
    family tax credits. 2019. Available at https://www.cbpp.org/research/
    federal-tax/women-of-colorespecially-benefit-from-working-family-tax-
    credits.
        \7\ Bernstein H, Karpman M, Gonzalez D, Zuckerman S. Immigrant
    Families Continued Avoiding the Safety Net during the COVID-19 Crisis.
    The Urban Institute. 2021. Available at https://www.urban.org/research/
    publication/immigrant-families-continued-avoiding-safety-net-during-
    covid-19-crisis.
        \8\ Bovell-Ammon A, Ettinger de Cuba S, Coleman S, Ahmad N, Black
    MM, Frank DA, Ochoa E, Cutts DB. Trends in food insecurity and SNAP
    participation among immigrant families of U.S. born young children.
    Children. 2019.
        \9\ Barofsky J, Vargas A, Rodriguez D, Barrows A. Spreading Fear:
    The Announcement of the Public Charge Rule Reduced Enrollment in Child
    Safety-Net Programs: Study examines whether the announced change to the
    federal public charge rule affected the share of children enrolled in
    Medicaid, SNAP, and WIC. Health Affairs. 2020;39(10):1752-61.

    The changes to the EITC contained in the WFTRA, specifically--
    increasing the benefit for workers without dependent children and
    expanding eligibility to younger and older workers, would improve
    financial stability and health for an estimated 17 million workers with
    low wages.\10\ The Centers for Disease Control and Prevention describes
    the EITC as ``one of the best public health interventions
    available''\11\ and has identified the credit in its HI-5 Interventions
    (Health Impact in Five Years) as an evidence-based and cost-effective
    approach to achieve positive health results within 5 years, especially
    for maternal and child health outcomes.\12\ Expansions in the EITC have
    been strongly associated with a decrease in infants born with low birth
    weights among pregnant women eligible for the credit.\13\ This
    relationship is significant to note because low birth weight is
    damaging to the long-term physical health and cognitive, behavioral,
    and socioemotional development potential of children and costly to the
    health system. In addition to benefits for infants, children in
    families receiving the EITC have fewer behavioral health problems, such
    as anxiety and depression.\14\ Mothers receiving the EITC are more
    likely to have good health, including lower risk of high blood pressure
    and inflammation and reduced reports of depression and
    stress.\15\, \16\
    ---------------------------------------------------------------------------
        \10\ Hayes T, Burnside A, Bunts W. EITC for Childless Workers:
    What's at Stake for Young People. Center for Law and Social Policy.
    June 2022. Available at https://www.clasp.org/publications/report/
    brief/eitc-childless-workers-2022/.
        \11\ Centers for Disease Control and Prevention. Public Health
    Action Guide: EITC. 2020. Available at https://www.cdcfoundation.org/
    sites/default/files/files/PublicHealthActionGuide_EITC
    .pdf.
        \12\ Centers for Disease Control and Prevention. What is an Earned
    Income Tax Credit (EITC)? 2019. Available at https://www.cdc.gov/
    policy/hst/hi5/taxcredits/index.html.
        \13\ Hoynes H, Miller D, Simon D. Income, the Earned Income Tax
    Credit, and infant health. American Economic Journal: Economic Policy.
    2015;7(1):172-211.
        \14\ Hamad R, Rehkopf DH. Poverty and child development: A
    longitudinal study of the impact of the Earned Income Tax Credit.
    American Journal of Epidemiology. 2016;183(9):775-84.
        \15\ Evans WN and Garthwaite CL. Giving mom a break: The impact of
    higher EITC payments on maternal health. American Economic Journal.
    2014;6(2):258-90.
        \16\ Boyd-Swan C. Harbst CM, Ifcher J, Zarghamee H. The Earned
    Income Tax Credit, mental health, and happiness. Journal of Economic
    Behavior and Organization. 2016;126(part A):18-38.

    The WFTRA offers an exciting opportunity to meaningfully reduce child
    poverty and improve the health and well-being of millions of children
    and their families. But we urge lawmakers to go further by including
    eligibility for children with ITINs in the CTC, and workers with ITINs
    in the EITC. Maintaining these harmful exclusions runs counter to the
    underlying bill's stated intention and its provisions to reduce poverty
    ---------------------------------------------------------------------------
    and inequities across the country.

    Sincerely,

    Stephanie Ettinger de Cuba, Ph.D., MPH
    Executive Director, Children's HealthWatch
    Research Associate Professor, Boston University School of Public Health
    and Chobanian and Avedisian School of Medicine
    Boston, MA

                                     ______

                         Opportunity Solutions Project

                      1400 Village Square Blvd., #3-80038

                             Tallahassee, FL 32312

              EXPANSION OF THE CHILD TAX CREDIT FOSTERS DEPENDENCY

                   Statement of Tim Puglisi, Visiting Fellow

    Bottom line

    Public policy should set families up for success and self-sufficiency.
    Expanding the Child Tax Credit (CTC) as it currently exists would have
    the opposite effect, fostering government dependency and transforming
    it into yet another cash welfare program. Efforts to combat poverty
    should focus on lifting families out of dependency instead of creating
    a new welfare entitlement.

    As this committee explores options to help Americans, it would be wise
    to consider the proven effectiveness of policies geared toward
    incentivizing work, like strong work requirements for able-bodied
    adults. When there are work requirements in welfare, we see reductions
    in government dependency, increases in self-sufficiency, and consistent
    upward mobility. Providing most American families with a monthly
    ``child allowance'' check unattached to work would only further
    encourage welfare dependency, trapping individuals in poverty.

    The Child Tax Credit

    In 1997, lawmakers created the Child Tax Credit to reduce families' tax
    liability through a non-refundable tax credit. Since then, the CTC has
    been expanded to give families a tax credit of $2,000 per child.\1\ Up
    to $1,400 of the credit can be refunded, provided the recipient is not
    liable to pay the federal income tax and has at least $2,500 in earned
    income.\2\ The earned income requirement operates in some ways like a
    work requirement for the refundable portion of the credit.\3\
    ---------------------------------------------------------------------------
        \1\ 26 U.S.C. Sec. 24(h)(2) (2018), https://www.govinfo.gov/
    content/pkg/USCODE-2018-title26/pdf/USCODE-2018-title26-subtitleA-
    chap1-subchapA-partIV-subpartA-sec24.pdf.
        \2\ Margot L. Crandall-Hollick, ``The Child Tax Credit: How it
    Works and Who Receives It,'' Congressional Research Service (2020),
    https://fas.org/sgp/crs/misc/R41873.pdf.
        \3\ 26 U.S.C. Sec. 24(d)(1) (2018), https://www.govinfo.gov/
    content/pkg/USCODE-2018-title26/pdf/USCODE-2018-title26-subtitleA-
    chap1-subchapA-partIV-subpartA-sec24.pdf.

    In 2021 during the pandemic, congress temporarily expanded the CTC
    through the American Rescue Plan Act (ARPA), converting the tax credit
    into a cash welfare program.\4\ ARPA temporarily increased the amount
    of the CTC by up to 80 percent, reaching $3,600 for children under six
    and $3,000 for older children.\5\ ARPA also eliminated work
    requirements as the entire credit became refundable to all taxpayers,
    including those with no earned income, out of work. This was a poor
    policy decision, one of several welfare expansions during the last
    several years that has contributed to a near-all-time low in labor
    force participation.
    ---------------------------------------------------------------------------
        \4\ Margot L. Crandall-Hollick, ``The Child Tax Credit: How it
    Works and Who Receives It,'' Congressional Research Service (2020),
    https://fas.org/sgp/crs/misc/R41873.pdf.
        \5\ Ibid.
    ---------------------------------------------------------------------------

    Consequences of the proposed expansions

    With new efforts to permanently expand the CTC beyond its original
    intent are ill-advised. A chief goal of those pushing such changes
    appears to begin with the complete gutting of any work requirements.
    The second goal is to turn it from a tax credit into a new cash welfare
    program. The new welfare program envisioned by proponents of an
    expanded CTC looks a lot like the Temporary Assistance for Needy
    Families (TANF) cash welfare program but without its most important and
    successful feature--a strong work requirement.

    TANF work requirements resulted in increased income and workforce
    participation, and decreased poverty and dependency, as shown through
    numerous studies.\6\, \7\, \8\, \9\
    Even with ample proof that work requirements work, federal policymakers
    continue to expand welfare eligibility and benefits without provisions
    requiring work, and the CTC proposals are the latest example of that
    lurch towards disconnecting welfare from work.
    ---------------------------------------------------------------------------
        \6\ Nic Horton and Jonathan Ingram, ``Work requirements are working
    for Kansas families: How welfare reform increases incomes and improves
    lives,'' Foundation for Government Accountability (2017), https://
    thefga.org/research/kansas-work-requirements/.
        \7\ Ron Haskins, et al., ``A Safety Net that Works: Temporary
    Assistance for Needy Families,'' The American Enterprise Institute
    (2017).
        \8\ Ron Haskins, ``Work over welfare: The inside Story of the 1996
    welfare reform law,'' Brookings Institution Press (2006).
        \9\ Mary Daly and Joyce Kwok, ``Did welfare reform work for
    everyone? A look at young single mothers,'' Federal Reserve Bank of San
    Francisco (2009), https://www.frbsf.org/economic-research/publications/
    economic-letter/2009/august/welfare-reform-single-mothers/.

    In fact, federal policymakers have made it possible for states not to
    enforce already modest work requirements in the food stamp program for
    able-bodied, childless adults between the ages of 18 and 49 (ABAWDs)
    through gimmicks and loopholes.\10\ Because of these gimmicks and
    loopholes, 75 percent of ABAWDs receiving food stamps do not work.\11\
    ---------------------------------------------------------------------------
        \10\ Sam Adolphsen et al., ``Waivers gone wild: How states have
    exploited food stamp loopholes,'' Foundation for Government
    Accountability (2018), https://thefga.org/research/waivers-gone-wild/.
        \11\ Jonathan Ingram, ``House-Proposed Work Requirements Would
    Limit Dependency, Save Taxpayer Resources, and Grow the Economy,''
    Foundation for Government Accountability (2023), https://thefga.org/
    research/house-proposed-work-requirements/.

    These wayward expansion proposals of the CTC would result in a
    disincentive for parents that we see in many other welfare programs,
    like Medicaid and food stamps. Those programs have expanded to more
    able-bodied adults while sidelining work requirements, and the effect
    has been clear, with record high able-bodied adult enrollment in each
    ---------------------------------------------------------------------------
    program.

    The same would happen with an expanded CTC. Parents within the 25th
    percentile income bracket would receive greater financial support from
    a combination of current welfare programs and the proposed CTC
    expansion as opposed to going to work at their current job.\12\ Reports
    warn about the dire consequences of expanding the CTC, where an
    estimated 1.5 million parents would likely leave the workforce
    entirely.\13\
    ---------------------------------------------------------------------------
        \12\ Hayden Dublois, `` `Fixing' What Wasn't Broken: Why Biden's
    Child Tax Credit Scheme Is a Recipe for Failure,'' Foundation for
    Government Accountability (2021), https://thefga.org/research/biden-
    child-tax-credit-failure/.
        \13\ Kevin Corinth et al., ``The anti-poverty, targeting, and labor
    supply effects of replacing a Child Tax Credit with a child
    allowance,'' National Bureau of Economic Research (2022), https://
    www.nber.org/papers/w29366.

    This exodus from the labor force would be an especially ill-timed
    sabotage of the nation's economy, as there are currently a whopping 10
    million job openings across the country.\14\ The number of available
    jobs is roughly twice that of unemployed individuals actively searching
    for a job.\15\ Now is the time to expand policies that promote,
    incentivize, and support work. The proposed CTC expansions being
    discussed would do the exact opposite.
    ---------------------------------------------------------------------------
        \14\ U.S. Bureau of Labor Statistics, ``Job openings and labor
    turnover survey news release,'' United States Department of Labor
    (March 2023), https://www.bls.gov/news.release/jolts.htm.
        \15\ Michael Greibrok, ``Universal Work Requirements for Welfare
    Programs Are a Win for All Involved,'' Foundation for Government
    Accountability (2023), https://thefga.org/research/universal-work-
    requirements/.
    ---------------------------------------------------------------------------

    A better approach

    Instead, federal policymakers should consider solutions proven
    successful in addressing poverty, such as expanding work requirements.
    The 1996 welfare reform was proven successful in decreasing dependency,
    moving Americans into the labor force, and spurring more significant
    economic growth.\16\ A more recent example of the success of work
    requirements can be seen in Missouri, where state policymakers
    reinstated the ABAWD work requirement for the state's food stamp
    program. After reinstating work requirements, 85 percent of ABAWDs
    became ineligible for the food stamp program as they had entered the
    workforce.\17\
    ---------------------------------------------------------------------------
        \16\ Jonathan Ingram, `` `The Power of Work--How Kansas' Welfare
    Reform is Lifting Americans Out of Poverty,'' Foundation for Government
    Accountability (2016), https://thefga.org/research/report-the-power-of-
    work-how-kansas-welfare-reform-is-lifting-americans-out-of-poverty/.
        \17\ Hayden Dublois et al., ``Food stamp work requirements worked
    for Missourians,'' Foundation for Government Accountability (2020),
    https://thefga.org/research/missouri-food-stamp-work-requirements/.

    ABAWDs in Missouri who started working were not only able to leave the
    food stamp program but also experienced a doubling of their wages.\18\
    In addition to the excellent outcomes many ABAWDs experienced following
    the implementation of work requirements, Missourians saved $89 million
    in state taxes annually, lifting the overall economy.
    ---------------------------------------------------------------------------
        \18\ Ibid.

    The solution to the issue of dependency and family support will not
    come through an expanded Child Tax Credit that warps the program to
    more closely resemble cash welfare. Instead, the right solutions will
    come through initiatives that foster self-sufficiency, such as work
    ---------------------------------------------------------------------------
    requirements.

                                     ______

                           Scholars Strategy Network

                        501 Boylston St., Suite #10A120

                                Boston, MA 02116

                                  scholars.org

                Statement of Harry J. Holzer, McCourt School of
                      Public Policy, Georgetown University

    I appreciate the opportunity to submit a written statement for the
    record for the United States Senate Committee on Finance hearing titled
    ``Anti-Poverty and Family Support Provisions in the Tax Code''. It's
    important to note my credentials as I am a Professor of Public Policy
    at Georgetown University's McCourt School of Public Policy, an expert
    on the low-wage labor market, and have authored or edited 12 books and
    several dozen journal articles, mostly on disadvantaged American
    workers and their employers, as well as on education and workforce
    issues and labor market policy. Lastly, I write to you today as a
    member of the Scholars Strategy Network.

    I support a permanent increase in the Child Tax Credit (CTC), at least
    somewhat along the lines proposed in the American Family Act (AFA).
    Such an increase would provide needed resources for children in low-
    income families, while also providing tax benefits to middle-class
    families with children.

    I judge the evidence of declining material hardship for poor families
    with children from the 2021 CTC expansion, along with declining child
    poverty, to be very compelling. I believe these changes, if permanent,
    would reduce ``toxic stress'' on such children and would improve their
    cognitive and socioemotional development, leading to better education
    and employment outcomes for them over time.

    But economists and others worry that the CTC might reduce parental work
    incentives and therefore employment rates. To date, the research on
    potential reductions in employment associated with the CTC expansion in
    2021 do not show serious evidence that the policy leads to lower
    employment. On the other hand, most economists agree that these studies
    do not indicate what the effects of a permanent increase in the CTC
    would be on parental employment and earnings, since it was not reduced
    beyond 2021. I believe that such an increase would quite modestly
    reduce parental employment, while leaving children better off.

    But there are also other questions one might raise about the specific
    increase proposed by the AFA--namely, whether it should be fully
    refundable, whether it should phase out with respect to income earlier
    and/or more slowly, and especially whether/how it would be financed. I
    consider all these issues below.

    THE 2021 CTC EXPANSION: WHAT THE EVIDENCE SHOWS

    Over the past 18 months, a number of rigorous studies have examined the
    impacts of the 2021 CTC expansion on both child/family well-being and
    parental employment. These studies include Ananat et al. (2022),
    Collyer et al. (2022), Lourie et al. (2022), Parolin et al. (2022),
    Enriquez et al. (2023) and Pilkauskas et al. (2023). (These are
    summarized in a new piece by the Center on Budget and Policy
    Priorities--see Fenton, 2023).

    Each of these studies finds major declines in material hardship and/or
    food insecurity for poor children and families as a result of the CTC
    expansion. While some authors (Han et al., 2022) had cast some doubt on
    whether or not child poverty would be substantially reduced by the CTC
    expansion--especially if parental employment declined--evidence from
    monthly data strongly suggests that the expansion reduced child poverty
    quite dramatically in 2021, while its expiration increased child
    poverty from roughly 12 to 17 percent between 2021 and early 2022,
    using the Supplemental Poverty Measure (Parolin et al., 2022).

    The studies listed above also find no evidence of declining employment
    among parents in response to the CTC expansion, as had been strongly
    predicted by Corinth et al. (2021) but much less so by Bastian et al.
    (2022) and Goldin et al. (2021). On the other hand, virtually all
    analysts acknowledge that the evidence on employment from this one-year
    expansion tells us very little about what the effects would be of a
    permanent change, especially if parents had more time to learn about
    the CTC and adjust their employment behavior in response. Also, since
    the labor force in 2021 was still recovering from the pandemic
    recession of 2020, any effects of the CTC might be swamped by broader
    improvements that were occurring.

    WHAT WOULD BE THE EFFECTS OF A PERMANENT CTC EXPANSION?

    A permanent expansion of the CTC, along the lines of the 2021
    expansion, would no doubt continue to alleviate material hardship and
    food insecurity among lower-income families with children. This, in
    turn, would likely lead to permanent improvements in educational
    attainment and earnings among such children, since a body of research
    (Hoynes et al., 2016; Bailey et al., 2020) now shows that major
    improvements in nutrition associated with the expansion of food stamps
    in the 1960s and beyond led to long-term improvements in adult outcomes
    for poorer children. It is also likely that such changes would reduce
    the costs of poverty to the U.S., in terms of lost productivity and
    earnings, bad health and/or crime (Holzer et al., 2008; National
    Academies of Science, 2019).

    There are reasons to believe that parental employment would very
    modestly decline if the CTC were made permanent, as the AFA proposes.
    There would be two mechanisms generating this decline in parental labor
    supply: (1) an income effect for the vast majority of American
    families; and (2) a wage effect as the credit phases out at higher
    family earnings (and income) levels, thereby reducing the net wage
    associated with more work.

    In textbook labor market analysis, both of these effects would
    potentially reduce labor supply--as having higher unearned income
    reduces the need for earnings, while a lower net wage would likely
    reduce the rewards to working and therefore labor supply as well. But
    the magnitudes of these changes depend crucially on the sizes of what
    economists call ``labor supply elasticities''--in other words, the
    responsiveness of work effort to changes in income and net wages. If
    the elasticities are small, the effects of modest income or net wage
    changes on work effort would likely be very modest as well.

    Though Corinth et al. predicted large losses of employment, most other
    studies (including Bastian and Goldin et al., op. cit.) suggested
    declines of under 1 percentage point for the overall US labor force.
    The latter makes sense for a few reasons:

          The increases in income for the average American family would be
    quite small.
          The estimated labor supply elasticities for women (in other
    words, the changes in employment that might be associated with changes
    in nonwork income or net wages) appear to have declined in recent
    decades and are now quite small (e.g., Kumar and Liang, 2016--though
    they might have risen for prime-age men).
          Very few people would experience the phaseout of benefits that
    might reduce net wages and therefore employment.

    To illustrate these effects, consider the following facts: only about
    40% of American families have children under the age of 18; median
    household incomes are now over $70,000 per year; and the average family
    with two children--for instance, one below age 6 and one between 6 and
    18--would gain approximately $2,600 a year in income. The average
    income gain for such a family would be about 3.5 percent, and applying
    that increase to only 40 percent of families would increase overall
    family income by about 1.5 percent. Applying estimated income
    elasticities (especially the small ones estimated recently by Kumar and
    Liang) to such income gains would lead to only very small employment
    declines--well under 1 percentage point.

    Of course, the increases in income would be substantially larger for
    lower-income families and/or those with more children. In such cases,
    the improvements in income might be substantially greater--especially
    for families with no earnings for whom a fully refundable credit would
    now be available--and might generate somewhat larger employment losses
    for these subsets of families as well. In this case, there might well
    be a tradeoff between greater income security for poor families and
    children and the employment rates of parents in these families.

    On the other hand, it is also possible that the higher incomes
    associated with the more generous CTC could raise work effort among
    low-income families, which could now afford more child care and
    transportation, perhaps offsetting any potential losses of work effort
    among these parents (Ananat et al., op. cit.). Evidence from child
    benefits in Canada also shows little loss of employment among parents
    there (Baker et al., 2021). And, while changes in net wages (caused by
    the phasing out of the benefits as earnings rise) might produce more
    substantial changes in parental labor supply, these would be relevant
    for very small percentages of families in AFA: those with incomes over
    $150,000 for single filers and $200,000 for joint filers per year.
    Furthermore, the net changes in earnings for these high-income families
    would also be quite small in magnitude.

    One question to consider is, why should the child benefits be fully
    available to families until they have such high earnings? Part of the
    answer is no doubt political. Many middle-class voters do not like the
    better targeted but more redistributive income support and antipoverty
    programs like food stamps and Medicaid (Mettler, 2018). On the other
    hand, since even middle-class families sometimes pay substantial
    amounts for childcare and other costs of raising children (Holzer and
    Sawhill, 2022), a substantive case can be made for helping them as
    well.

    Unfortunately, the fiscal costs of such an expansion would be
    substantial. The Congressional Budget Office (CBO) and the Joint
    Committee on Taxation project that the budgetary costs of such an
    expansion would be approximately $1.6 T over the next decade
    (Congressional Research Service, 2022). In an era where federal budget
    deficits are already a major policy concern, especially as Baby Boomers
    retire, adding such expenditures to the budget would not be trivial.
    And, if either taxes must rise or other government spending fall to
    finance these expansions, their potential effects on economic outcomes
    would have to be considered as well. Overall, the combination of larger
    budget deficits and even modestly lower employment has reduced the
    political appetite for a permanent CTC expansion in the near future.

    Because of these concerns, more modest proposals for CTC expansion have
    been developed. For instance, Edelberg and Kearney (2023) propose an
    expansion which would be only partially refundable--with families with
    no or low earnings receiving only half of the credit--and phasing out
    somewhat sooner as income rises--beginning at $75,000 a year for single
    filers and $100,000 for joint filers--but also more slowly, thus
    generating smaller potential effects on labor supply. Their formulation
    is quite appealing in many respects; but, given the clear evidence in
    2021 of better income security and less material hardship for poor
    children while employment losses among their parents remain
    hypothetical and uncertain, I prefer the fuller refundability of AFA,
    as I think it would protect children in such families from food
    insecurity or material hardship that would otherwise occur.

    Other proposed changes in the credit that involve much less
    refundability and/or shrinking the Earned Income Tax Credit (EITC),
    such as proposed by Senator Romney (Marr et al., 2022), do not appeal
    to me. Families with very low earnings would receive too little credit;
    and reducing the positive work incentives and income boosts associated
    with the EITC, which have generated a wide range of improvements in
    outcomes for poor families (Nichols and Rothstein, 2015), does not seem
    sensible. A different proposal by Rachidi et al. of the American
    Enterprise Institute (2022) would retain the more positive effects of
    the EITC but generate smaller improvements in child well-being and cuts
    in poverty than the AFA proposal.

    CONCLUSION

    The improvements in child and family well-being associated with the
    temporary CTC expansion in 2021, and the reductions in child poverty,
    were substantial--while no employment losses among parents were
    observed. At the same time, making such an expansion permanent--as
    proposed in the AFA--might very modestly reduce overall US employment,
    and even more so in poor families. And the proposal would be quite
    expensive--$1.6 T over a decade--in an era where we already face
    disturbingly large budget deficits currently and in the future (and
    where the political will to raise taxes is extremely limited).

    I would support an expansion of the CTC with full refundability but
    otherwise also along the lines suggested by Edelberg and Kearney, which
    would reduce parental employment by less and be less fiscally costly.
    And I believe we would need to specify how we intend to finance such an
    increase, so that it would not contribute even more to federal budget
    deficits that already appear daunting over the next few decades.

    REFERENCES

    Ananat, Elizabeth et al. 2022. ``Effects of the Expanded Child Tax
    Credit on Employment Outcomes: Evidence From Real-World Data From April
    to December 2021,'' NBER Working Paper 29823.

    Bailey, Martha et al. 2020. ``Is the Social Safety Net a Long-Term
    Investment? Large-Scale Evidence from the Food Stamp Program.'' NBER
    Working Paper.

    Baker, Michael et al. 2021. ``The Effects of Child Tax Benefits on
    Poverty and Labor Supply: Evidence from the Canada Child Benefit and
    Universal Child Care Benefit,'' NBER Working Paper 28556.

    Bastian, Jacob. 2022. ``Predicting the Employment Effects of a
    Permanent 2020-to-2021 CTC Change.'' Working Paper, Rutgers University.

    Collyer, Sophie et al. 2023. The Anti-Poverty Effects of the Expanded
    Child Tax Credit Across States: Where Were the Historic Reductions
    Felt? Policy Brief, Brookings Institution.

    Congressional Research Service. 2022. Factors Affecting the Cost of
    Expanding the Child Tax Credit. Washington, DC.

    Corinth, Kevin et al. 2021. ``The Anti-Poverty, Targeting, and Labor
    Supply Effects of the Proposed Child Tax Credit Expansion,'' University
    of Chicago paper.

    Edelberg, Wendy and Melissa Kearney. 2023. A Proposal for an Enhanced
    Partially Refundable Child Tax Credit. The Hamilton Project, Brookings
    Institution.

    Enriquez, Brandon et al. 2023. ``The Short-Term Labor Supply Response
    to the Expanded Child Tax Credit,'' NBER Working Paper 31110.

    Fenton, George. 2023. ``Gains from the Expanded Child Tax Credit
    Outweigh Overstated Employment Worries.'' Center on Budget and Policy
    Priorities, Washington, DC.

    Goldin, Jacob et al. 2022. ``Estimating the Net Fiscal Cost of a Child
    Tax Credit Expansion,'' NBER Working Paper 29342.

    Han, Jooheen et al. 2022. ``Real-Time Poverty, Material Well-Being, and
    the Child Tax Credit,'' NBER Working Paper 30371.

    Holzer, Harry et al. 2008. ``The Economic Costs of Child Poverty.''
    Journal of Children and Poverty, Vol. 14, No. 1.

    Holzer, Harry and Isabel Sawhill. 2022. Can Child Care and Pre-K Help
    Reduce Inflation? Policy Brief, Economic Studies, Brookings
    Institution.

    Hoynes, Hilary et al. 2020. ``Long Run Impacts of Childhood Access to
    the Safety Net.'' American Economic Review. Vol. 106, No. 4.

    Kumar, Anil and Che-Yuan Liang. 2016. ``Declining Female Labor Supply
    Elasticities in the United States: Evidence from Panel Data.'' National
    Tax Journal. Vol. 69, No. 3.

    Lourie, Ben et al. 2022. ``Effects of the 2021 Expanded Child Tax
    Credit,'' University of California, Irvine.

    Marr, Chuck. 2022. ``Year-End Tax Priority: Expand the Child Tax Credit
    for the 19 Million Children Who Receive Less than the Full Benefit.''
    Center on Budget and Policy Priorities, Washington, DC.

    Mettler, Suzanne. 2018. The Government-Citizen Disconnect. New York:
    Russell Sage Foundation.

    National Academies of Science. 2019. A Roadmap to Reducing Child
    Poverty. National Academies Press, Washington, DC.

    Nichols, Austin and Jesse Rothstein. 2015. ``The Earned Income Tax
    Credit (EITC).'' NBER Working Paper.

    Parolin, Zachary et al. 2022. ``The Absence of the Monthly Child Tax
    Credit Leads to 3.7 Million More Children in Poverty in January 2022.''
    Center on Poverty and Social Policy, Columbia University.

    Pilkauskas, Natasha. 2022. ``The Effects of Income on the Economic
    Wellbeing of Families With Low Incomes: Evidence from the 2021 Expanded
    Child Tax Credit,'' National Bureau of Economic Research (NBER) Working
    Paper 30522.

    Rachidi, Angela et al. 2022. A Working Family Credit that Could
    Fundamentally Alter Child Poverty. American Enterprise Institute,
    Washington, DC.

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