[Senate Hearing 118-697]
[From the U.S. Government Publishing Office]
S. Hrg. 118-697
ASSESSING 25 YEARS OF THE
CHILD TAX CREDIT (1997-2022)
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HEARING
BEFORE THE
SUBCOMMITTEE ON TAXATION AND IRS OVERSIGHT
OF THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
JULY 13, 2023
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
__________
U.S. GOVERNMENT PUBLISHING OFFICE
61-228-PDF WASHINGTON : 2025
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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
______
Subcommittee on Taxation and IRS Oversight
MICHAEL F. BENNET, Colorado, Chairman
RON WYDEN, Oregon JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey CHUCK GRASSLEY, Iowa
BENJAMIN L. CARDIN, Maryland JOHN CORNYN, Texas
MARK R. WARNER, Virginia JAMES LANKFORD, Oklahoma
SHELDON WHITEHOUSE, Rhode Island RON JOHNSON, Wisconsin
ELIZABETH WARREN, Massachusetts MARSHA BLACKBURN, Tennessee
(II)
C O N T E N T S
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OPENING STATEMENTS
Page
Bennet, Hon. Michael F., a U.S. Senator from Colorado, chairman,
Subcommittee on Taxation and IRS Oversight, Committee on
Finance........................................................ 1
Thune, Hon. John, a U.S. Senator from South Dakota............... 3
WITNESSES
Dutta-Gupta, Indivar, president and executive director, Center
for Law and Social Policy, Washington, DC...................... 5
Michelmore, Katherine, Ph.D., associate professor, Gerald R. Ford
School of Public Policy, University of Michigan, Ann Arbor, MI. 7
Corinth, Kevin, Ph.D., senior fellow and deputy director, Center
on Opportunity and Social Mobility, American Enterprise
Institute, Washington, DC...................................... 9
Rachidi, Angela, Ph.D., senior fellow and Rowe Scholar in Poverty
Studies, American Enterprise Institute, Washington, DC......... 11
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Bennet, Hon. Michael F.:
Opening statement............................................ 1
Prepared statement with attachment........................... 43
Corinth, Kevin, Ph.D.:
Testimony.................................................... 9
Prepared statement........................................... 46
Responses to questions from subcommittee members............. 57
Dutta-Gupta, Indivar:
Testimony.................................................... 5
Prepared statement........................................... 59
Michelmore, Katherine, Ph.D.:
Testimony.................................................... 7
Prepared statement........................................... 71
Rachidi, Angela, Ph.D.:
Testimony.................................................... 11
Prepared statement........................................... 81
Responses to questions from subcommittee members............. 86
Thune, Hon. John:
Opening statement............................................ 3
Prepared statement........................................... 88
Communications
American Citizens Abroad, Inc.................................... 91
Center for Fiscal Equity......................................... 93
Children's HealthWatch........................................... 96
Democrats Abroad................................................. 98
First Focus on Children.......................................... 100
National Parents Union........................................... 106
ASSESSING 25 YEARS OF THE
CHILD TAX CREDIT (1997-2022)
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THURSDAY, JULY 13, 2023
U.S. Senate,
Subcommittee on Taxation and IRS Oversight,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:04
a.m., in Room SD-215, Dirksen Senate Office Building, Hon.
Michael F. Bennet (chairman of the subcommittee) presiding.
Present: Senators Brown, Casey, Whitehouse, Cortez Masto,
Warren, Thune, and Johnson.
Also present: Democratic staff: Brendan Duke, Senior
Advisor for Senator Bennet; Santiago Gonzalez, Legislative
Director for Senator Bennet; Rachel Skaar, Press Secretary for
Senator Bennet; Eli Weiner, Legislative Aide for Senator
Bennet; and Yousof Omeish, Staff Assistant for Senator Bennet.
Republican staff: Adam Wek, Deputy Legislative Director for
Senator Thune.
OPENING STATEMENT OF HON. MICHAEL F. BENNET, A U.S. SENATOR
FROM COLORADO, CHAIRMAN, SUBCOMMITTEE ON TAXATION AND IRS
OVERSIGHT, COMMITTEE ON FINANCE
Senator Bennet. Thank you for being here; good morning. I
am pleased to call the Subcommittee on Taxation and IRS
Oversight to order. I want to thank Ranking Member Thune for
his partnership on this hearing, also for the partnership of
his staff, along with the colleagues who are going to join us
throughout the day. We have a voting schedule this morning, so
people will probably be in and out.
But I am thrilled to have the panel that we have today to
discuss the 25-year-old Child Tax Credit and its benefit to
tens of millions of American children. Over its history, this
tax credit, which is the single largest Federal expenditure on
kids, has made it easier for families to afford rent,
groceries, child care, and the thousands of other expenses that
come with raising a child in America.
At its best, the Child Tax Credit has lifted nearly 2
million children out of poverty and demonstrated that we do not
have to accept, in the wealthiest country in the world, one of
the highest levels of childhood poverty in the industrialized
world as a permanent feature of our economy and our democracy.
In today's testimony we will learn much more about the
history of the Child Tax Credit and its success. And although
there have been occasional differences in approach between the
two parties, I think it is important to recognize that the
Child Tax Credit has been expanded, both in size and to whom it
has been made available, as a result of bipartisan consensus
and agreement.
Indeed, I want to record here that among the first
lawmakers to officially embrace the CTC were Republican members
of the House in 1994, who included a $500 credit in Newt
Gingrich's Contract With America. It was President George W.
Bush who worked with both Democrats and Republicans in Congress
to make some of the Child Tax Credit refundable for the first
time, expanding some of the benefit to low-income families.
In 2017, Congress passed the Trump tax cuts without
bipartisan support. That bill doubled the maximum size of the
credit from $1,000 to $2,000, but it also made it more
available to wealthier families by increasing the income
threshold to $200,000 for individuals and $400,000 for married
couples.
Around the same time, my colleague Sherrod Brown and I took
a different approach and introduced the American Family Act.
That bill made the Child Tax Credit fully refundable, cutting
taxes for the poorest families in the middle class. We did that
because no child chooses to be born poor, but as our witnesses
will tell you today, growing up in poverty can shape a child's
future and the country's future in ways that are profoundly
unfair.
I saw the effect of that poverty every single day when I
worked for the children in the Denver Public Schools as their
Superintendent, and as a society, we pay the price. Child
poverty costs our country up to a trillion dollars a year in
the form of more hospital visits, lower earnings, and higher
crime, and that is why economists from across the political
spectrum agree that investing in our kids is one of the best
choices we can make for our country. According to Columbia
University, every dollar we invest in the expanded Child Tax
Credit guarantees $9 in benefits to society down the road.
When COVID exacerbated and revealed further inequities in
our economy, we passed the American Family Act as part of the
American Rescue Plan. We will hear today that unlike many
things the Federal Government attempts, it was an enormous
success. As the research predicted, 62 million kids benefited,
90 percent of kids in every single State. In Colorado, moms
spent it on things like groceries and rent and diapers and
textbooks. It reduced stress for kids and for their parents,
and it helped cut childhood poverty in half and hunger by a
quarter. We found out that an extra $10 a day did not actually
reduce workforce participation as some people have said.
There is a growing chorus of research now, some of which
our witnesses will share today, that shows the expanded Child
Tax Credit is pro-family, pro-work, and pro-democracy. For 6
shining months in 2021, we finally treated children in poverty
in this country like they were our children, not someone else's
children. But we failed to extend the expanded Child Tax
Credit, and now because of that failure, child poverty is
rising again in America. Child hunger is rising again in
America, and American children continue to go to bed hungry in
the richest country in the world.
Today, I hope we will have a discussion about why we should
move forward in a bipartisan way to make the full expanded
credit available to every kid in America. We should consider
how extraordinary it would be if the wealthiest country in
human history--with the fourth highest rate of child poverty
among rich nations, as we meet here this morning--was able in
the end to end childhood poverty, to have an economy that when
it grows, it grows for everybody, not just the people at the
very top. My hope is that in the months ahead, we will build on
25 years of Child Tax Credit expansions to support America's
children.
And with that, I will turn it over to my colleague and the
ranking member, Senator John Thune, for his opening statement.
[The prepared statement of Senator Bennet appears in the
appendix.]
OPENING STATEMENT OF HON. JOHN THUNE,
A U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Chairman Bennet, to you and your
staff for working with me, and to all our panelists for being
here today to examine and further explore this important issue.
Today we are here to discuss the Child Tax Credit and evaluate
its 25-year history, review its effectiveness in helping to
ease the financial burden on American families, and to discuss
modifications to the credit that Congress should consider.
In 1997, the Child Tax Credit was created as a $400
nonrefundable per-child tax credit intended to help make life a
little easier for working families and children. I was a member
of the House of Representatives at the time. As Chairman Bennet
pointed out, at that time Speaker Gingrich made this part of
the agenda among House Republicans. Bill Archer was the
chairman of the Ways and Means Committee, and the Child Tax
Credit was born.
Over the last 25 years, the Child Tax Credit has expanded
and evolved, and unlike some issues that we debate in this
committee, it continues to have a fair amount of bipartisan
support. Today, as a result of the Tax Cuts and Jobs Act, the
credit provides qualifying families with $2,000 per dependent
child and $500 per non-dependent child up to the age of 16. Due
to the expansion of the Child Tax Credit, families across the
Nation are able to reap the benefits of a more lucrative
credit. However, this expanded Child Tax Credit is set to
expire and revert back to pre-Tax Cuts and Jobs Act levels
beginning in 2026. If allowed to happen, families in South
Dakota and across the Nation would see their Child Tax Credit
benefit cut in half, back to the 2017 levels.
Therefore, it is my hope that my colleagues on the Finance
Committee and in the Senate see the necessity for this expanded
Child Tax Credit to not be allowed to simply expire in just a
few short years. As we all know, there is a push by some to
reinstate the temporary changes to the Child Tax Credit that
were included in the American Rescue Plan in 2021 which have
since expired. This is an approach that I have serious concerns
with, as do many others, including some of our witnesses. The
American Rescue Plan went beyond simply increasing the per-
child tax credit amount. It extended the credit to children who
are almost adults. It adopted a completely new approach by
mandating taxpayers who did not opt out to receive half their
credit in advance, significantly straining the IRS's resources
and leading to refund delays, surprise tax bills, and lengthy
call wait times for two consecutive tax filing seasons, among a
host of other administrative challenges.
Though we can debate the merits of any of these changes, in
my view the most concerning change was that Democrats
eliminated the credit's tie to working and earning a basic
amount of income. This single change essentially turned a
credit that targets assistance towards working families into
universal basic income for anyone with a child. This
contentious and expensive change is also completely contrary to
the original intent of the Child Tax Credit. Eliminating the
tie between the Child Tax Credit and working takes away a key
incentive, a bonus of sorts for certain parents to enter and to
stay in the workforce. Such an incentive has been part of the
Child Tax Credit since its inception, and one that is lauded in
other income support programs such as the Earned Income Tax
Credit. Today, while many try to reframe the discussion, the
Child Tax Credit originated during the broader back-to-work
welfare reform push of the 1990s and cannot be understood
without comprehending the lessons of this highly successful
series of reforms.
One primary objective of welfare reform was to get families
out of the cycle of perpetual poverty by providing them with a
hand up rather than a handout. That is why the Personal
Responsibility and Work Opportunity Reconciliation Act
incorporated work requirements into various Federal programs.
These changes were decried by some at the time as being unfair
or mean-spirited and likely to lead to harm for those who need
assistance. In fact, the data is irrefutably to the contrary.
Welfare reform worked and had amazing and positive outcomes for
the most economically vulnerable. By tying government
assistance to workforce participation, beneficiaries of various
Federal programs are incentivized to get a job, which provides
the best pathway out of poverty and a host of other positive
outcomes.
Clearly, there are certain instances in which a parent does
not have the ability to work, but there are current programs
like the Earned Income Tax Credit and WIC that do not require
one to hold a job in order to reap the full benefits of the
program. However, turning the Child Tax Credit into universal
basic income is both duplicative and counterproductive, and I
believe this is the wrong approach. Instead, I believe it is
imperative for Congress to ensure that we continue to build on
the successes of the Child Tax Credit that we witnessed over
its 25-year history, rather than fixing what is not broken. I
look forward to hearing from our witnesses on this very
important issue, and I look forward to our discussion.
Thank you, Mr. Chairman.
[The prepared statement of Senator Thune appears in the
appendix.]
Senator Bennet. Thank you, Senator Thune, for that
excellent opening statement. And with that, I am going to
introduce the witnesses.
Let me introduce first Mr. Dutta-Gupta, who is the
president and executive director of the Center for Law and
Social Policy, a nonpartisan antipoverty nonprofit focused on
advancing policy solutions to improve the lives of people with
low incomes. Prior to joining CLASP, he was the co-executive
director of the Georgetown Center on Poverty and Inequality,
where he led work to develop policy recommendations focused on
poverty and inequality, advancing racial and gender equity, and
advancing economic inclusion. Earlier in his career, Mr. Dutta-
Gupta served as a professional staff member on the House Ways
and Means Committee for the Subcommittee on Income Security and
Family Support. He received his BA with honors from the
University of Chicago in law, letter and society, and in
political science, and was selected as a Harry S. Truman
scholar.
Professor Katherine Michelmore is an associate professor of
public policy at the University of Michigan's Gerald Ford
School of Public Policy. Professor Michelmore is a leading
scholar and educator on the social safety net, education
policy, labor economics, and economic demography. She is a
recognized expert on the efficacy of the Earned Income Tax
Credit and its impact on children. She completed her Ph.D. in
policy analysis and management at Cornell University. She holds
a BA in economics and psychology from Wesleyan University.
Dr. Kevin Corinth is a senior fellow and the deputy
director of the Center on Opportunity and Social Mobility at
the American Enterprise Institute. Before joining the AEI, Dr.
Corinth served as the staff director of the Joint Economic
Committee in Congress, and Chief Economist in the White House's
Council of Economic Advisors. Dr. Corinth has a Ph.D. and an MA
in economics from the University of Chicago. He holds a BA in
economics and political science from Boston College.
Last but not least, Dr. Angela Rachidi is a senior fellow
and a Rhodes Scholar in Opportunity and Mobility Studies, also
at the American Enterprise Institute, where she studies poverty
and the effects of Federal safety net programs on low-income
people in America. Before joining AEI, Dr. Rachidi researched
benefit programs for low-income populations in New York City.
From 2007 to 2015, she served as a Deputy Commissioner in New
York City's Department of Social Services, where she oversaw
the agency's policy research and program evaluation efforts.
She received her Ph.D. from The New School and MPA from
Northern Illinois University, and a B.S. in public
administration from the University of
Wisconsin-Whitewater.
I am extremely grateful to have all of you here today for
this hearing. Mr. Dutta-Gupta, Professor Michelmore, Dr.
Corinth, and Dr. Rachidi, I look forward to your testimony.
With that, I think we are going to go to Mr. Dutta-Gupta. As a
reminder, we ask each of you to keep your testimony to 5
minutes each, and any written testimony will be submitted for
the record. You might hear me tap the gavel should your time
expire.
Mr. Dutta-Gupta, you are recognized for 5 minutes.
STATEMENT OF INDIVAR DUTTA-GUPTA, PRESIDENT AND EXECUTIVE
DIRECTOR, CENTER FOR LAW AND SOCIAL POLICY, WASHINGTON, DC
Mr. Dutta-Gupta. Thank you, Chairman Bennet, Ranking Member
Thune, and members of the subcommittee. My name is Indy Dutta-
Gupta, and I am president and executive director of the Center
for Law and Social Policy, or CLASP. I am honored to come
before you to discuss the bipartisan quarter-century history
and extraordinary track record of the Child Tax Credit.
I have been working on policies to reduce poverty for
nearly 2 decades. As professional staff on the Ways and Means
Committee from 2007 through 2010, I worked on a bipartisan
basis to reduce the tax credit's discriminatory treatment
against people when their incomes are low. We succeeded in
shrinking the earnings that are not counted toward the credit
from around $11,000 a year to $3,000 a year. Later, I worked at
think tanks and advanced a more effective CTC.
The Child Tax Credit was established through the Taxpayer
Relief Act of 1997. The credit was the culmination of
recommendations made by the National Commission on Children
that were embraced by both Republicans and Democrats. The first
CTC was modest and was nonrefundable. Over the next 2 decades,
the CTC was strengthened. The benefit grew to $1,000 per child
and was made partially refundable in the first large tax
package signed by President George W. Bush. However, the CTC
ignored the first $10,000 in earnings, so a full-time minimum-
wage worker with two children received just $45. She would not
get the full credit until she worked the equivalent of more
than two full-time minimum-
wage jobs.
During the 2007 through 2009 financial crisis, bipartisan
legislation lowered the earnings threshold to $3,000
temporarily, so this minimum wage worker could now receive
$1,725. On a bipartisan basis, this provision was extended
multiple times and then made permanent in 2015, alongside
various corporate tax cuts including the R&D tax credit.
President Trump's 2017 tax law increased the credit to $2,000
per child and lowered the earnings threshold to $2,500.
In 2021, the American Rescue Plan Act's 1-year Child Tax
Credit expansion led to all-time lows in child poverty, as well
as in racial disparities in child poverty, with little or no
undesirable effects. Key to this impact was full refundability,
which helped include those families that would most benefit
from the income boost, and ensure that they got an equal
benefit. Unfortunately, policymakers did not extend this
historic investment, and millions of families have struggled as
a result.
The United States is the only western industrialized nation
that does not have a child allowance policy or some other
universal public benefit for families raising children. Those
are not my words, but the words of the 1991 National Commission
on Children, which included 12 Reagan and Bush appointees.
These appointees unanimously recommended something like the
American Rescue Plan's Child Tax Credit. At the end of 2025,
major provisions of the Trump tax law, including those that
expanded the Child Tax Credit, expire. This creates an
opportunity to establish and improve CTC, drawing on decades of
evidence. A vast array of rigorous studies has demonstrated
that the Child Tax Credit and similar policies helped families
with low incomes provide a foundation for their children to
thrive.
Here are a few examples. Children whose mothers received
payments from the mother's pension program a century ago lived
1 year longer, obtained one-third more years of schooling, were
less likely to be underweight, and had higher income in
adulthood compared to children whose mothers' applications were
rejected. A study of the pandemic-era stimulus and Child Tax
Credit payments found that each additional $100 in
unconditional transfers that a pregnant mother received reduced
the prevalence of low birth weight--which can have lifelong
effects--by 2 to 3 percent. A study looking at birth and tax
years found that an extra $1,000 tax transfer to low-income
families with children results in 2.6 percent fewer referrals
to child protective services through age 2, and 7.9 percent
fewer days spent in foster care.
The Child Tax Credit provides such unequivocally positive
outcomes, because each of us needs a basic foundation to
develop fully and thrive. A modest income floor allows parents
to invest more in their children and reduce their own stress,
in turn likely improving parent-child interactions.
An expansive Child Tax Credit offers enormous gains.
Researchers calculate that a permanent version of the ARPA
Child Tax Credit would return more than $9 to society for each
dollar spent, with little to no harmful consequences. If
policymakers can come together and establish a permanent and
equitable Child Tax Credit, our entire Nation will become more
just and prosperous.
[The prepared statement of Mr. Dutta-Gupta appears in the
appendix.]
Senator Bennet. Thank you, Mr. Dutta-Gupta. I appreciate
very much your testimony.
Dr. Michelmore, thank you.
STATEMENT OF KATHERINE MICHELMORE, Ph.D., ASSOCIATE PROFESSOR,
GERALD R. FORD SCHOOL OF PUBLIC POLICY, UNIVERSITY OF MICHIGAN,
ANN ARBOR, MI
Dr. Michelmore. Chairman Bennet, Ranking Member Thune, and
distinguished members of the subcommittee, thank you for the
opportunity to testify today. I am an associate professor at
the Ford School of Public Policy at the University of Michigan,
but I am here on my own behalf, and the views expressed here
are my own and should not be attributed to my institution. My
testimony today will provide an overview of the children left
out of the current-law Child Tax Credit, as well as the impacts
of the historical American Rescue Plan Act reform to the Child
Tax Credit and the likely enormous, long-term societal benefits
of making these reforms permanent.
As Chairman Bennet said, the Child Tax Credit is the single
largest Federal expenditure program for children in the U.S.
Despite its scope, the current structure of the CTC prevents
approximately 19 million of the poorest children in the U.S.
from receiving the full credit. In fact, nearly all children
living in the bottom 10 percent of the income distribution are
not eligible for any CTC benefit. In contrast, nearly all
children residing in the households in the top half of the
income distribution are eligible for the full benefit.
Excluding the poorest children in the U.S. from the Child Tax
Credit goes against the evidence that we have about the
importance of income for children's future life chances. An
extra dollar matters the most for kids living in the poorest
households.
Eligibility for the CTC is racially and geographically
concentrated. As of 2023, nearly half of Black and more than
one-third of Hispanic children resided in households that were
not eligible for the full credit, compared to just 17 percent
of White children. Likewise, children living in rural areas and
coming from larger families are also less likely to receive the
full benefit.
To give a few concrete examples, as Mr. Dutta-Gupta said, a
single-earner family with two children working full-time year-
round at the Federal minimum wage would not be eligible for the
full CTC. Such a family would need to earn more than $30,000
per year to qualify for the full benefit, which is well above
the official poverty threshold and more than twice the earnings
of someone working full-time year-round at the Federal minimum
wage. In contrast, under current law, a married couple with
annual earnings of $400,000 will qualify for the full $2,000
per-child benefit. In fact, nearly all children residing in
households in the top half of the income distribution are
eligible for the full benefit, while more than a quarter of the
poorest children in the U.S. are not.
The 2021 ARPA reform to the CTC marked a critical moment in
CTC legislative history, transforming the benefit into
something akin to a universal child allowance. The growing body
of evidence on the impact of the reforms suggest that they had
real positive impacts on the well-being of families,
particularly low-income working families. Survey evidence
suggests that families spent their benefit primarily on basic
needs, such as food and housing, as well as child-related items
and paying down debt.
The Census Bureau estimates that child poverty declined by
nearly half in 2021, keeping nearly 3 million children out of
poverty. Following the expiration of the monthly payments in
2022, estimates suggested that 3.7 million more children were
living below the poverty line. Other measures of material
hardship also improved during the months that the expanded CTC
was in place. Material hardships, including food insecurity and
housing hardships, declined substantially. Evidence also
suggests that the CTC reduced child maltreatment in the days
following the payments, and increased infant birth weight. Both
of these outcomes have been shown to lead to longer-term
improvements in child outcomes.
One of the central debates about making the ARPA reforms to
the CTC permanent at the end of 2021 was surrounding how the
reforms might reduce parents' incentives to work. However, the
vast majority of research on the reforms found no evidence that
the credit caused parents to work less, with survey evidence
suggesting that the credit actually helped some parents work
more, by allowing them to afford the necessary costs associated
with work, such as child care and transportation.
While it is too soon to tell how these reforms will benefit
children in the long term, history tells us that the societal
benefits are likely to be enormous. A recent study by
researchers at Columbia University estimated that the $97
billion spent on the expanded CTC could generate $929 billion
in long-term societal benefits, a return on investment of more
than 9 to 1. These calculations were based on a long line of
research that points to the importance of income for children's
success in both the short and long term. For instance, children
who receive more income in early childhood through tax credits
such as the Earned Income Tax Credit and other social programs
like Food Stamps, go on to have higher test scores in school,
have better health outcomes, complete college at higher rates,
and have higher earnings in adulthood. They are also less
likely to live in poverty and less likely to receive public
assistance in adulthood. In short, the evidence is clear that a
permanent expansion of the CTC is likely to pay off several
times over, for both the beneficiaries themselves as well as
society at large.
Thank you.
[The prepared statement of Dr. Michelmore appears in the
appendix.]
Senator Bennet. Thank you.
Dr. Corinth, you have 5 minutes.
STATEMENT OF KEVIN CORINTH, Ph.D., SENIOR FELLOW AND DEPUTY
DIRECTOR, CENTER ON OPPORTUNITY AND SOCIAL MOBILITY, AMERICAN
ENTERPRISE INSTITUTE, WASHINGTON, DC
Dr. Corinth. Chairman Bennet, Ranking Member Thune, and
subcommittee members, thank you for the opportunity to testify
this morning.
The Child Tax Credit, the version that we have today,
should be celebrated as a bipartisan achievement, because it
serves the dual purpose of providing tax relief for families
and encouraging work. Since it was introduced 25 years ago, the
Child Tax Credit has become more generous and has been expanded
to more working families, including to those who do not earn
enough to pay Federal income tax. Today, for a full-time worker
with two children, the Child Tax Credit effectively turns a
$15-per-hour job into a $17-per-hour job, increasing take-home
pay by $4,000 over the course of the year.
Rewarding work through the tax code has been shown to
increase employment, especially for low-income families. It
also improves the well-being of children, who not only perform
better academically in the short run, but also achieve higher
earnings and greater self-sufficiency when reaching adulthood.
In short, incentivizing work through the tax code, as the Child
Tax Credit has done for almost its entire 25 years of
existence, is a proven strategy for increasing employment,
reducing poverty, and investing in the long-run success of
children.
However, for 6 months during 2021, the Child Tax Credit was
completely changed. Instead of offsetting taxes and rewarding
work, it was transformed into a universal child allowance,
costing an additional $100 billion annually. If made permanent,
it will lead an estimated 1.5 million parents to exit the
workforce, and could put at risk the long-run benefits for
children resulting from the existing Child Tax Credit.
Unfortunately, the risks of adopting a child allowance have
been overlooked. The intellectual foundation for this idea was
provided in part by a National Academy of Sciences report in
2019. That report concluded that replacing the Child Tax Credit
with a child allowance would have a negligible effect on
employment and thus dramatically reduce child poverty. However,
the report made a fundamental error. It failed to recognize
that the work incentives in the existing Child Tax Credit would
be eliminated. When my co-authors and I corrected the error and
used their own assumptions about how parents respond to work
incentives in other contexts, we found that well over a million
parents would exit work due to the policy change.
Unfortunately, the National Academy of Sciences has been
unwilling to correct the public record about their error,
misleading policymakers about the true consequences of their
decisions.
Policymakers are now being misled again by faulty
interpretations of studies that examine the 2021 experience
with the child allowance. These studies test whether parents
who received the child allowance during the second half of 2021
were more likely to quit their jobs. But contrary to
assertions, these studies do not provide a useful guide to the
effects of making the child allowance permanent. There are
three main reasons.
First, it is hard to believe that most parents understood
how work incentives changed in 2021, when the child allowance
checks were being paid out. As late as September of that year,
462 economists wrote a letter to Congress in which they failed
to recognize that the Child Tax Credit's work incentives were
eliminated. It is unrealistic to think that most parents would
have understood more quickly. In fact, previous research
suggests that it would take several years for employment
responses to fully materialize.
Second, parents would have been less likely to quit their
jobs in response to a temporary 6-month policy change. In real-
world labor markets, workers cannot suddenly quit their jobs,
then automatically get them back 6 months later when the work
incentives are restored.
Third, even if parents understood the weakened work
incentives more quickly than 462 economists, and even if they
had jobs they could seamlessly move into and out of, the 2021
experience would still provide little help in understanding the
consequences of a permanent extension of a child allowance.
That is because a lot was going on in 2021 that made it unique.
How parents respond to work incentives in the midst of a
pandemic and other unprecedented government aid is likely to
differ from how they would respond in less extreme times.
While these issues may sound obvious, some have nonetheless
extrapolated from the experience with the 2021 child allowance
to what would happen if it was made permanent. They have
claimed that we now have evidence that it would have little
effect on employment, and thus dramatically reduce child
poverty. That is simply not true. The existing Child Tax Credit
follows a proven strategy for increasing work, reducing
poverty, and investing in children's long-run success.
Replacing it with a child allowance would provide more
resources to low-income families in the short run, but at the
same time threaten self-sufficiency and children's well-being
in the long run.
As you discuss ways to better support families, I hope that
you consider both the benefits and the costs of possible policy
changes.
Thank you, and I look forward to your questions.
[The prepared statement of Dr. Corinth appears in the
appendix.]
Senator Bennet. Thank you for your testimony as well.
Dr. Rachidi, you get the last word for the moment.
STATEMENT OF ANGELA RACHIDI, Ph.D., SENIOR FELLOW AND ROWE
SCHOLAR IN POVERTY STUDIES, AMERICAN ENTERPRISE INSTITUTE,
WASHINGTON, DC
Dr. Rachidi. Chairman Bennet, Ranking Member Thune, and
subcommittee members, thank you for the opportunity to testify.
My name is Angela Rachidi, and I am a senior fellow at the
American Enterprise Institute, or AEI. My research at AEI
focuses on the intersection of safety-net policy and employment
as a path out of poverty.
I want to make three key points in assessing the history of
the Child Tax Credit. First, Congress created the CTC as a
credit against Federal income taxes owed by working families
with children, complementing the Earned Income Tax Credit, or
EITC, which primarily benefits low-income families, working
families who do not owe Federal income taxes. Second, over the
years, Congress has expanded the refundability of the CTC,
meaning that it now substantially overlaps with the EITC and
other safety-net benefits, a fact that is frequently
overlooked. Finally, proposals to turn the CTC into a child
allowance are not targeted well to low-income families, and
these proposals jeopardize progress made in the U.S. on child
poverty.
The CTC started in 1997 as a modest $500-per-child
nonrefundable tax credit for working families, as a way to
offset some of their Federal income and payroll tax liability.
Through several expansions, it is now partially refundable. Key
design features include that it phases in at 15 percent of
earnings above $2,500 per year, which incentivizes employment.
The CTC works in conjunction with the fully refundable EITC,
which operates in a similar way but targets low-income working
families without Federal income tax liability. Approximately 86
percent of the EITC is refundable, while 39 percent of the CTC
is refundable.
This brings me to another often-overlooked point. By
increasing the refundability of the CTC over the years,
policymakers have added this transfer payment on top of the
existing safety net. For example, under current law, the
typical working single mother with two children earning $12 per
hour for full-time work would receive the refundable EITC,
refundable CTC, and SNAP benefits, totaling more than $12,000
in government benefits per year alone, and increasing her
income by 50 percent. Her children would likely also receive
free school lunches, health insurance through Medicaid, and the
family could receive housing and child-care assistance,
averaging another several thousand dollars per year. Nonworking
families could receive SNAP, SSI, preschool lunch, TANF, and
other benefits.
The safety net I just described is most generous for
parents when they work. The refundable EITC and CTC phase in
with earnings and do require some employment to maintain
eligibility. Studies have documented the many positive effects
associated with this design. We cannot rely on the 2021
temporary CTC expansion to understand how a permanent child
allowance would affect outcomes due to it being a temporary
policy, and because the research suffered from the inability to
study the policy in a controlled environment.
For these reasons, we should look to other research to
suggest how an expanded CTC might affect families over the long
term. One recent study tested an unconditional cash payment for
a group of randomly assigned families with a new baby. Called
``Baby's First Year,'' the study produced mixed results.
Although there was no statistical difference in whether a
mother worked or not at the time of surveys, the payments did
reduce full-time employment by 11 percent across 3 years, and
hours worked by 12 percent. This demonstrates the importance
for policymakers of taking seriously concerns over how
government payments affect employment.
My final point is that turning the CTC into a universal
child allowance does not target poverty well, which is likely
why studies in other countries have found that universal child
benefits failed to improve long-term outcomes. For example,
economist James Heckman studied universal child benefits in
Denmark and concluded that although redistribution did decrease
income inequality, it failed to close achievement and skill
gaps. Proposals for a child allowance in the U.S. would
similarly target low-income families poorly. The Penn Wharton
budget model found that 2021-type CTC expansion would
distribute only 50 percent of new benefits to those in the
bottom two income quintiles.
To conclude, proposals to move the CTC away from its
original goals of tax relief threaten the country's progress on
poverty by discouraging employment and mistargeting important
Federal benefits.
Thank you, and I look forward to answering your questions.
[The prepared statement of Dr. Rachidi appears in the
appendix.]
Senator Bennet. Thank you, Dr. Rachidi, and thank you to
all of you for your excellent testimony. I am going to--I think
Senator Thune has to run across the street. I will try to
filibuster here with the folks who are here until he comes
back. But thank you to the witnesses. I think you guys have
done a really good job of delineating the different views of
this.
So, let's get into this conversation, and, Professor
Michelmore, I think I will start with you. I think we can spend
the whole 2 hours here going over the research that proves the
expanded CTC does not discourage work, and its effects on
poverty and hunger and parental stress, and children's visits
to the emergency room. But there are people, as we have heard,
who are citing studies that suggest that it will discourage
people from working.
I do want to say, Dr. Corinth--and I am happy to get you
into this too--that I did not rely on that 2019 study when
Sherrod Brown and I wrote this bill in 2017. That was 2 years
before. So, if there are other people relying on it, it was not
me, and it certainly did not inform my opinion about whether
this was a good policy or not.
But I think, just based on the conversations that I have
with moms, mostly in Colorado, that some of these critics are
living in an imaginary world--you know, a world where a mom
who's making $2,000 a month as a janitor, who already can't
afford the $1,300 a month for a two-bedroom apartment and $900
a month for child care--you know, in this imaginary world she
quits her job paying $2,000 a month because she starts
receiving $250 a month from the Child Tax Credit.
In reality, parents cannot afford to work because it is too
expensive to pay for child care in America. That is not--do not
think--just my opinion; I hear it every single day in Colorado.
So I wonder, Dr. Michelmore, if you could help clear this up.
Is there any evidence about the effect of the expanded Child
Tax Credit on work, and could you explain how it actually, in
some cases, helps families work more?
Dr. Michelmore. Thank you for the question. The vast
majority of the evidence we have to date found no evidence that
the monthly payments reduce parents' employment. And so, while
we cannot say for sure whether these effects would persist, it
is not clear that parents knew that the credits were going to
expire. I think many of us did not know the credits would
expire until late in the year, and lots of survey evidence does
show, as you mentioned, that it actually helped parents work
more by allowing them to afford child care and transportation.
A survey by AEI actually found that the vast majority of
parents said that the credit would not impact their employment
at all. An equal share said that it helped them work more as
those who said it would help them work less.
Senator Bennet. Dr. Corinth, do you have anything you would
like to add?
Dr. Corinth. I would just add that there is a large
literature in the economic literature finding that tax credits
that incentivize work do in fact increase work, and I do not
think we can rely on the temporary 2021 experience.
Senator Bennet. I appreciated your testimony about that
too, because it was different than other testimony that we have
heard in front of this committee, where people actually
imagined, sitting in your seat, that there were families out in
America watching the committee debate over the expanded Child
Tax Credit and retreating from the labor market as a result of
that debate.
I think your testimony is different from that, which is
that the tax credit was too short a period in 2021, and maybe
there was too much else in the environment to be able to tell.
I think there is pretty convincing evidence on the other side.
But I do want to say that that testimony is different from what
we had before, and I will come back to you if you want to
respond to any of that.
I do have one other question I would like to ask at the
outset, and since for once I have the chairman's gavel, I am
going to do that, even though I may go over time slightly,
Senator.
You know, the part of the expanded Child Tax Credit that
Sherrod Brown and I worked on that has raised the most debate
is what we call full refundability, which simply means that
families get the credit even if their income taxes are less
than the credit. And, Mr. Dutta-Gupta, this question is going
to go for you.
We know first of all, if you look at this chart, that more
than 70 percent of the people who received the fully refundable
credit were working. I think that is a really important point.
Seven out of 10 were working. If you look at people who were
working the year before, that number is actually more than 80
percent of the people who were getting the refundable tax
credit were working.
If you look at the rest of the people who are there, there
is 95 percent that are either working--so, the vast majority
were working, but if you want to take just the year of the
credit, more than 70 percent. If you want to take the year
before, there were people working and who may have fallen out
of the workforce, which is not unusual--I mean, people do that
all the time--that is more than 80 percent.
And then you add up people with a child under the age of
two. As Senator Thune said when he was here, maybe there is the
opportunity for us to think about people with very young
children and whether we would be happier incentivizing them to
work or happier incentivizing them to try to raise children.
There are children living with senior citizens, and there are
children living with disabled people.
If you operate all of that--grandparents, people who have a
baby, people who are disabled--that is 90 percent of the
families that benefited from the fully refundable credit. I
would argue that that 95 percent--you cannot make a case that
they are being disincentivized from working, because they are
either working or they have a really good excuse for not
working.
And nevertheless, we took this credit away from people who
were working, and in doing that--and I am going to put this in
the record later when I have had the chance to do it--over
700,000 janitors and housekeepers who do backbreaking work now
have lost the benefit of the full refundability of the credit,
the marginal improvement to their income that they were getting
as a result of the credit. Over 700,000 cooks, waitresses,
farmers, and ranchers who feed this country, almost 600,000
teachers and child-care workers who educate and care for our
kids, they got the benefit of full refundability.
Today, they do not have the benefit, and it is not because
they are not working. Over 500,000 health-care aides and nurses
who take care of America's sick and elderly, over 400,000
construction workers who are building this country--this is a
list from the Center on Budget and Policy Priorities that I am
going to enter into the record.
[The list appears in the appendix beginning on p. 44.]
Senator Bennet. And as I have said, we have also taken it
away from grandparents who worked for 50 years and now
probably, for circumstances beyond their own control, are
helping to raise their grandchildren, and the moms of 1-year-
olds who are paying more for child care than they will ever
make if they are working.
But notwithstanding all of that--and I think there are
probably people on the other side of the aisle who would say
that sounds unjust and counterproductive. Notwithstanding all
of that, somebody who makes $400,000 in America gets the full
$2,000 credit for every kid they have.
Talk about something that is misallocated or mistargeted or
misspent. So, Mr. Dutta-Gupta, could you talk more about who
has lost out from the expiration of the enhanced Child Tax
Credit? Could you explain why it makes sense that we live in a
world where someone making $400,000 gets the full credit for
every child that they have, and that people who are struggling
to survive, the vast majority of whom are working, do not get
the full credit?
Mr. Dutta-Gupta. Well, I am not going to make sense of that
world. But I will say that you are exactly right. By making
that tax credit fully refundable for 1 year, we kept nearly 3
million families out of poverty. This particularly helped a lot
of families of color: Black, Latino. We are talking about
nearly half of Black children and two in five Latino children
who did not get the full Child Tax Credit prior to the
temporary ARPA expansions because their family incomes were too
low to qualify.
We are not showing exactly why sometimes people are not
working, but if you do not have a fully refundable Child Tax
Credit, you have a situation where somebody gets hit, say with
a cancer diagnosis, and then has to focus on their treatment,
step away from work. We already do not have paid family medical
leave in this country. We fall short on caregiving in general,
and now we are going to say we are also going to take away your
Child Tax Credit or shrink it. Folks lose jobs all the time
through no fault of their own. We have recognized that in the
past, and it happens throughout the business cycle.
Again, people might be students doing something to advance
their prospects in the labor market. Well, they have kids, and
it makes little sense when, as Dr. Michelmore documented, it is
actually those folks who are growing up in families with the
lowest incomes, where you are going to get the most bang for
your buck.
Senator Bennet. Thank you.
Senator Johnson, thank you for enduring that, and the floor
is yours.
Senator Johnson. I've got no choice. [Laughter.]
Senator Bennet. Take as long as you want.
Senator Johnson. I appreciate that.
Well, first of all, Mr. Chairman, I am new to the
committee, new to the complexity of this issue. We have been in
enough hearings now that you realize that my thrust always ends
up being the KISS principle. You know: keep it simple.
Senator Bennet. Right.
Senator Johnson. And this is a classic example of it. We
have so many different programs to try and alleviate poverty,
and one of the charts I used in an earlier hearing here is,
prior to the War on Poverty, we had poverty rates dropping
precipitously, from about 22 percent down to about the 15-
percent range.
In the 50-60 years since the War on Poverty, we have spent
about $23 trillion. It has pretty well flatlined. It has gone
up and down a little bit, but you know, we have not conquered.
We have not won that War on Poverty. I would argue part of the
problem is simply the complexity.
I mean, even this chart--I am an accountant. I actually do
understand numbers. It is like--I do not know how any working
family or nonworking family would even begin to comprehend what
the incentives are. They will just take what money they get.
I would argue we ought to really focus entirely on
simplifying what it is we are trying to do, and of course the
real challenge in any type of--you know, we are a compassionate
society. We want to help people who cannot help themselves. We
want to help people help themselves, right?
The trick is, how do you design benefit programs that do
not make people dependent on government, that do not encourage
people to--you know, we've got what, 20 percent of the adult
working-age male population permanently out of the workforce?
That is not good for America, that is not good for them, and
that is certainly not going to solve poverty. So you know, Dr.
Rachidi, you were talking about the different programs. How
many different programs do we have trying to help people? I
mean, do we even know the number?
Dr. Rachidi. Well, we have tried to quantify it. There are
actually 80-plus programs that are means-tested.
Senator Johnson. Only 80?
Dr. Rachidi. Yes, 80-plus, because it is a little bit hard
to identify all of them. But yes, there are roughly five or six
major programs that kind of account for the major expenditures
that cover food, housing, and basic necessities.
Senator Johnson. Again, it is so difficult because it is,
you know, a single mom with one child. I mean, it is hard to
come up with stock figures, but I do not know whether you are
familiar with the work of former Senator Phil Gramm and John
Early. They looked at the income gap, or the wealth gap, which
you know, on its surface, looks pretty dramatic. But then when
you--from the top earners, when you take away taxes, and from
lower earners when you add benefits, all of a sudden it does
not look quite that bad. Can you comment a little bit on that?
Dr. Rachidi. Yes, that is very true. And actually, the CBO
puts out great data on after-tax and transfer income, and it
shows very different trends than if you are looking at pretax.
It shows not only that the gap you describe shrinks, but it
shows that income, considering all benefits and after taxes,
has increased for those in the lowest-income quintiles. So, it
is important to look at that after tax and transfer, because
the Federal Government does provide a lot of transfer payments
to low-income households.
Senator Johnson. And again, these benefit programs are tax-
free. I think we kind of lose that in the translation as well.
In a budget hearing--this is many years ago and when we were
considering budget items as opposed to climate change most of
the time. I remember we had a--I think the individual was in
charge of the welfare system in Pennsylvania, and what was
striking about his testimony--and these are just gross numbers;
do not hold me to them. But you know, he was describing a
person in Pennsylvania who, for every additional dollar of
work, she would make more money, up to about $30,000-some worth
of income. And then she would have to make something like
$65,000 before she could put an additional dollar in her pocket
because of the drop in benefits versus again--is that called
the welfare gap, or I mean the benefit----
Dr. Rachidi. Benefit cliff.
Senator Johnson. Benefit cliff, yes. That is a significant
problem. And you are talking about the Earned Income Tax Credit
versus this Child Tax Credit, just the complexity of all this
stuff. I would argue we really ought to, as opposed to just
focusing on the Child Tax Credit--and all of these studies
produce different results based on time frames.
Again, your head just starts swimming in the complexity,
and I do not think you can really draw any conclusions to it. I
would argue what the Finance Committee and what this
subcommittee ought to do is take a look at these benefit
programs in total, what can we do to simplify them to
accomplish the goal that we all agree on, which is, how do we
help people help themselves; how do we help people who cannot
help themselves?
How can we make sure that children do not live in poverty?
How can we actually win the War on Poverty, because we are not
doing it, and we have spent trillions of dollars. And I would
argue one of the problems, one of the biggest problems for
people in poverty is that a dollar they held at the start of
this administration is now worth less than 86 cents.
It is kind of hard to develop programs that make up for
that damage, which is caused by massive deficit spending. And
what are we massively deficit spending on? Programs that make
no sense, that again, there is no way a human being can
understand exactly how they ought to maneuver to take best
advantage of them.
I mean, it is just--it is just impossible. So I mean, I am
sorry. I appreciate all your scholarship here, but I mean, I
just--I listen to these studies, and my head just swims. Dr.
Corinth, do you want to comment on this at all?
Dr. Corinth. Sure. I would just note in terms of trends in
poverty, you are exactly right if you look at the official
poverty measure. We have made no progress. That said, if you
include all of the benefits that we pay out, we have made a lot
of progress in reducing poverty over time. The only problem is
that it has come through government transfers, as opposed to
self-sufficiency.
Actually, in the 90s when we had welfare reform, we not
only saw poverty falling, we also saw self-sufficiency growing.
So we can do both. You can both increase work, increase self-
sufficiency, and reduce poverty. You just need programs that
encourage work like the existing Child Tax Credit and the EITC.
Senator Johnson. So, one of the results of what you just
said there is, what we ought to do is take a look at how we
calculate poverty, and we ought to build into that the value of
the benefits so we are actually looking at----
Because again, I think that is okay, and most Americans
would say, ``Fine; great. If we reduce poverty, and these
people are getting benefits, great.'' But we will go back to my
main point. How do you provide those types of benefits without
encouraging dependency, and what actually does, long-term,
solve poverty, people working plus providing people the dignity
of earning their own success, as opposed to just being
dependent on government?
So anyway, I just--these are extremely interesting
hearings. I do not understand most of it. I do not think most
people understand most of it. Now, I would like to understand
it, so that what I would--you know, just yesterday in a budget
hearing, I said the same thing when we were talking about
Social Security. I said, ``Let's have some roundtables where we
can have full discussions, where we are not talking by each
other, and start fixing these problems, because we are not
fixing them.''
Senator Bennet. Yes, yes. And I will take that as a start.
I mean, at least this is not a boring hearing. Most of the
hearings around here are pretty boring.
So, thank you for that. And I would say just as a little
bit of a reaction to what you are saying, you know, one place I
think where it is pretty clear that we have done a good job on
poverty--not as good as I would want, but a good job on
poverty--is Social Security, and what the poverty rate for
seniors would look like if we did not have that program in
place.
You know, that is something that actually has worked, and I
think that was very much on my mind when we were crafting the
Child Tax Credit: simplicity. That was very much on my mind
when we were crafting the Child Tax Credit because, unlike a
billion other programs that this committee or this Congress
writes in its wisdom to try to make Americans' lives better,
you know, what we said was, ``Let parents make the decision
about how to spend this money.''
Senator Johnson. So, the problem with Social Security is,
it was a concept that made sense, but when we extracted those
payments out of people's wages, we did not put that money into
an account for them. We spent it; the money is gone.
Senator Bennet. Yes.
Senator Johnson. Had we actually put that into real assets,
we literally--I have done the spreadsheet on this. We would
literally have $6 trillion of hard assets that the Social
Security Administration could call on, as opposed to those
government bonds that have no value to a government agency.
You've got to borrow more money for that. So the vast--we
could not even get that out yesterday in that budget hearing.
So again, what I am encouraging is----
Senator Bennet. That is another thing.
Senator Johnson. These are--this kind of dialogue in a kind
of roundtable, as opposed to a standard hearing where we get 5
minutes' worth of questioning, where we can really vet these
issues, then rely on experts to tell us when we are either full
of it or not, that is about right.
Senator Bennet. Right.
Senator Johnson. So we need to have--and I think in a
public setting too, not just behind closed doors--but we need a
public setting where we have these discussions, and both sides
get to talk with each other, as opposed to past each other.
Senator Bennet. And I think that is great. And you know,
you mentioned something that I think is really important as
well, which is the persistent, chronic rate of numbers of
people in America who are not working today. The system that we
have is a system--you know, the system we have, not the system
with the Child Tax Credit, but the system that we have. You
know, our workforce participation rate is actually lower in
America today than it is in every single one of these countries
that has a child allowance where people have the opportunity to
be able to get a little bit of an incremental bump to their
income, to stay at work, to pay for a little extra child care,
to pay for a little bit of extra after-school programs.
I met parents in Colorado Springs who were telling me about
how their expanded Child Tax Credit had enabled them to pay for
a bicycle so that their kid could stay at an after-school
program in the spring, so they could stay at work. And if they
did not--if they had to go pick that kid up----
And for me, the thing about this I think, Senator Johnson,
is that you know, having been the Superintendent of the Denver
Public Schools, a school district where most of the kids are
kids living in poverty, in this country, where most of the
parents--whatever these studies say about anything, I will
assure you that the people in that school district are working.
They are working two and three jobs in many cases. They are
not lazy, they are not--and I know you are not saying that.
They are not not working. That is not the problem. They are
working at jobs in the richest country in the world that pay
them so little that no matter how hard they work, they cannot
lift their kids out of poverty.
And I will say--I will turn it over to you--I will say a
huge part of that is because this is not the 1990s in America
anymore. A huge part of that is if you look--and I've got a
slide we can talk about later. If you look at, you know, the
economic expansions from the 1930s until today, and especially
from the 1980s until today, what you will see is that people's
incomes in America have flatlined for 50 years, unless you are
in the top .1, top 1, top 5, top 10, top 20 percent, a little
bit for the people in the bottom of the 20 percent.
For everybody else, it has absolutely flatlined, especially
for the people living in poverty. That is a reason why I would
argue that we face the stubborn problem that we face. It is not
just this issue of government programs.
In fact, I think much more important than that is that we
have had an economy where the people at the very top have
benefited with every period of economic growth, and people in
the rest of the economy, including not just poor people but
people in the middle class, have been flatlining, flatlining,
flatlining, so that for them--this is indisputable. For them,
economic recoveries since the early 1980s have been recessions,
not economic recoveries.
Senator Johnson. And it may surprise you to hear this, but
I agree with you, and you know how rare right now this exchange
is in this kind of setting, and it should not be.
Senator Bennet. No.
Senator Johnson. You were on a school board. I was on the
Partners in Education council in Oshkosh, and I sat with some
of the most liberal college professors and the most
conservative business people. The politics never came up,
because we were concerned about what we could do to improve the
education of our children.
The same thing here. There are so many more things that
unify us as a Nation. I would argue right now the greatest
threat to this country is the division, and I tried to
encourage Chairman Whitehouse yesterday to--you know, okay,
Social Security is really important. In that hearing, we were
just talking by each other. So let us have a roundtable. His
reaction was, well, until you guys lay your plan on the table,
there is no point. Well, and I think you know--we lay a plan on
the table, and it will just be attacked. It is not--there are
just some basic truths or basic realities that we need to get
on the table, agree on the facts. And these hearings are not,
they are just--they do not work that well.
So I would encourage you as chairman of this subcommittee,
let us use this subcommittee as an example. Let us set up a
roundtable. Let us bring in some experts to be as advisors, not
necessarily provide testimony but be as advisors as we discuss
this over a series of meetings. And I think we will find far
more areas of agreement and learn from each other. I just think
it could maybe be a breakthrough in terms of how you can
actually solve some of these problems. Again, I have done a lot
of problem solving in the private sector. This place drives me
nuts.
You know, it is just--again, we just do not approach this
in a problem-solving process, where you agree you have a
problem, identify the root cause. Compromise is actually the
last part of the process, and what just does not work is, one
side of the parties offers a proposal. The other side is
diametrically opposed, and it just never gets solved, as
opposed to, let us focus on all the areas of agreement first,
and then going through that problem-solving process, go,
``Okay, now we start compromising on exactly how we ought to
solve the problem.''
Because again, there are differences of opinion from the
witnesses here, but my guess is all of you want to alleviate
child poverty. Well, what is the best way to do it, and start
discussing it. So again, what I am proposing is a different
process, and let us start at the subcommittee level. It does
not seem like we will achieve it at the front. I mean, you seem
to be a person of goodwill. Let's start doing this.
Senator Bennet. Great. Well, thank you, Senator Johnson. I
will take that suggestion, and we can think about how to make
it work. I do think, you know, again--and I appreciate your
agreement at the outset, which I was not expecting. I do think
that a lot of what we are struggling with--you mentioned the
divisions in America.
I think a lot of that has to do with the fact that we have
had an economy, again for 50 years, that has not grown the way
historically we have expected it to, where when it grows, it
grows for everybody. It is my view--I do not know whether I am
right or whether I am wrong--but it is my view that that is
when you lose democracies in human history.
Senator Johnson. You need a middle class. You need a strong
middle class.
Senator Bennet. Exactly. People are losing the sense of
opportunity. It is not a good thing. They cannot move their
families ahead.
And you mentioned, you know----
Senator Johnson. By the way, I've got a tax plan that would
address that to a certain extent. I would like to talk about
that. A true Warren Buffet tax.
Senator Bennet. You mentioned that, which is good because,
you know, folks like Warren Buffet should not be paying less in
taxes than their secretary. But on education, you know, I want
to get--I have a couple of questions I do want to ask these
guys about priorities and spending.
Senator Johnson. I am assuming these folks are finding this
very interesting.
Senator Bennet. Well, I do not know if they are. They are
probably not. It is like my mom and my dad are watching me, and
these knuckleheads on the committee will not shut up. So we
will stop, but let me just say on education though, because you
raised it--and this is a place where I am just infuriated
myself about Congress and about the Federal Government.
You know, we have had yet another--in the last month, we
have had two sets of reports about what is happening to
American kids.
[Senator Thune walks in.]
Senator Bennet. Oh man, you've missed it. [Laughter.]
Senator Johnson. Now we return to regular order.
Senator Bennet. Adult supervision has returned. But in the
wake of COVID, you know, and all of the educational loss that
has happened, all of the, at least in my State, the mental
health epidemic that is occurring amongst adolescents in
America, here we find ourselves once again posting horrendous
academic outcomes on kids. We are failing on the latest NAEP
stuff; we are failing on the latest other assessments. You
know, that is not a topic that ever comes up around here, like
what to do about it.
Senator Johnson. Yes. We do not want to discuss our
failures.
Senator Bennet. Well, we also--yes, all right.
Senator Thune, you are here.
Senator Johnson. Thank you very much, Mr. Chairman.
Senator Bennet. Thank you, Senator Johnson. I appreciate
the conversation. We are going to be able to put these folks
back on TV with their moms and their dads and their families,
so they can hear your erudite answers.
Senator Thune. I am guessing this is a fairly robust
conversation with our colleague from Wisconsin. So, thank you,
Mr. Chairman.
Dr. Corinth, I would like to start with you. In your
testimony, you raise concerns with the validity of studies from
the National Academy of Sciences and the Census Bureau touting
the effectiveness of morphing the Child Tax Credit into a child
allowance. You also challenge the various studies that claim
impressive results from the American Rescue Plan Act's changes
to the credit, particularly its impact on child poverty.
Now, it is a lot to unpack I realize, but could you expand
on these issues, specifically outline the flaws or data gaps in
each of these studies? And then in addition, you note that you
did your own simulation of what impact shifting the Child Tax
Credit into a child allowance would have on employment and
poverty.
Could you perhaps tell us a little bit about your findings,
as well as respond to arguments that your concerns are
overstated?
Dr. Corinth. So quickly, the first study was the National
Academy of Sciences study, and there it is very simple. They
also recognize that the Child Tax Credit's work incentive was
eliminated. When we fixed the error and applied all their other
assumptions, you get 1.3 million people leaving the workforce.
In terms of the 2021 studies, one of the problems is that lots
of things were changing at the same time. So not only did we
get the child allowance; we also had child-care assistance
being extended. We had vaccines being rolled out, schools
opening up again. So it is very hard to isolate the effect of
the child allowance as opposed to these other factors.
And the other issue, of course, which I mentioned in my
testimony, is that when you have a temporary 6-month policy
change, it is going to be a lot different than how people would
respond to a permanent change.
And then finally, in terms of the study that my coauthors
and I did--you know, we were the first study to actually
recognize and model the work incentive effects of this policy
change. We also used by far the highest-quality data set. We
linked survey data with administrative tax records and
government program data to get much more accurate incomes and
to identify those people who are most likely to respond to the
incentives. So, when we use that higher-quality data and
actually recognize the work incentive changes, that is when we
find that, you know, 1.5 million people would leave the
workforce.
Senator Thune. So, as you know, the Tax Cuts and Jobs Act
that Congress passed in 2017 doubled that maximum tax credit
amount to $2,000 and allowed most of it to continue being
refundable for those with sufficient earnings up to an
inflation-adjusted cap, which is currently around $1,600. Under
current law, this increased Child Tax Credit will be cut in
half if Congress does not act.
So, could you please speak to the importance of the Child
Tax Credit as it is currently structured, and the benefit that
it is providing to American families today?
Dr. Corinth. Sure. So, the existing Child Tax Credit sort
of has a triple bottom line. It encourages work, reduces
poverty, and invests in the long-run success of children. The
Tax Cuts and Jobs Act did a lot more than that. It boosted
economic growth, increasing wages across the spectrum.
So I would say it is vitally important to make that
permanent after 2025 when it will otherwise expire.
Senator Thune. Dr. Rachidi, in your testimony you speak to
how the American Rescue Plan temporarily revamped the Child Tax
Credit. And one of the changes it made was paying it directly
to individuals without any taxable income, thereby removing the
historic incentive for credit beneficiaries to be working, and
turning it into, as we have talked about, a child allowance.
Should the American Rescue Plan version of the Child Tax
Credit be resurrected? Could you speak to some of the negative
impacts, including impacts on workforce participation, that you
would expect to see among those claiming the CTC?
Dr. Rachidi. Sure. Thank you for the question. I do have
concerns both about making it fully refundable for nonworking
households, as well as eliminating the phase-in, which has the
work incentive that Kevin is talking about.
For the nonworking families, I have concerns for a couple
of reasons. One is, we have a large body of evidence from the
1990s, and I agree we are not in the 1990s, but I also do not
want to return to the 1990s.
And so, making the Child Tax Credit available to nonworking
families would actually be a larger benefit to those nonworking
families than AFDC was in the 1990s, and we know that that had
very bad effects for families. So I am concerned about that.
The other thing I am concerned about for nonworking
families is, currently we have a fairly robust social-service
system for those families in terms of SNAP, TANF, and other
benefits. When you turn that into a child allowance, it removes
the touchpoint from the social-service sector, and I have
concerns about what is happening in households when there is no
work in the household. And just kind of removing that
touchpoint is concerning, I think, from a child perspective.
Senator Thune. Well, and just to follow up on that, you
pointed out in your testimony that there are these other
Federal programs that do not have a work requirement component
and are therefore targeted at helping those who are unable to
be employed for one reason or another.
So, could you just enumerate again or outline for this
committee what some of those Federal programs are, and why
paying the Child Tax Credit to those without taxable income
duplicates these other efforts and reduces the effectiveness of
the Child Tax Credit?
Dr. Rachidi. It very much duplicates the existing system
that we have. We currently have Temporary Assistance for Needy
Families, which is primarily targeted to nonworking, mostly
single-mother families. It provides child-care assistance,
provides a lot of other support services.
We have SNAP, which was formerly Food Stamps, also
available to nonworking families. So there is a fairly robust
safety net that already exists for nonworking families.
So that is why a CTC with the phase-in, with the work
incentives, that is only available to working families, is such
a positive policy, because it encourages that work and it gives
those nonworking families the incentive to get into the labor
market, to provide them not only the opportunity to escape
poverty, but also the employment that will help them move up
the income ladder.
Senator Thune. So, you reference in your testimony this
Penn Wharton budget model that reviewed the American Rescue
Plan CTC changes, and it found that the benefits to the changes
are not targeted at those families in the lowest-income
brackets.
So, could you speak broadly at least to those
distributional effects of the American Rescue Plan CTC changes
on families in various income brackets, as well as the
distributional effects of the advance payments specifically?
I think there is an impression here that those changes did
impact distribution among people with lower income, families of
lower incomes, and I am curious as to what you have seen while
that was in effect, and maybe you can speak to the
distributional impacts of that change that was in place
temporarily?
Dr. Rachidi. Yes, it is a good question. I mean, because
the expansion of the Child Tax Credit was so large and reached
so high up the income scale, it was neither strictly an
antipoverty policy nor was it tax relief. It was kind of a mix
of both.
So, if you think of the expanded Child Tax Credit as
necessary to reduce child poverty, it really is not targeted
well towards child poverty, because the Penn Wharton model--and
even the data that we have on what families received the
benefit--shows less than 50 percent was actually targeted, in
terms of expenditures, to the bottom two quintiles of income,
which means middle- and higher-
income families got about half of those benefits.
And so, that was a design choice, and you know, I think the
perception is that because it was made fully refundable and
went to nonworking families, it was strictly an antipoverty
policy and most of those benefits went to those households. But
in reality, it was much more distributed across the income
spectrum, and like I said, not really truly tax relief, but
also not strictly an antipoverty policy.
Senator Thune. Okay.
Thank you, Mr. Chairman. And I would say, just simply in
conclusion, that in my State of South Dakota right now, the
unemployment rate is, if you can believe this, under 2 percent.
And if in fact what you are saying in your analysis, Dr.
Corinth, is accurate, and that is that we are going to lose--it
is going to cost us over a million people who are not going to
go back into the workforce---- We need people in the workforce.
And if it is also true, as Dr. Rachidi has pointed out, that
the distributional effects of this do skew towards the upper
end as well as to people in the lower-income categories, that
perhaps is keeping a number of people out of the workforce.
Thank you.
Senator Bennet. Thank you. Thank you, Senator Thune.
I am going to defer to Senator Warren, because she is here,
and it is her turn. But I would say, one, that Dr. Rachidi's
testimony, I think, confirms what is reality about the Child
Tax Credit, which is that it both is an antipoverty measure and
a measure targeted at America's middle class. That is why you
see the distribution.
You know, unlike the Trump tax cuts, which I will go
through in a second after Senator Warren, where 52 percent--52
percent--of the benefit went to the top 5 percent of Americans,
as Dr. Rachidi said, just over 50 percent of the tax credit
that we put in place in 2021 went to the bottom 50 percent of
Americans. That is true, and that was the design.
So, in America, it takes consistent choices, and we are
going to have to make choices about whether we want to cut
taxes for the wealthiest people in America again and expect it
to trickle down to everybody else, or whether for once we are
actually going to have to do something for working people and
for people living in poverty.
Senator, do you have something to respond? Do you have
anything to say, because I do not want to leave you hanging.
Senator Thune. Well, no. I think the only thing I would say
to that is if you look at again--and of course, it is surely
when people are paying more as a total, in totality, that you
are going to see more tax benefits probably when talking about
volume. But when you are talking about percentages, what
happened with the Tax Cuts and Jobs Act in 2017 is in fact--if
you look at who pays taxes, the burden, the tax burden relative
to what it was prior to 2017 and after--people with higher
incomes ended up paying more not less.
Senator Bennet. And I think the question--you and I
actually had this debate. I do not know if you remember, but we
had it back then. I will leave it for a moment, and we will
come back to it.
Senator Warren, thank you for coming back, and please, take
the time you want.
Senator Warren. Thank you, Mr. Chairman.
So, too many families walk a tightrope to try to make ends
meet, and that is why Congress established the Child Tax
Credit, to try to help families pay for essentials like diapers
and daycare. During the pandemic, Democrats increased the value
of the CTC and expanded access to more lower-income families.
The result was one of the most effective antipoverty programs
ever. A record 3 million children were lifted out of poverty.
Child poverty was slashed nearly in half within the space of a
year.
But congressional Republicans continue to insist on what
they call ``work requirements'' for the CTC and other critical
programs. I call these ``unworkable requirements.'' This is an
old trick of using a maze of red tape to deny families the help
they need, while not actually promoting employment.
Now, Mr. Dutta-Gupta, you are the director of the Center
for Law and Social Policy and an expert on poverty. So tell me,
have work requirements, when applied to the CTC, to Medicaid,
to SNAP, to TANF, whenever they have been applied, actually
helped families find good jobs and escape poverty?
Mr. Dutta-Gupta. No, no. Data show that the CTC
refundability does not stop parents from working. I just want
to remind folks, it is completely different than the old pre-
TANF AFDC program. It does not phase out dollar for dollar at
some point, and you do not have less access to health coverage
after a year, as you did then.
So look, the main effect here of work requirements is to
make it harder for people to access benefits. We tried this in
Arkansas with Medicaid under the Trump administration, and
there was no impact on employment. But they did kick one in
four adults off of health coverage, even though 95 percent were
either already working or qualified for an exemption.
Senator Warren. So, say that again. So, they put work
requirements in place, and the consequence was not to boost the
number of people who were working at all, but it did lower the
rolls of people who got the benefits that they were legally
qualified for, and you said what portion lost their benefits?
Mr. Dutta-Gupta. One in four adults.
Senator Warren. One in four. So all of this red tape has
not helped people find work, but it has cost millions of people
the help that they need, and wasted the time of millions more.
It is not just families that get buried under this mountain of
paperwork; the government actually has to administer it, and
that is not free.
So, Mr. Dutta-Gupta, in addition to costing families their
benefits, can you tell us a little bit about what work
requirements actually cost the government?
Mr. Dutta-Gupta. Yes. You are right, Senator Warren.
Administering these complex rules inevitably costs the
government money. So again, if we look at when the Trump
administration tried to apply work requirements in Medicaid,
the Georgetown Center for Children and Families estimated costs
for States that were interested in or, in the case of Arkansas,
actually implemented the program, and they found that the costs
varied from tens of millions a year to hundreds of millions a
year in just implementing the work requirement. So this is not
a path toward simplifying.
Senator Warren. Okay. So, work requirements do not actually
promote work, but they do cost millions of Americans benefits,
and they cost the government hundreds of millions of dollars to
administer. But there is one group that actually profits from
these work requirements. Obviously not the government; it is
obviously not the people who need the help. But instead, it is
the for-profit contractors who are hired to administer these
programs.
Maximus, for example, has contracts in more than half of
the States to administer eligibility rules for Medicaid, SNAP,
and TANF. They have raked in billions of dollars, shoving
families off their benefits if those families cannot run
through the maze.
So, Mr. Dutta-Gupta, in your opinion, do work requirements
help anyone besides the private contractors that get paid to
administer them?
Mr. Dutta-Gupta. Overwhelmingly, no. They distract from a
lot of the things that actually boost incomes, improve health
and other outcomes. We talk about the 1990s often, the 1996
welfare law. Well, we need to acknowledge the big boost in the
Earned Income Tax Credit, the child-care spending, raising the
minimum wage, running a tight labor market, all of which I
think were much more effective.
Yes, private contractors are paid millions of dollars to
administer these programs and have been busy lobbying Congress
and States to expand the requirements in order to increase
demand for their services. That could be far better spent
directly supporting families.
Senator Warren. All right; I agree with you. We need to
stay focused on policies that actually help struggling families
and invest in our economy. That means restoring an expanded
Child Tax Credit and opposing Republican efforts to try to tear
another hole in America's safety net--and use a maze of red
tape that has been proven a failure every time it has been
tried. Families need us to get this right, so I hope we can get
this done.
Thank you, Mr. Chairman.
Senator Bennet. Thank you very much, Senator Warren, for
being here, for your leadership. I also want to recognize now
Senator Brown, who was the coauthor of the American Family Act
that we did write, Dr. Corinth, 2 years before the study that
you have indicted here this morning, which did not form any
basis for that bill.
But I do want to say that none of the progress that we
would have made, if one considers it progress to cut childhood
poverty almost in half, would have happened without the
leadership of Senator Brown. And I want to thank him for that
on behalf of the kids in Colorado, and I will turn it over to
you.
Senator Brown. Thanks. Thanks, Mr. Chairman. And as you
know, I share that credit with you certainly in the work you
have done, and we have been working on this for a lot of years.
I have said many times--and I know you concur--that the best
day of my career was March 6, 2021, when I was sitting next to
Senator Casey on the floor and turned to him and talked about
that.
We had a couple of other things that mattered in that too--
a pension bill too--but I remember after that we all kind of
teamed up and talked to Secretary Yellen after the President
signed it, and he went to the IRS Commissioner, a Trump
appointee who was a professional, and not only did he not stand
in the way but accelerated it by July of that year.
By July of that year, the checks went out to the families
of 60 million children, 2 million in my State, 2 million in
Pennsylvania, hundreds of thousands in Colorado. The child
poverty rate dropped by 40 percent--not quite immediately, but
quickly--and it is the way government is supposed to run.
We did something, we listened, we listened to people like
you, we acted as a group. Senator Bennet was a real star in
that, and we passed the bill. We made sure it was implemented,
we got the administration to do it right, and look what
happened. Unfortunately, we were not able to make it permanent.
That is the mission I know the three of us on this panel are
committed to.
So I would start with Mr. Dutta-Gupta and Dr. Michelmore.
You both mention in your testimony that the research tells us a
permanently expanded CTC would cost taxpayers $97 billion per
year, but it would generate literally ten times that in annual
economic stimulus via future earnings and tax contributions.
I love the back and forth between Senator Bennet and
Senator Thune. I like Senator Thune; I just think he's
colossally wrong when it comes to tax cuts for the rich, which
do very little but shift the tax burden to the wrong people.
But what Senator Bennet said about what this means, what
the two of you--and I will let you answer in a second. What the
two of you have said--we talk a lot about the cost.
Conservatives talk about the cost. People who want tax cuts for
the rich talk about the cost in this; they never talk about the
benefits.
So, tell us more about the cost-benefit analysis you
mentioned, both of you, Mr. Dutta-Gupta and Dr. Michelmore, if
you would.
Dr. Michelmore. Thank you for the question, Senator Brown.
Yes, I would be happy to talk about that. Some of my own work
in this area--and I think from other mounting evidence--
suggests that when kids get more income in childhood through
tax credits like the Earned Income Tax Credit, they go on to
have much higher earnings in adulthood.
So I think that is a big component of the benefits that
have been calculated. They have also been shown to reduce
health costs in the future and reduce costs through things like
reducing crime.
Senator Brown. Thank you.
Mr. Dutta-Gupta?
Mr. Dutta-Gupta. And, Senator Brown, first, thank you for
your extraordinary leadership with Senator Bennet on this
issue. I would just add that it also reduces interaction with
the Child Protective Services child welfare system. So we are
keeping families together, which I think is usually important.
And you know, we are talking about nearly two dozen studies
and, in many ways, we can actually isolate the impact on income
itself as a transfer. And I think we have very good reason to
believe in some ways that these estimates might even be
conservative.
So just imagine--we talked about being in the private
sector. If you could get a 9 to 1, 10 to 1 return on
investment, how foolish would you be to not make that
investment? This is an investment that only the United States
can make, only the government can make.
Senator Brown. And you think of the economic growth just
overall, and how that really is a case of lifting up all boats.
Not tax cuts for the rich, but directly investing in workers
and the working poor and the middle class, and workers
generally.
One other thing that I wanted to mention is, Senator Bennet
called this hearing in part to highlight the bipartisan history
of CTC. I worked with Senator Cassidy--a Republican from
Louisiana; we have worked on a number of things together; he
sits on this committee--on a temporary measure that
strengthened CTC.
During the pandemic, many families saw their wages take a
hit because they got laid off or saw their hours cut. That in
turn reduced the amount of their additional CTC. So Senator
Cassidy and I got a bill passed that allowed families to use
their 2019 wages instead of 2020 wages for purposes of the CTC.
We called it the ``lookback option,'' and again we got it done
bipartisanly. It had broad support here when families filed
their taxes in 2021.
Mr. Dutta-Gupta, tell us why this would be so important to
working families if it became permanent law?
Mr. Dutta-Gupta. Yes. Senator Brown, as you describe, the
tax credit lookback really helps folks when they face wage
reduction or they lose their jobs, and they have the option of
figuring out which year of income would give them the higher
benefit. And this happened obviously a lot in the pandemic, but
it happens all the time.
Senator Brown. Yes. Let me interrupt and explore that.
Senator Bennet. Take whatever time you want, Senator Brown.
Take whatever time you want. You will not need----
Senator Brown. Thank you, thank you. I assume the people
who benefit centrally and the most from the CTC are--if in fact
there is data on this, and I would assume it--but are people
whose incomes are more like this, right? [Moving his finger up
and down.]
They are likely to pass in and out of good or better or
worse jobs, likely to get laid off, likely to have their hours
cut, likely to not have child care so their hours are
different. Is that probably, generally right?
Mr. Dutta-Gupta. Yes. We have good reason to believe that
there is more income volatility at the very bottom of the
income distribution, and the low-paid, low-wage labor market
itself often treats workers, especially during an economic
recession, as quite disposable. So I think that is right.
I just want to add that one other thing that you have
pushed for, full refundability, helps with this problem, for
what full refundability says is, look, you may have lost hours
on the job. You may have even lost your job. But we are not
also going to cut the Child Tax Credit. You at least have that
floor. You do not have to then pull your kid out of after-
school programs. You do not have to stop the music lessons. You
do not have to cut back necessarily on the nutritious food you
are providing.
So the lookback option is a terrific option that you all
enacted temporarily, and full refundability as well actually
really helps with this challenge. It helps smooth incomes and
people's consumption.
Senator Brown. Thank you.
Mr. Chairman, thank you.
Senator Bennet. Thank you, Senator Brown. I very much
appreciate your leadership here.
Senator Casey?
Senator Casey. I want to thank Senator Bennet for presiding
over this hearing, and in a larger sense thank him for his
leadership on the Child Tax Credit all these years, as well as
Senator Brown, culminating in that moment when we passed the
American Rescue Plan.
The first vote--we had to have two votes over the course of
about 3 weeks. The first vote passed at 5:34 in the morning--
not that I remember--but I remember the moment it passed, and
we all appreciate what was done in the lead-up to that over the
many years before the American Rescue Plan. But in my judgment,
the current Child Tax Credit is not--is not--enough for
families. We should have the version that we enacted in the
American Rescue Plan.
You know also, when I consider the last 40 years--this is
my view of the last 40 years. The tax code has been rigged over
and over and over again for big, big companies and very wealthy
Americans. I think that is not just my view; I think it is the
view of a lot of people. In the American Rescue Plan, with
regard to the Child Tax Credit provision, we finally said we
are going to choose as a body--in this case the Senate, with a
very limited vote on one side, but we got it passed--we are
going to choose to help families who are trying to raise their
children, trying to struggle through a pandemic, and we are not
going to do anything in this bill for big companies and wealthy
Americans. They have gotten a lot over those 40 years, so we
made the right choice.
But as much as we can talk about the data--you have heard
the data over and over again. You have all testified, and you
bring great expertise. As much as we testify about the data,
about the impact on families, some of it cannot be measured in
numbers. The impact of this tax credit on the lives of families
and the lives of children is literally immeasurable,
incalculable.
Here are just a few examples in our State. Jim and Judy
from Apollo, PA talked about using the tax credit for paying
for medical and dental care. Kenya from Philadelphia talked
about paying rent, feeding children, paying bills, buying
shoes. A person from Scranton talked about eyeglasses for her
children. Joy from Glenside talked about preschool and child
care, paying for that with the Child Tax Credit. Stephanie from
Glen Rock: food on the table. Rebecca from Philadelphia:
mortgage or food. And Laurie from Orefield, PA: paying for her
daughter's dance classes, protecting her social and emotional
health, and teaching her resiliency.
You cannot measure that impact. There is no way that we can
measure the positive impact that this had on people's lives. I
saw two mothers in the Lehigh Valley on the eastern side of our
State, two of them. Between them they had about, I think, six
children as I remember. Both of them said, ``We can pay for
school activities we could never afford before.''
How do you measure if a child could be in a science club or
was in some kind of a music after-school program, or an
athletic endeavor of some kind? How do you measure that on the
life of that child?
The problem is, we should continue that. So, I wanted to
start with you, Mr. Dutta-Gupta. You testified that there are
also--you talked about the long-term benefits of the Child Tax
Credit. You said that EITC and CTC increase a child's test
scores by 6 to 9 percent over standard deviation.
Tell me more about the long-term benefits. I was not here
for your live testimony, so tell me more about the long-term
benefits for children.
Mr. Dutta-Gupta. Yes, Senator Casey, children benefit in
numerous ways that we have been able to measure, although I
think you are exactly right that some of the impacts are really
best understood through these stories.
But they benefit with higher earnings as adults and
improved health, as Dr. Michelmore also testified, including
longevity. We have reason to believe that they live longer
because of these sorts of investments. When children are
exposed to these sorts of cash supports, they are also less
likely to have children as teenagers or young adults, and they
are more likely to complete higher levels of education. And in
turn, we know they do better in the labor market.
Senator Casey. Yes. Well, I know I am almost out of time.
Senator Bennet. Take whatever time you would like.
Senator Casey. I do not want to go too far over my time,
because the chairman has been very patient with our time today.
But the last point I will make is--I know there was some debate
here in the aftermath of the passage about the effect on jobs
and that somehow this would be a disincentive to work.
Well, 2.2 million families in Pennsylvania, over 2.2
million children and their families benefited in Pennsylvania.
That is about 85 percent of the children in our State. We have
about, I think it's 2.2 out of 2.6 million, if I remember
correctly.
So that passed, and yet today we have, I think, the lowest
unemployment rate we have ever had. So I am not sure that
argument holds much water. But I think the one part that is
missed in a lot of our States is, most of my State is rural, at
least by geography but also substantially by population. We
have about 3\1/2\ million people who live in rural communities,
48 counties. If I look at the list--and I will just give you
three or four examples in different geographic regions of the
State.
Crawford County, up just south of Erie in northwestern
Pennsylvania, a rural county: 16,000 children. Fulton County,
down by the Maryland border, a very small county, only has
14,000 people in it: 3,000 children benefited in Fulton County.
Mifflin County: 9,000 children. It's a small population county,
a rural county: 9,000 children. Susquehanna County, up where I
live near Scranton, again a rural county, not a big population:
7,000 children there.
So this benefited children in low-income urban communities,
small towns in rural areas disproportionately, in a very
positive way. But even in our suburban counties where sometimes
people think families are better off, 70, 80 percent sometimes
of those communities benefited as well.
So, Mr. Chairman, I cannot say more about the positive
impact this had on people's lives, in ways, as Mr. Dutta-Gupta
just said, ways that are measurable and ways that are literally
immeasurable. And I want to thank you for your ongoing
leadership.
Senator Bennet. I want to thank you, Senator Casey. I mean,
your description of the people that you are meeting in
Pennsylvania is exactly the same as what I am seeing in
Colorado, and what I saw when I was Superintendent of the
Denver Public Schools.
The problem in America is not that people will not work.
The problem in America is that we have had an economy for 50
years that has grown for the very wealthy. It has grown
incredibly well for the wealthiest people in the country, and
it has not grown for anybody else, including when we have had
periods of economic growth, which as I mentioned earlier, have
actually been recessions for working people in this country.
And I do not think any defender of capitalism can defend that
set of outcomes, you know? I still believe we can create a
capitalist economy in this country that when it grows, it grows
for everybody.
But that is what we have to do, and in the meantime, for
people just to have the bare minimum expectation for what it is
to have a middle-class life in America, to be able to afford a
little bit, maybe a music lesson or some back-to-school
clothes, without being unable to pay the rent or unable to feed
their family.
You know, these are families that are not on the public
dole. These are families that are working every day, a lot of
times two and three jobs, you know, to be in a position to hope
for the best for their kids. I agree with you that you cannot
possibly quantify what the value is of that--you know, the
family I mentioned earlier who bought a bicycle for their kid
so they could stay at work and work a little extra time while
their kid was there.
And it is probably impossible to quantify the value to our
Nation, but you know, we are living in a world now where we are
the richest country in the world, and we have one of the
highest rates of childhood poverty in the industrialized world.
We do not have to accept that. That is what we showed when we
passed this. Thanks for being here.
There was some discussion earlier about distribution
tables. There were some arguments that we should extend the
Trump tax cuts because of what they had done for the American
economy. There was some complaint about the amount of money
that had been spent on the Child Tax Credit.
I wanted to get into this question with Dr. Michelmore and
Mr. Dutta-Gupta. I do think that life, as Senator Johnson was
saying, does consist of choices. I have been baffled by the
choices that Congress has been making, been baffled by the
choices that some colleagues on the other side have been making
when it comes to taxes.
And why it is baffling--well, let me give you the question,
and then I will tell you why I think it is baffling. I just
want to remind everybody about the Trump tax cuts. If they are
extended, as Dr. Corinth said they should be, they are going to
have an annual cost of $350 billion a year, unpaid for. Not a
dollar of that has been paid for--$350 billion a year.
That is more than double what the expanded Child Tax Credit
and Earned Income Tax Credit from 2021 cost. The difference
between these two things is that the Trump tax cuts
overwhelmingly, to a degree that is almost impossible to
imagine or fathom, helped the wealthiest Americans while
leaving pennies for low-income families.
It is so hard to believe this that I hope people will pay
attention to this, especially people who supported the Trump
tax cuts and the idea that somehow it was a middle-class tax
cut. As I mentioned earlier when we were having the
conversation with Dr. Rachidi--and I will ask anybody who wants
to refute these distribution tables, if they can refute these
distribution tables. [A bar graph is displayed.]
Half of President Trump's tax cut went to the top 5 percent
of Americans--half, half. That is 7.5 million people out of a
country of 330 million people--7.5 million households to be
precise, with an average income of almost $800,000. They got,
because of the Trump tax cuts that some want to extend, they
got a $150-billion tax cut from Donald Trump.
At the same time, the bottom 40 percent--you will see it
over on that end where you have the poorest 20 percent and the
second 20 percent, the bottom 40 percent--that unlike the top 5
percent, which was 7.5 million, the bottom 40 percent is 63
million American households with an average income not of
$800,000, but of $22,000.
To come to Dr. Rachidi's point, those columns represent
where we put half of our credit; the rest of the half went into
the other, by and large, working people there. But those folks
who were at the bottom, those little red lines at the bottom,
they got 5 percent of the Trump tax cuts. The two lowest
quintile groups in America got 5 percent of the benefit. The
richest 5 percent got over 50 percent. None of it was paid for.
I wish my colleagues were here to have this discussion right
now. None of it was paid for.
Life consists of choices, as people said, and when I go
home to red parts of Colorado and blue parts of Colorado, and I
take this distribution chart with me, they think that we have
been smoking something that is now legal in Colorado, or worse.
That is what they think. They cannot believe it. You are
going to see the economic distribution in America in a minute,
but they know, they know the last 50 years--you know, since we
began this trickle-down economics and this outsourcing to China
and Southeast Asia--and they know that the people who have
benefited from living in that global economy because of their
education----
And by the way, I hold nothing against them, you know? More
power to people who have succeeded in an economy that has not
worked for most people. They have worked hard to earn what they
have earned. But it is impossible to look at these slides and
not realize the benefits that the last 50 years have accrued to
them and the lack of benefit that literally has accrued to
everyone else in America. When I go home and I describe this,
people say--they say the same thing Senator Johnson says, which
is, ``This is so complicated. I am not sure I understand it.''
And what I say is, ``Okay, well let me give you an example.
This would be like if a Mayor--the Trump tax cuts would be like
if a Mayor in Denver or Durango or Grand Junction or Cortez or
Greeley or Colorado Springs or Pueblo or Alamosa or
Springfield, if any Mayor''--and by the way, those are
Democratic and Republican places.
If any Mayor said to their constituents, ``I am going to go
borrow more money than we have ever borrowed before,'' and
their constituents being Coloradans would say, ``That concerns
me. I am worried about that. Why are you going to borrow more
money than we have ever borrowed before? What are you going to
do with that money? Are you going to invest in our schools?''
``No.'' ``Are you going to invest, you know, to combat the
mental health epidemic that American children are facing as a
result of COVID and the way social media has interacted with
them?'' ``No.'' ``Are you going to invest in our water
infrastructure, which we desperately need?'' ``Nope.''
``Are you going to invest in our libraries, our roads, our
bridges?'' ``No, no, no.'' ``What are you going to spend the
money on that you are going to borrow from our children to pay
for?'' ``We are going to take more than 50 percent of it, and
we are going to give it to the top 5 percent of taxpayers in
this city and expect it to trickle down to everybody else. We
are going to give it to the two richest neighborhoods in town
and expect that it is going to trickle down. That is the set of
values we are pursuing. We are going to borrow--we are not
going to pay for it. We are going to borrow every single penny
of that, and then we are going to chastise people who try to do
anything else for the people who are at the lower end. But we
are going to borrow that money, send the benefit to the two
richest neighborhoods, and hope somehow that is going to
benefit the rest of us.'' That was Donald Trump's tax policy. I
hate to say it, but it's true. The numbers do not lie. Those
were what the numbers were.
And let us remember, let us put this up--and Senator
Whitehouse is ready to question. Let us remember the backdrop
here, which I have been talking about all morning long. This
slide goes from 1973 to the present, although you could take
this all the way back to the Great Depression. And what it
shows is that the top 1 percent of Americans--that is that red
line at the very top--the 7.5 million wealthiest Americans are
the ones who have seen the fastest income growth over that
entire time.
They decoupled from everybody else. Everybody else almost
has been flat. If you squint even harder, you see the top 100th
of 1 percent, which is 25,000 Americans who benefited the most
from President Trump's tax credits, where our economy has
reaped the biggest benefits.
This is a tragic story in our country--tragic. Between the
first World War and 1980, average incomes grew from $4 to $5
million for the wealthiest folks. That is not a huge leap. But
since 1980, these incomes have grown to an astonishing $32
million a year. That is an unimaginable amount of money.
And life is about choices. President Trump made a choice to
reward the wealthiest people among us, and he made a choice to
leave the rest of America behind. That was his choice. They
masqueraded--they made it look like there was a middle-class
tax cut, because they had a little bit of a tax cut there, but
it was tiny in volume compared to what the rest of the credit
looked like.
And we made a significantly different choice in 2021. It is
true, Dr. Rachidi. I think our choice was far more targeted
than you are saying, and certainly far more targeted than the
Trump tax cuts, if your effort was to try to provide some
relief to working people, if your effort was to provide some
relief to the middle class.
We said--as you said, as you testified--half of the tax
cuts to the 63 million poorest households, and it is a choice
that I am happy to defend in red parts of Colorado and blue
parts of Colorado. Let me get out of the way of Senator
Whitehouse.
So actually, I will--well, let me just say, could you
compare, Dr. Michelmore and Mr. Dutta-Gupta, could you compare
the wisdom and long-term benefits of the expanded Child Tax
Credit versus the Trump tax cuts--and I will come to you guys
in a minute. But let me do this, and then we will come to
Senator Whitehouse and Senator Cortez Masto.
Mr. Dutta-Gupta. Thank you, Mr. Chairman.
Senator Bennet. Yes sir.
Mr. Dutta-Gupta. Yes. So, the TCJA or Trump tax cuts, as
you pointed out, made a series of changes that mostly benefited
middle- and upper-income households. I will just note that your
chart, if we could pull it back in time--you are right to say
that the top decoupled, because actually from 1943 to really
the post-war period, 1945 to 1973, all of those lines would
have been growing together, and that stopped right around 1973.
So this made particularly little sense in light of this
long-term trend. But just to give an example, a full-time,
year-round
minimum-wage worker benefited with a $45 increase through the
Trump tax law's Child Tax Credit changes, while somebody making
$400,000 a year and a married couple--each of them have two
kids--could benefit with a $4,000 increase.
And I am sorry, but it does not cost nine or ten times as
much for a wealthier person to afford the same necessities for
their kids. So this was absolutely a question of priorities,
and the Trump tax law underscores exactly how we need to focus
on refundable tax credits, particularly full refundability, if
we want to deliver support to families through the tax code.
Senator Bennet. I am going to come to Senator Whitehouse,
and then we will come to you, Dr. Michelmore.
Senator Whitehouse. Thanks. We have a vote pending.
Senator Bennet. Please, go ahead.
Senator Whitehouse. I am entangled in a complicated
Judiciary thing.
Senator Bennet. Go ahead.
Senator Whitehouse. I just wanted to make a brief point,
because I do have to get to the floor. In Rhode Island, we saw
a test fire of the Child Tax Credit, and it was a phenomenal
success. It made a difference in people's lives.
A woman--Crystal from Pawtucket--said it helped when child
support payments dropped below the mandated amount. ``I am
still in significant debt, but working remotely has allowed me
to save on gas, and the amount that I receive from my teen
allows me to put more money towards paying down that debt.'' So
that is one experience--helped her work remotely.
The other one was a woman from Providence who talked about
her kids and her ability for them to ``purchase grocery food,
diapers, and baby formula. Diapers are very expensive, and
child care''--mark that--``child-care costs are soaring. I
don't want my baby to go without. It is not the children's
fault their parents are poor. All families need help, and it's
time we start giving them the help they deserve.''
I understand that the argument has been proposed that by
offering the Child Tax Credit, we will encourage people to stay
out of the workforce. In Rhode Island, our experience was
exactly the opposite, and I think the logic of this is exactly
the opposite. Child care is expensive. With a Child Tax Credit,
you can afford child care. Once you can afford child care, you
can show up in the workforce. Everybody I talk to--when I visit
employers in Rhode Island who are feeling workforce pressure--
says, ``If people could afford child care, it would help me
solve my workforce problems, because it would add to my
workforce pool.''
So, I just want to rebut that argument from Rhode Island's
experience, and just from a point of simple logic. With that,
let me turn it over to Senator Cortez Masto, and I understand
that she now has the gavel.
Senator Cortez Masto [presiding]. Thank you. Thank you to
the panelists. I could not agree more. As you all know, it is
such an important game-changer for so many families to have
that support--for many reasons.
The one, really one question I have though--and I am going
to direct it to Mr. Dutta-Gupta--is, 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, right?
And so, my question to you is, really, these are some of
the most in need children in our country, and what is the long-
term impact if these children continue to be denied benefits?
Mr. Dutta-Gupta. Thank you for that question, Senator
Cortez Masto, and for your leadership on this issue. Well, one
of the goals of the Child Tax Credit is to reduce child
poverty, and any exclusions are going to harm the children who
are growing up in this country and who are going to live in
this country, by and large.
So, as you pointed out, it is up to a million children who
were restricted because of this completely new requirement that
was not in place before, for folks who are paying taxes. Nobody
doesn't pay taxes in the United States. You cannot function
without paying taxes: sales taxes, property taxes, income
taxes, Federal, State, local. State and local often are more
regressive.
Remember, many of these children are part of mixed status
immigrant families, which include U.S. citizen children as
well. So the whole family can suffer. There are estimates that
restoring access to these children currently being excluded can
have an impact of up to $3.3 billion.
As we discussed earlier before you joined, we know the
Child Tax Credit helps children do better in school, have
better health outcomes, reduced interaction with the foster
care system, reduced interaction with the criminal legal
system, and do better as adults, including through more
schooling and better----
Senator Cortez Masto. But let me just say, for those
reasons, do you see that there should be a distinction between
these children and other children?
Mr. Dutta-Gupta. No. They are children.
Senator Cortez Masto. Right, and their parents are paying
taxes. And just like you said, they come from mixed families,
and they are in our communities. And so, I just, I cannot
stress this enough. I know I am preaching to the choir here,
but this is such an important issue and area, because we do not
want to leave any of our children out.
Clearly, there is more work to be done, and I, like my
colleagues, support the Child Tax Credit. I think it has
provided benefits. You all know it. You see the data; we see
the data. It is there. But I do not think we should, quite
honestly, distinguish amongst children just because they are
immigrants or come from immigrant families. It is outrageous to
me.
So I thank you, and I do not know if you have any other
comments around here, but this is really such an important
issue for me, because there are so many families across the
country that have children who have been denied, which is
outrageous. And I think on its own, that we are not really
fighting for all of our children.
Mr. Dutta-Gupta. And it just adds one more layer, one more
obstacle, one more administrative burden, to folks. So look, at
the end of the day, children are children. We do not have work
requirements for attending public schools, and one day I hope
we will realize that a basic income is something every child
deserves.
Senator Cortez Masto. That is right. Thank you.
Does anybody else have any other comments? Let me just ask:
anything else that has not been addressed that you would like
to put forward in the hearing, that has not been asked? Yes.
Mr. Dutta-Gupta. Well, we talked a lot about the War on
Poverty, and I just wanted to say a little bit about that. So
one of the misunderstandings about the War on Poverty is this
idea that it was about income transfers. Income transfers had
very little to do with the War on Poverty.
The War on Poverty was primarily about human capital and
health care. So, when we talk about how much we have spent
since the War on Poverty, it was almost entirely Medicare,
Medicaid, and we did spend some on education and workforce.
But what happened afterwards was, we realized some of the
error, and we had a Republican President, Richard Nixon,
signing Supplemental Security Income for folks with
disabilities. We had a Republican President, Gerald Ford,
signing the Earned Income Tax Credit. Then on a bipartisan
basis, we got the Child Tax Credit, and so on and so forth.
But if there was any failure in the War on Poverty, it was
that it did not try to address the underlying economic
structure--systems, rules, policies--and it did not do enough
on transfers.
Senator Cortez Masto. Thank you. Let me just say ``thank
you'' to our witnesses for providing your incredible
perspectives today. I want to say ``thank you'' to the chairman
and Ranking Member Thune for their partnership in hosting this
important hearing, and to all my fellow members who were here.
We would ask that any additional statements or questions
they may have for the record be submitted to the committee
clerk within 5 business days from today, or 5 p.m. next
Thursday, July 20, 2023. I will say the hearing is adjourned.
Thank you.
[The hearing reconvened at 12:12 p.m.]
Senator Bennet. The hearing will come back to order, and
thank you very much for your patience. And I apologize for the
miscommunication about whether we were recessing or not.
I am going to have to go back and vote at another time, or
maybe I will skip that vote. But, Mr. Dutta-Gupta, can you talk
a little bit about how the 2017 expansion of the Trump tax cuts
on the CTC differed?
As I said earlier, we have had a history of bipartisan work
on the child tax expansions. This is a really good reminder
that both parties have a reason to be proud of their work to
get the credit to more low-income families, which I hope can
serve--I really do--as a template for a bipartisan version.
And it is part of my frustration with that Trump tax cut--
obviously, I am very frustrated for other reasons as well--but
that it provided $2,000 per child, an increase to people making
$400,000, while giving $75 to minimum-wage folks.
Can you explain how that expansion differed from the Bush-
era CTC expansions, and the Obama-Boehner-Ryan-McConnell
expansions in particular? I am interested in how those versions
of the CTC treated low-income families versus high-income
families.
Mr. Dutta-Gupta. Yes. Thank you, Senator Bennet. That is a
great question, and as you pointed out, one of the main things
the TCJA did after doubling the credit was to dramatically
expand the income range for eligibility. So we went from
$75,000 to $200,000 for heads of households, $110,000 to
$400,000 for married joint filers.
We had not seen that before. The Boehner-Bush prior tax
cuts, and provisions around the child tax, sort of consistently
at least focused more on working- and middle-class families.
The one thing that the TCJA did that was helpful for lower-
income families was reducing the start of the phase-in
threshold from $3,000 to $2,500. But it did cap the refundable
portion to $1,400.
So, it meant that unless a family owed at least $600 per
child in Federal income taxes, they could not receive the full
$2,000 credit. So this was actually quite a break from the
previous sort of tradition and history of the Child Tax Credit.
Senator Bennet. I wanted also to get back to something we
talked about--Dr. Rachidi talked about it a little bit
earlier--which was the comparison of the Child Tax Credit to
1990s welfare and welfare reform. Dr. Michelmore, maybe I will
ask you about that.
There has been a lot of debate over the Child Tax Credit
that has taken us back to that era. I have heard opponents,
including today, of the 2021 Child Tax Credit expansion argue
that this would take us back to pre-Clinton welfare programs--
AFDC, for the example we heard about today.
The argument goes that cash welfare inhibited labor force
participation, and making the CTC permanent will do the same
thing. We have heard that today. Could you explain why the 2021
Child Tax Credit is different from the pre-Clinton welfare that
was referred to this morning, and in fact how it learns from
some of that, what I agree were problems with that earlier
program?
Dr. Michelmore. Yes, absolutely. Thank you, Senator Bennet.
I think we have come a long way since the 1990s in terms of how
we structure means-tested programs. So for instance, in the
1990s, the AFDC program had 100-percent marginal tax rates,
which meant that every dollar of earnings was essentially going
to reduce your AFDC benefits by a dollar.
We are far from that today. So the CTC benefit phases out
much more gradually under current law, and under the 2021
reforms as well. And we also have a lot of other work supports
in place now that we did not in the 1990s. So the Earned Income
Tax Credit is still in place and provides a very substantial
work incentive for families.
And we have also decoupled Medicaid eligibility from AFDC,
which allows families to still become eligible for Medicaid
without being on TANF or AFDC.
Senator Bennet. Thank you.
Do you have anything you would like to add?
Mr. Dutta-Gupta. The other thing that I would just note is,
not only are you keeping the CTC as your income rises, but we
have also learned that during that period a lot was going on,
as Dr. Corinth talked about, in 2021.
The same was true in the mid-1990s. And part of the rise--a
large part, I would argue from the research--in labor force
participation, employment rates, especially among single
mothers with limited education, was also due to, yes, the
expansion of the Earned Income Tax Credit, but a higher minimum
wage, tight labor market, lots of child care spending that we
have all learned was hugely essential for folks getting to
work.
Senator Bennet. And, Dr. Rachidi, I am happy to give you a
chance to respond or tell me why I am wrong; Dr. Corinth as
well. I know that you have a different point of view about it,
and I just want to get on the record whatever you would like to
put on the record.
Dr. Rachidi. Well, sure; thank you. I appreciate that. I
mean, I agree that we are in a different position now than we
were in the 1990s in terms of benefit reduction rates and
things like that.
I think the concern, though, is this is one step in that
direction and kind of a return to those types of programs, and
kind of a reverse from what we have learned over the past 2
decades--much from Dr. Michelmore's research on the EITC--that
the work incentive of the EITC has been really important for
low-income families.
So, if we believe that research, that has been so positive
for children and families, and I think we should also believe
that taking away that work incentive, the phase-in part of
that, could be detrimental to children.
Senator Bennet. So, Dr. Michelmore, it is your research. If
we believe your research, how can Dr. Rachidi sleep at night on
the Child Tax Credit? Or why should she be able to?
Dr. Michelmore. Well, I think--thank you. So, I think the
complicated thing with the EITC is, it has both this work
incentive and an income component, and it is nearly impossible
to disentangle those two things. But I do think that we have a
growing body of evidence that suggests that it is the income
that matters for children. We have evidence from, say the
Canadian child benefit system, which is not contingent on work,
that it also leads to substantial improvements in child
outcomes, very similar to the ones that have been found in the
EITC.
So, while I do think that the work component might be
contributing to some of the impact that we see for children's
outcomes, I think that the majority of it is plausibly driven
by the income that the children receive.
Senator Bennet. Dr. Corinth?
Dr. Corinth. Yes. I think there has been a lot of
agreement, from economists at least, that the work component
does matter a lot. There has been recognition that the EITC,
which does have the earnings requirement, has more powerful
effects for children than other benefit programs like housing
assistance, which do not have that work requirement.
So, if nothing else, I do think it is a big risk if we take
the step of going to this unconditional cash transfer that
would delink the cash from the work requirement.
Senator Bennet. And I hear you saying it is a risk, and I
hear Dr. Rachidi say she is worried that it is a first step in
that direction. I am worried that if we do not take the risk to
try, we are going to end up with millions of children
permanently marooned in American poverty. We are going to end
up with a workforce participation rate that continues to lag
other countries around the world that have similar child
allowances.
I am worried about how we deal with the fact that we do
not, unlike our competitors, provide paid family leave or early
childhood education or predictable preschool for families. And
this might be one opportunity to be able to say--partly to deal
with the worries about complexity--be able to say we are going
to give parents the opportunity to make this experiment.
I guess I would say, since I have the floor as well, I
would rather experiment with that, if we are making choices
about scarce resources, than having another set of tax cuts
that benefits the people at the very top, you know? Let us give
some tax cuts to working people and the middle class and see
whether they spend it on their children, which is what I
think--I think at least--the evidence pretty categorically
shows about what people did in 2021.
That actually is the subject of my next question for Mr.
Dutta-Gupta, which is about how families spent the credit. You
know, the average rent for a two-bedroom apartment is $1,300 a
month, and the average cost of child care is $1,000 a month. If
you throw in groceries, a car if you are lucky, health care,
mental health care, after-school programs, and all the rest,
not to mention the quantum amount more that people who have
more means in this country spend on their kids to make sure
they have the very best--and who among us, who on this panel,
would not do that for our kids and for our grandkids?
Now, the purpose of the Child Tax Credit is to provide a
little bit of a margin to support kids in this country. And
there is nobody who can spend a moment in a town hall in my
State, considering the last 50 years of the economy that we are
talking about, the prices of housing, of health care, of higher
education and inflation that we face today----
Although I am happy to hear people up here talk about how
low the unemployment rate is in their States, which is great
news--and we got great news yesterday, that the inflation rate
is 3 percent, so some sign of progress. But I do not think you
can spend a moment in those town halls and not understand how
this credit is a benefit, if only on the margin, as I said, to
help people who are working hard to pay bills, put food on the
table, and pay the rent.
And again, one of the things I really like about this Child
Tax Credit is, it is not the government telling you how to
spend the money. There is no bureaucracy telling you what to
do. So, could you explain what we know about how families spent
the expanded Child Tax Credit, and what specific things the CTC
allowed parents to do?
Mr. Dutta-Gupta. Well, we know they spent it on food and
groceries, and sure enough, the Census Bureau was able to
document that food insecurity rates fell right around the time,
and following the time, of those monthly payments. We also know
they spent it on bills and rent, on everyday essential costs of
raising children, including some of the activities and
opportunities that we have discussed that promote social and
educational development, including costs for musical
instruments so a child can join the school band, or for a
birthday party for their child.
And finally, we know that the CTC payments also helped some
parents work more hours. Many parents reported using the
payments toward expenses like car repairs and child care, which
helped them maintain employment. And I would just close quickly
by noting that if you really worry about the CTC and its effect
on work, you have to look at the effects on the second
generation.
And it is quite clear that the effects on the second
generation are unequivocally positive and unequivocally
improved labor market outcomes. So, even if you agreed with one
outlier study out of seven or eight, and believe that more than
a very small slice of folks were affected and reduced their
work in any way, we have to factor in the fact that the
children who are in those families are going to work more as
adults.
Senator Bennet. I am going to put everybody here out of
their misery, and I am about to gavel this to a close. But I
want to thank all of you for your testimony today. I really
appreciate it. I really hope you got a sense of how important
this is, at least from my perspective.
I mean, I really do think that we are going to have a hard
time holding on to this democracy if we cannot give the
American people a vision for the future where they feel like if
they are working hard in this country, that there is a future
for their kids, and that there is an economy that when it
grows, as I said earlier, it grows for everybody.
And I think we can still create that in America. I think
that, you know, a bipartisan consensus has emerged about the
last 50 years, consensus on outsourcing and sending stuff to
China and Southeast Asia, and how cavalier we were about that.
And I would say President Trump's sort of preternatural
sense that that had somehow gone wrong, I think provides one
vector for thinking about what it might look like. I think that
the investments that we are now making in this country in
infrastructure, bringing the semiconductor industry back to the
United States, leading the global transition on energy--which
no other country in the world is well-situated to do--we are
well-situated to do.
One of the massive headwinds that we face--in addition to
our health-care system that continues to cost twice as much as
any health-care system in any industrialized country in the
world, and our lack of mental health care--in my opinion, is
the lack of outcomes from our education system, which is
reinforcing the income inequality we have.
You see that we have the same income inequality, basically,
that we have had since the 1920s, and our lack of investment in
preschool, our lack of quality K-12 education, and the expense
of higher education, those are all conspiring to reinforce the
income inequality that we have.
I think it was in the midst of all of that--and the idea
was that a simple, tested policy approach created really by the
exigencies of COVID, although not designed during the
exigencies of COVID--that we turned to the Child Tax Credit.
As Senator Brown said earlier, for many of us, it was one
of the proudest moments that we have had since we have worked
here. I do hope we can get to a place where we can create a
bipartisan consensus around the parts of the Child Tax Credit.
I do believe that there is a bipartisan consensus in
America, that we do not need to cut any more taxes for the
people at the very top and expect that it is going to trickle
down. I believe there is a bipartisan consensus in America that
that has compounded the income inequality that we have, that it
has made it more difficult for families to achieve what they
can achieve.
I think people are ready to turn the page on that trickle-
down economics in all respects. Because of the distribution
tables that I pointed out earlier, more clearly than any other
tax policy that anybody has ever dreamt up around this place,
this was an attempt to take a step in a different direction.
And I am going to continue to fight for that, because I think
it is the right thing for the American people, the right thing
for the people of Colorado.
I want to thank very much the witnesses who were here to
provide their perspectives, both people called by the majority
and called by the minority. I hope that you will continue to
have this debate and discussion among yourselves as we get to a
place where we try to get to a bipartisan outcome.
I would like to thank Ranking Member Thune and his staff
for their partnership in hosting this important hearing, and I
would say to my fellow members, we would ask that any
additional statements or questions you may have for the record
be submitted to the committee clerk 5 business days from today,
or 5 p.m. next Thursday, July 20, 2023.
Thank you very much for being here. This hearing is
adjourned.
[Whereupon, at 12:28 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Hon. Michael F. Bennet,
a U.S. Senator From Colorado
Good morning. I am pleased to call this Subcommittee on Taxation
and IRS Oversight to order. I want to thank Ranking Member Thune for
his partnership on this hearing, along with all of our colleagues who
join us.
Today, we're here to discuss the 25-year-old Child Tax Credit, and
its benefit to tens of millions of American children. Over its history,
this tax credit--which is the single largest Federal expenditure for
kids--has made it easier for families to afford rent, groceries, child
care, and the thousand other expenses that come with raising a child in
America.
At its best, the Child Tax Credit has lifted nearly 2 million
children out of poverty and demonstrated that we don't have to accept,
in the wealthiest country in the world, one of the highest levels of
childhood poverty in the industrialized world as a permanent feature of
our economy or our democracy.
In today's testimony we will learn much more about the history of
the Child Tax Credit and its success. And although there have been
occasional differences in approach, I think it is important to
recognize that the Child Tax Credit has been expanded--both in size and
to whom it's available--as a result of bipartisan consensus and
agreement.
Indeed, I want to record here that among the first lawmakers to
officially embrace the CTC were Republican members of the House in
1994, who included a $500 credit in Newt Gingrich's ``Contract with
America.'' And it was President George W. Bush who worked with both
Democrats and Republicans in Congress to make some of the Child Tax
Credit refundable for the first time, expanding some of the benefit to
low-income families.
In 2017, Congress passed the Trump tax cuts without bipartisan
support. That bill doubled the maximum size of the credit from $1,000
to $2,000, but it also made it more available to wealthier families by
increasing the income threshold to $200,000 for individuals and
$400,000 for married couples.
Around the same time, my colleague Sherrod Brown and I took a
different approach and introduced the American Family Act. That bill
made the Child Tax Credit fully refundable, cutting taxes for the
poorest families and the middle class.
We did that because no child chooses to be born poor, but as our
witnesses will tell you today, growing up in poverty can shape a
child's future in ways that are profoundly unfair. I saw the effect of
that poverty every day when I worked for the kids of the Denver Public
Schools as their Superintendent.
And as a society, we've paid the price. Child poverty costs our
country up to $1 trillion a year, in the form of more hospital visits,
lower earnings, and higher crime. That's why economists from across the
political spectrum agree that investing in our kids is one of the best
choices we can make as a country. According to Columbia University,
every dollar we invest in the expanded Child Tax Credit generates $9 in
benefits to society down the road.
When COVID exacerbated and revealed further inequities in our
economy, we passed the American Family Act as part of the American
Rescue Plan. And we will hear today that, unlike many things the
Federal Government attempts, it was an enormous success.
As the research predicted:
Sixty-two million kids benefited, 90 percent of kids in every
single State.
In Colorado, moms spent it on things like groceries, diapers,
and textbooks.
It reduced stress for kids and their parents.
It helped cut child poverty in half and hunger by a quarter.
And we found out that an extra $10 a day didn't actually reduce
workforce participation as some suggested it would.
There is a growing chorus of research, some of which our witnesses
will share today, that shows the expanded Child Tax Credit is pro-
family, pro-work, and pro-
democracy.
For 6 shining months in 2021, we finally treated children in
poverty like they are our children--not someone else's. But we failed
to extend the expanded Child Tax Credit, and now, because of that
failure, child poverty is rising again in America. And American
children continue to go to bed hungry.
Today, I hope we'll have a discussion about why we should move
forward in a bipartisan way to make the full, expanded credit available
to every kid in America. We should consider how extraordinary it would
be for the wealthiest Nation in human history--with the fourth highest
rate of childhood poverty among rich nations--to end child poverty. To
have an economy that when it grows, it grows for everybody, not just
the people at the very top.
And my hope is in the months ahead, we will build on 25 years of
Child Tax Credit expansions to support America's children.
With that, I'll turn it over to my colleague, and the ranking
member, Senator John Thune.
______
Workers in Selected Occupations Who Would Receive Less Than the Full
WFTRA Child Tax Credit in 2023 if Not for Full Refundability
Comparing WFTRA to a version of WFTRA with the current-law credit's
phase-in and refundability cap
------------------------------------------------------------------------
Occupation Number of Workers
------------------------------------------------------------------------
Cashiers 503,000
------------------------------------------------------------------------
Nursing, psychiatric, and home health aides 439,000
------------------------------------------------------------------------
Maids and housekeeping cleaners 423,000
------------------------------------------------------------------------
Cooks 371,000
------------------------------------------------------------------------
Construction laborers 360,000
------------------------------------------------------------------------
Janitors and building cleaners 333,000
------------------------------------------------------------------------
Truck and delivery drivers 306,000
------------------------------------------------------------------------
Waiters and waitresses 306,000
------------------------------------------------------------------------
Personal and home care aides 294,000
------------------------------------------------------------------------
First-line supervisors/managers of retail sales 227,000
workers
------------------------------------------------------------------------
Customer service representatives 224,000
------------------------------------------------------------------------
Grounds maintenance workers 222,000
------------------------------------------------------------------------
Child care workers 221,000
------------------------------------------------------------------------
Retail salespersons 216,000
------------------------------------------------------------------------
Miscellaneous agricultural workers 202,000
------------------------------------------------------------------------
Carpenters 201,000
------------------------------------------------------------------------
Laborers and freight, stock, and material movers, by 197,000
hand
------------------------------------------------------------------------
Receptionists and information clerks 181,000
------------------------------------------------------------------------
Food preparation workers 166,000
------------------------------------------------------------------------
Secretaries and administrative assistants 155,000
------------------------------------------------------------------------
Managers, all other 153,000
------------------------------------------------------------------------
Miscellaneous manufacturing assemblers and 137,000
fabricators
------------------------------------------------------------------------
Production workers, including semiconductor 137,000
processors and cooling and freezing equipment
operators
------------------------------------------------------------------------
Elementary and middle school teachers 132,000
------------------------------------------------------------------------
Taxi drivers and chauffeurs 132,000
------------------------------------------------------------------------
Food service managers 125,000
------------------------------------------------------------------------
Teacher assistants 117,000
------------------------------------------------------------------------
Stock clerks and order fillers 115,000
------------------------------------------------------------------------
Hairdressers, hairstylists, and cosmetologists 109,000
------------------------------------------------------------------------
Medical assistants 108,000
------------------------------------------------------------------------
Hand packers and packagers 101,000
------------------------------------------------------------------------
Armed Forces 100,000
------------------------------------------------------------------------
Preschool and kindergarten teachers 99,000
------------------------------------------------------------------------
Automotive service technicians and mechanics 96,000
------------------------------------------------------------------------
Office clerks, general 92,000
------------------------------------------------------------------------
Painters, construction and maintenance and 86,000
paperhangers
------------------------------------------------------------------------
Registered nurses 83,000
------------------------------------------------------------------------
Security guards and gaming surveillance officers 82,000
------------------------------------------------------------------------
Industrial truck and tractor operators 80,000
------------------------------------------------------------------------
Bus drivers 77,000
------------------------------------------------------------------------
Inspectors, testers, sorters, samplers, and weighers 70,000
------------------------------------------------------------------------
First-line supervisors/managers of food preparation 68,000
and serving workers
------------------------------------------------------------------------
Bartenders 66,000
------------------------------------------------------------------------
Packaging and filling machine operators and tenders 63,000
------------------------------------------------------------------------
Welding, soldering, and brazing workers 63,000
------------------------------------------------------------------------
Miscellaneous personal appearance workers 63,000
------------------------------------------------------------------------
Combined food preparation and serving workers, 61,000
including fast food
------------------------------------------------------------------------
Health diagnosing and treating practitioner support 61,000
technicians
------------------------------------------------------------------------
Other teachers and instructors 60,000
------------------------------------------------------------------------
Metalworkers and plastic workers, all other 59,000
------------------------------------------------------------------------
Butchers and other meat, poultry, and fish 59,000
processing workers
------------------------------------------------------------------------
Farmers, ranchers, and other agricultural managers 58,000
------------------------------------------------------------------------
First-line supervisors/managers of office and 53,000
administrative support workers
------------------------------------------------------------------------
Pipelayers, plumbers, pipefitters, and steamfitters 52,000
------------------------------------------------------------------------
Shipping, receiving, and traffic clerks 52,000
------------------------------------------------------------------------
Licensed practical and licensed vocational nurses 49,000
------------------------------------------------------------------------
Bookkeeping, accounting, and auditing clerks 49,000
------------------------------------------------------------------------
First-line supervisors/managers of non-retail sales 43,000
workers
------------------------------------------------------------------------
Electricians 41,000
------------------------------------------------------------------------
Note: Table shows selected occupations for tax filers and spouses who
are at least age 18, worked last year, and would receive less than the
full WFTRA Child Tax Credit in 2023 if it did not include the full
refundability provision (i.e., if WFTRA had a $2,500 earnings
threshold, 15% phase-in, and $1,600 refundability cap.)
Prepared Statement of Kevin Corinth, Ph.D., Senior Fellow and Deputy
Director, Center on Opportunity and Social Mobility, American
Enterprise Institute
introduction
Chairman Bennet, Ranking Member Thune, and distinguished members of
the Subcommittee on Taxation and IRS Oversight, thank you for the
opportunity to testify on the Child Tax Credit (CTC). My name is Kevin
Corinth, and I am a senior fellow and the deputy director of the Center
on Opportunity and Social Mobility at the American Enterprise
Institute. This testimony reflects my own personal views and does not
represent those of the American Enterprise Institute, which has no
institutional views.
The CTC--the version that we have today--should be celebrated as a
bipartisan achievement because it serves the dual purposes of providing
tax relief for families and encouraging work. Since it was introduced
in 1997, the CTC has become more generous and expanded to more working
families, including to those who do not earn enough to pay Federal
income tax. Research shows that tax credits that incentivize work are
successful not only in increasing employment but also in improving the
long-run outcomes of children.
However, for 6 months during 2021, the CTC was replaced with
something completely different. Congress turned the CTC, provided to
working families, into a child allowance provided to all families
regardless of their work effort. This reform cost an additional $100
billion annually, likely contributing to the high inflation we have
experienced for the past 2 years. If made permanent, it would lead an
estimated 1.5 million parents to exit the workforce. It would also put
at risk the other benefits of tax credits that encourage work,
including promoting the long-term well-being of children.
Unfortunately, the risks of turning the CTC into a child allowance
have been overlooked, in large part due to failures by experts to
identify and communicate the risks. My testimony is intended to serve
as a corrective to these shortcomings. This includes correcting the
record on faulty research that misled policymakers on the expected
effects of introducing the CTC changes in 2021, as well as the misuse
of studies that analyze the effects of the 2021 CTC changes to
extrapolate the effects of extending these changes permanently.
The facts are as follows:
Permanently replacing the CTC with a child allowance, as was
temporarily implemented in the second half of 2021, would
substantially weaken the incentive to work.
Nobody knows exactly how many workers would exit the labor
force due to the weakened work incentives, but the highest
quality and most relevant research on how employment responds
to work incentives suggests that the disemployment effect would
be substantial.
The reduction in employment would mute at least some of the
direct child poverty reduction of transferring more government
assistance to low-income families.
Evidence on the employment and child poverty effects from
the temporary 2021 CTC changes provides little information
about the effects of a permanent extension of those CTC
changes. This is because it takes time for people to understand
changes in work incentives in the tax code, it can be difficult
to seamlessly exit and reenter the workforce in response to
sudden changes in work incentives, and the pandemic and related
events make it difficult to extrapolate the 2021 experience to
less extreme periods.
Given the gravity of the decision to replace the CTC with a child
allowance, it is unfortunate that these basic facts have been
overlooked, misunderstood, and diminished. The CTC changes being
considered would represent the biggest change to the social safety net
since welfare reform in the 1990s. But unlike welfare reform which was
preceded by a large body of rigorous research and State
experimentation, the CTC changes in 2021 were motivated by a flawed
National Academy of Sciences report that overlooked the elimination of
the CTC's work incentives induced by the policy change, and now,
evidence from a temporary 6-month version of the policy which has
little bearing on the expected effects of a permanent extension of the
policy.
In order to make informed decisions, policymakers require accurate,
unbiased evidence on the effects of policies. It is the job of
technical experts to provide that evidence and contextualize it.
Unfortunately, in the case of the CTC, that process has fallen short. I
hope that my testimony provides a corrective and allows you to make
more informed decisions about how to strengthen support for families
and the safety net in a way that better balances the benefits and costs
of any policy change.
the current child tax credit encourages work
The CTC was enacted in 1997 and first went into effect in 1998.\1\
It provided a nonrefundable $500 tax credit to families, for each
dependent child under the age of 17.\2\ Being nonrefundable means that
the CTC could only offset Federal income tax liability, and so its
value could not exceed a family's income tax liability. As a result,
families who did not have any Federal income tax liability did not
receive any Child Tax Credit. Starting in 2001, the CTC was made
partially refundable, and so families without a Federal income tax
liability could obtain some benefit, in the amount of 10 percent of
earned income in excess of $10,000. In 2003, the maximum per child CTC
amount increased to $1,000. Over the next several years the CTC became
more generous for families without Federal income tax liability, and by
2009, they could obtain a partially refundable CTC equal to 15 percent
of earned income in excess of $3,000.
---------------------------------------------------------------------------
\1\ For a legislative history of the Child Tax Credit, see
Congressional Research Service, 2021, ``The Child Tax Credit: A
Legislative History,'' https://crsreports.congress.gov/product/pdf/R/
R45124.
\2\ The credit was $400 in 1998 and increased to $500 in 1999.
The next major reform of the CTC occurred in 2017 as part of the
Tax Cuts and Jobs Act. The maximum per child CTC was doubled to $2,000,
of which up to $1,400 could be claimed as a refundable credit. The
refundable credit was set at 15 percent of earned income in excess of
$2,500. These are the current parameters of the CTC as of 2023,
although they are set to revert to the pre-Tax Cuts and Jobs Act
---------------------------------------------------------------------------
version (including a $1,000 maximum per-child credit) starting in 2026.
The current CTC encourages work. The reason is that the CTC
increases with earnings up to its maximum benefit amount. Figure 1
below shows the CTC schedule for a single parent with two dependent
children. A parent with less than $2,500 of annual earnings receives no
CTC. But then the CTC increases by $0.15 for every dollar of earnings.
The CTC peaks at $4,000 (again, for a parent with two dependent
children) when annual earnings reach just over $30,000. Thus, a single
parent who earns at least $30,000 each year receives a reward of $4,000
as a result of working. Earning $30,000 per year could be achieved by
one parent working full-time, year round at an hourly wage of $15. One
parent working full-time, year-round at an hourly wage of $10 would
earn $20,000 from work, and still receive $2,760 from the CTC.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
These work rewards are substantial, which can be seen by
comparing the CTC with the Earned Income Tax Credit (EITC), also shown
in Figure 1. The EITC has been widely acknowledged to encourage work
among single mothers and its 1990s expansion is credited with
contributing to the dramatic rise in single mother employment during
that time period.\3\ A 2019 National Academy of Sciences panel
estimated that increasing the EITC by just 40 percent would lead 0.8
million more single mothers to enter the workforce.\4\ Since the CTC
provides similar or more benefits to workers than 40 percent of the
EITC, we should expect that it induces even more mothers to enter
employment. This is consistent with a recent working paper by Kye
Lippold estimating that the loss of the CTC when children become too
old to qualify leads to a large reduction in parental employment.\5\
---------------------------------------------------------------------------
\3\ For a review of the literature on the employment effects of the
EITC, see for example, Austin Nichols and Jessie Rothstein, 2016, ``The
Earned Income Tax Credit,'' in Economics of Means-Tested Transfer
Programs in the United States, Volume I. For more recent evidence, see
Diane Whitmore Schanzenbach and Michael R. Strain, 2021, ``Employment
Effects of the Earned Income Tax Credit: Taking the Long View,'' Tax
Policy and the Economy, Volume 35.
\4\ National Academies of Sciences, Engineering and Medicine, 2019,
``A Roadmap to Reducing Child Poverty,'' https://
nap.nationalacademies.org/catalog/25246/a-roadmap-to-reducing-child-
poverty.
\5\ Kye Lippold, 2020, ``The Effects of the Child Tax Credit on
Labor Supply,'' SSRN Working Paper, https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=3543751.
For almost all of the entire 25-year existence of the CTC, it has
maintained the same basic structure, functioning as a tax credit that
provides financial relief and a work reward for working families. The
one exception was the second half of 2021, when the CTC was replaced
with a child allowance. Although the CTC was still called the CTC
during this time and was still administered by the Internal Revenue
Service, it no longer was intended to offset tax liability, and it no
longer required earnings for families to receive the credit. The
maximum amount of the CTC per child was increased to $3,600 for
children under 6 years old and $3,000 for children between the ages of
6 and 17 years old, and full cash payments were provided monthly. But
the most transformative change was to no longer require either a
Federal income tax liability or earned income to receive the benefit. A
---------------------------------------------------------------------------
nonworking family received the same credit amount as a working family.
Figure 2 compares the current CTC with the child allowance as
defined by the American Rescue Plan Act, for an adult with two
dependent children (one aged 0 to 5 and the other aged 6 to 16).
Because the family receives the same child allowance regardless of
their earnings, the child allowance removes the entire CTC work reward.
If enacted on a permanent basis, this policy change would be expected
to reduce employment.
There has been confusion about terminology when discussing the 2021
changes to the CTC, especially regarding the term ``fully refundable.''
To be fully refundable simply means that the CTC amount provided to a
family does not depend having a Federal income tax liability to offset.
The current CTC is partially refundable because only $1,400 of the full
$2,000 per-child benefit can be claimed without offsetting a family's
Federal income tax liability. Congress could make the current CTC fully
refundable if families could instead claim the full $2,000 per-child
benefit without a Federal income tax liability. But this change could
be made while preserving the current earnings requirement, with the CTC
phasing in at a 15-percent rate for every dollar earned above $2,500.
Such a fully refundable CTC that maintains the earnings requirement
would, in effect, differ only slightly from the current CTC, as shown
in Figure 3. Since the 2021 CTC further modified the current CTC by
eliminating the earnings requirement, I refer to it as a child
allowance, rather than a ``fully refundable CTC.''
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
evidence motivating the 2021 child tax credit changes
The intellectual foundation for replacing the CTC with a child
allowance in 2021 was provided in large part by a National Academy of
Sciences report published in 2019.\6\ That report concluded that the
replacement of the Child Tax Credit with a child allowance, like the
one we had in the second half of 2021, would have negligible effects on
employment and reduce child poverty by 41 percent. This National
Academy of Sciences report inspired additional simulations of replacing
the CTC with a child allowance which assumed no employment effects, and
as a result, found similarly large child poverty reductions.\7\
---------------------------------------------------------------------------
\6\ National Academies of Sciences, Engineering, and Medicine,
2019, ``A Roadmap to Reducing Child Poverty,'' https://
nap.nationalacademies.org/catalog/25246/a-roadmap-to-reducing-child-
poverty.
\7\ For example, see Gregory Acs and Kevin Werner, 2021, ``How a
Permanent Expansion of the Child Tax Credit Could Affect Poverty,''
Urban Institute, https://www.urban.org/sites/default/files/publication/
104626/how-a-permanent-expansion-of-the-child-tax-credit-could-affect-
poverty.pdf; Chuck Marr, Kris Cox, Stephanie Hingtgen, and Katie
Windham, 2021, ``Congress Should Adopt American Families Plan's
Permanent Expansions of Child Tax Credit and EITC, Make Additional
Provisions Permanent,'' Center on Budget and Policy Priorities, https:/
/www.cbpp.org/sites/default/files/5-24-21tax.pdf; Sophie Collyer, Megan
A. Curran, Robert Paul Hartley, Zachary Parolin, and Christopher Wimer,
2021, ``The Potential Poverty Reduction Effect of the American Families
Plan,'' Center on Poverty and Social Policy at Columbia University.
The National Academy of Sciences report was highly influential, and
ultimately contributed to Congress implementing the child allowance in
the American Rescue Plan Act in March 2021. The report and the
simulations it inspired were also cited in efforts during 2021 to
extend the child allowance into future years. For example, a September
2021 letter to Congress signed by 462 economists referenced the
National Academy of Sciences report in concluding that the policy would
``dramatically reduce child poverty'' and lead to ``minimal work
reduction.''\8\
---------------------------------------------------------------------------
\8\ Hilary Hoynes, et al., 2021, Final Economist CTC Letter,
https://static1.squarespace.com/static/5ecd75a3c406d1318b20454d/t/
6148f183c62fb147d0d25138/1632170373799/Economist+
CTC+Letter+9-14-21+430pm.pdf.
Unfortunately, the National Academy of Sciences report contained a
fundamental and consequential error. The report failed to recognize
that replacing the CTC--which has a work incentive--with a child
allowance provided regardless of work effort, would discourage work. In
contrast, the same National Academy of Sciences report assumed a strong
employment response when modeling the effects of expanding the EITC, a
similar tax credit targeted especially to families with children.
Specifically, they estimated that increasing the EITC by 40 percent
would draw 0.8 million single mothers into employment. Since the full
CTC is a larger work incentive than 40 percent of the EITC (as seen in
Figure 4 below), this implies that the employment effect of the CTC is
even larger. My coauthors and I calculated that if the National Academy
of Sciences had applied the same work responsiveness assumption used
for its EITC simulation to the incentive change caused by replacing the
CTC with a child allowance, they would have found at that at least 1.3
million parents would have exited employment as a result, before
accounting for any employment response by married parents to the
weakened work incentives.\9\
---------------------------------------------------------------------------
\9\ 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, https://www.nber.org/system/files/working_papers/w29366/w29366.
pdf.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
My coauthors and I conducted our own research simulating the
employment and poverty effects of permanently replacing the CTC with a
child allowance.\10\ Unlike the National Academy of Sciences report and
follow-on studies, we recognized and modeled the change in work
incentives. In addition, we used a more accurate dataset that links
household survey data with administrative program and tax data, what is
known as the Comprehensive Income Dataset. This dataset corrects for
misreporting of income in surveys and allows for a more accurate
simulation of changes to the CTC. We estimated that 1.5 million parents
would exit employment as a result of permanently extending the child
allowance. Accounting for the employment effect would reduce the child
poverty effect by over a third, from 34 percent to 22 percent.
---------------------------------------------------------------------------
\10\ 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, https://
www.nber.org/system/files/working_papers/w29366/w29366.pdf.
Unfortunately, the National Academy of Sciences has not yet been
willing to correct the public record about their error, misleading
policymakers about the true consequences of their policy choices.\11\
---------------------------------------------------------------------------
\11\ See Kevin Corinth and Bruce Meyer, 2021, Letter to National
Academies of Sciences, Engineering, and Medicine, https://bpb-us-
w2.wpmucdn.com/voices.uchicago.edu/dist/a/3122/files/2021/10/NAS-
Roadmap-Letter_10_27_2021.pdf.
While the parental employment and child poverty effects have
received the most attention in the policy debate over whether to
replace the CTC with a child allowance, there are other important
consequences that policymakers should consider. These include long-run
effects on child well-being, effects on single parenthood, and fiscal
---------------------------------------------------------------------------
consequences.
Regarding long-run child well-being, an extensive literature finds
that tax credits that encourage work improve child outcomes.\12\
Specifically, the EITC, which as noted earlier is structured similarly
to the CTC, has been found to improve children's test scores, and upon
adulthood increase their earnings and reduce dependency on government
programs.\13\ Government programs that provide aid to low-
income families without encouraging work appear to be a less robust
mechanism for improving long-run child outcomes.\14\ For example,
housing assistance has been found to have weaker positive impacts than
the EITC.\15\ The evidence in support of non-work conditioned
government assistance improving child outcomes is more frequently drawn
from an earlier era in which the rest of the safety net was much less
extensive than today, such as evidence that the rollout of Food Stamps
in the 1960s and 1970s improved children's long-run outcomes.\16\ Thus,
replacing the work-encouraging CTC with a child allowance that does not
encourage work could weaken the positive effects of the safety net in
improving long-run child outcomes.
---------------------------------------------------------------------------
\12\ For a literature review, see Hilary Hoynes and Diane Whitmore
Schanzenbach, 2018, ``Safety Net Investments in Children,'' Brookings
Papers on Economic Activity, https://www.
brookings.edu/wp-content/uploads/2018/03/HoynesSchanzenbach_Text.pdf.
\13\ For example, see 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):
1127-1163, https://www.journals.uchicago.edu/doi/abs/10.1086/
697477?journalCode=jole.
\14\ See Council of Economic Advisers, 2018, ``Expanding Work
Requirements in Non-Cash Welfare Programs,'' https://
trumpwhitehouse.archives.gov/wp-content/uploads/2018/07/Expanding-Work-
Requirements-in-Non-Cash-Welfare-Programs.pdf; Austin Nichols and
Jessie Rothstein, 2016, ``The Earned Income Tax Credit,'' in Economics
of Means-Tested Transfer Programs in the United States, Volume I.
\15\ Brian A. Jacob, Max Kapustin, and Jens Ludwig, 2015, ``The
Impact of Housing Assistance on Child Outcomes: Evidence from a
Randomized Housing Lottery,'' Quarterly Journal of Economics 130(1):
pp. 465-506, https://academic.oup.com/qje/article-abstract/130/1/465/
2337692
?redirectedFrom=fulltext.
\16\ Hilary Hoynes, Diane Whitmore Schanzenbach, and Douglas
Almond, 2016, ``Long-Run Impacts of Childhood Access to the Safety
Net,'' American Economic Review 106(4): pp. 903-934, https://
www.aeaweb.org/articles?id=10.1257/aer.20130375.
Another potential consequence of replacing the CTC with a child
allowance is an increase in single parenthood. As pointed out in recent
testimony by Bruce Meyer for a Senate Finance Committee hearing, the
growing rate of single parenthood flattened out in the aftermath of
welfare reform.\17\ While this evidence is not causal, it is plausible
that welfare reform, which rewarded work through an expanded EITC and
required work in return for receipt of cash welfare, played a role in
this change in trend. Since replacing the CTC with a child allowance
would weaken the incentive to work for low-income families and greatly
increase assistance for families with no earnings, it can be thought of
as partly reversing welfare reform, which could increase single
parenthood as a result. In fact, for a nonworking single parent with
two children, there are 32 States (and the District of Columbia) in
which the combined value of the child allowance and Supplemental
Nutrition Assistance Program (SNAP) benefits in 2023 would exceed the
combined value of Aid to Families with Dependent Children (AFDC) and
SNAP benefits in 1996, immediately prior to welfare reform (see Figure
5). Since this calculation omits benefits from Temporary Assistance for
Needy Families (TANF) in 2023, it understates the extent to which cash
and near-cash benefits under a child allowance for nonworking families
in 2023 would exceed what was available in 1996 prior to welfare
reform.
---------------------------------------------------------------------------
\17\ See written testimony of Bruce D. Meyer for United States
Senate Finance Committee Hearing on ``Anti-Poverty and Family Support
Provisions in the Tax Code,'' June 14, 2023, https://www.aei.org/wp-
content/uploads/2023/06/Bruce-Meyer-Testimony-Senate-Finance-6-14-
2023.pdf?x91208.
Finally, replacing the CTC with a child allowance would increase
government spending by over $100 billion annually.\18\ This will
eventually require increasing taxes which would lead to further
reductions in employment and restrict economic growth, or cutting other
government spending. These costs should be considered alongside the
benefits of short-run increases in resources directed to families with
children.
---------------------------------------------------------------------------
\18\ 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, https://
www.nber.org/system/files/working_papers/w29366/
w29366.pdf.
evidence based on the 2021 child tax credit changes
A year and a half removed from the temporary replacement of the CTC
with a child allowance, official data have been released allowing us to
determine how poverty changed during the second half of 2021 when the
policy change was in effect. In addition, a growing number of studies
have attempted to parse out the extent to which the CTC policy change
caused changes in child poverty, parental employment, and other
outcomes. However, the data and methodological approaches suffer from
limitations, and more broadly, the evidence from the temporary six-
month change to the CTC does not provide a useful guide to the effects
of making a child allowance permanent.
One frequently reported upon set of data is child poverty trends.
While the official poverty rate for children fell by just 0.7
percentage points (4 percent) from 2020 to 2021, the official poverty
measure excludes the child allowance payments as income. The Census
Bureau's supplemental poverty measure attempts to address this
shortcoming by including child allowance payments as income, but
because Census does not ask parents about the amount of child allowance
payments parents received, Census must impute them. The Census
imputation assumes full take-up of the child allowance payments among
families that Census calculates should be eligible based on other self-
reported information. Census also allocates both the monthly child
allowance payments made in July through December of 2021 to families'
2021 income, as well as the other half of the child allowance that was
paid out when families filed their taxes for the 2021 tax year around
April 2022. According to the supplemental poverty measure, child
poverty fell by 46 percent in 2021 compared to 2020. Other
nongovernment income-based poverty measures find conflicting child
poverty trends during the pandemic: Child poverty based on income
reported by recipients over the past 12 months did not substantially
fall in the second half of 2021, while monthly child poverty rates
based on imputed incomes and imputed child allowance payments fell
substantially.\19\
---------------------------------------------------------------------------
\19\ See Jeehoon Han, Bruce D. Meyer, and James X. Sullivan, 2022,
``Real-Time Poverty, Material Well-Being, and the Child Tax Credit,''
National Tax Journal 75(4), https://www.journals.uchicago.edu/doi/abs/
10.1086/722137; and Zachary Parolin, Megan Curran, Jordan Matsudaira,
Jane Waldfogel, and Christopher Wimer, 2022, ``Estimating Monthly
Poverty Rates in the United States,'' Journal of Policy Analysis and
Management 41(4): pp. 1177-1203, https://onlinelibrary.wiley.com/doi/
10.1002/pam.22403.
A better measure of poverty, especially when large income sources
must otherwise be imputed as in the case of the child allowance, is one
that relies on expenditures or consumption. Measuring poverty on the
basis of consumption does not require imputation of the child
allowance, while still capturing the benefit to the extent that
families use the additional resources to consume more. The Bureau of
Labor Statistics recently calculated poverty rates based on
expenditures and consumption, finding that child poverty fell by
between 13 percent and 23 percent, respectively, from 2020 to 2021 (see
Figure 6).\20\
---------------------------------------------------------------------------
\20\ Thesia I. Garner, Brett Matsumoto, Jake Schild, Scott Curtin,
and Adam Safir, 2023, ``Developing a Consumption Measure, with Examples
of Use for Poverty and Inequality Analysis: A New Research Product from
BLS,'' Monthly Labor Review, https://www.bls.gov/opub/mlr/2023/article/
developing-a-consumption-measure-with-examples-of-use-for-poverty-and-
inequality-analysis-a-new-research-product-from-bls.htm.
Even these changes could overstate the child poverty decline during
the second half of 2021. Bruce Meyer, in recent testimony before the
Senate Finance Committee reporting quarterly child consumption poverty,
found only small declines in the third and fourth quarters of 2021,
relative to the first two quarters of 2021. While it may be the case
that child poverty fell by a meaningful amount in 2021 in conjunction
with the child allowance payments, it is important to recognize that
(i) some of the most widely cited estimates are likely overstated due
to imputation assumptions and the allocation of benefits paid out in
2022 to poverty in 2021, and (ii) there remains uncertainty about the
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magnitude of child poverty experienced.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
A growing number of studies move beyond trends in child poverty
in an attempt to estimate the causal effect of the replacement of the
CTC with a child allowance on various outcomes in the second half of
2021. These studies typically compare changes in outcomes experienced
by families who were eligible for the child allowance to changes in
outcomes experienced by families who were eligible for a smaller child
allowance or no child allowance at all. These studies conclude that if
those families who received the child allowance saw a greater
improvement in outcomes than those families who did not receive the
child allowance, then the incremental improvement in outcomes can be
attributed to the policy change.
A problem for the design of these studies is that other events
occurred around the same time that child allowance payments were being
distributed, making it difficult to disentangle effects of the child
allowance payments from effects of these other events. In March 2021,
the American Rescue Plan Act expanded the Child and Dependent Care Tax
Credit--increasing the generosity of the credit and making more
families eligible--and distributed another round of Economic Impact
Payments (i.e., stimulus checks), including $1,400 per dependent child.
These policy changes were part of the same legislation that replaced
the CTC with a child allowance in 2021, and they likely affected
families who received a higher child allowance (due to having more
children and younger children) more than families who received a lower
or no child allowance. For example, a family with more children would
have received a larger Economic Impact Payment, and a family with
younger children would have been more likely to benefit from the
expansion of the Child and Dependent Care Tax Credit. Since these are
the same families who received higher child allowance payments, it is
difficult to determine whether improved outcomes for these families
were due to the child allowance payments or the other policy changes.
Other events further confound studies that focus on differences
between families who received the child allowance and families who
received a lower or no child allowance. For example, COVID-19 vaccines
were first made available to children aged 12 through 15 in May 2021,
and to children aged 5 through 11 in October 2021.\21\ Schools opened
in August and September 2021, after many had been closed or offered
only in hybrid format the preceding Spring. Each of these events likely
mattered more for families with children than families without
children, conflating studies that rely on variation in who received the
child allowance to identify its effects. The events also likely
mattered more for families with older children than families with
younger children, conflating studies that rely on variation in child
allowance amounts to identify its effects.
---------------------------------------------------------------------------
\21\ U.S. Department of Health and Human Services, ``COVID-19
Vaccines,'' https://www.hhs.gov/coronavirus/covid-19-vaccines/
index.html, accessed July 10, 2023.
Despite these methodological limitations, a growing number of
studies have nonetheless proceeded to estimate effects of the CTC
policy change on a range of outcomes including families' consumption,
material hardship, mental health, and employment.\22\ Many but not all
find that that the child allowance in 2021 increased the well-being of
families who appear to have been eligible for the child allowance
payments.\23\
---------------------------------------------------------------------------
\22\ For effects on consumption, see for example, Jake Schild,
Sophie M. Collyer, Thesia Garner, Neeraj Kaushal, Jiwan Lee, Jane
Waldfogel, and Christopher T. Wimer, 2023, ``Effects of the Expanded
Child Tax Credit on Household Spending: Estimates Based on U.S.
Consumer Expenditure Survey Data,'' NBER Working Paper, https://
www.nber.org/papers/w31412. For effects on material hardship, see for
example, Sophie Collyer, Jill Gandhi, Irwin Garfinkel, Schuyler Ross,
Jane Waldfogel, and Christopher Wimer, 2022, ``The Effects of the 2021
Monthly Child Tax Credit on Child and Family Well-Being: Evidence from
New York City, Socius, 8, https://journals.sagepub.com/doi/10.1177/
23780231221141165. For effects on employment, see for example, Brandon
Enriquez, Damon Jones, and Ernie Tedeschi, 2023, ``The Short-Term Labor
Supply Response to the Expanded Child Tax Credit,'' AEA Papers and
Proceedings 113: pp. 410-405, https://www.aeaweb.org/
articles?id=10.1257/pandp.20231087.
\23\ For example, no evidence of improved mental health was found
in Benjamin Glasner, Oscar Jimenez-Solomon, Sophie M. Collyer, Irwin
Garfinkel, and Christopher T. Wimer, 2022, ``No Evidence the Child Tax
Credit Expansion Had an Effect on the Well-Being and Mental Health of
Parents,'' Health Affairs 41(111), https://www.healthaffairs.org/doi/
abs/10.1377/hlthaff.2022
.00730.
Results on employment effects are not conclusive. One study finds
modest employment declines among adults with a high school degree or
less who have children, compared to similarly educated adults without
children.\24\ While meaningful, the employment effects are only about a
third as large as would be predicted in the long run based on a
permanent extension of the child allowance. Other studies do not find
employment effects, although they generally test for effects starting
when monthly child allowance payments were made in July 2021 as opposed
to when work incentive changes were announced and took effect starting
in March 2021.\25\
---------------------------------------------------------------------------
\24\ See Jeehoon Han, Bruce D. Meyer, and James X. Sullivan, 2022,
``Real-Time Poverty, Material Well-Being, and the Child Tax Credit,''
National Tax Journal 75(4), https://www.
journals.uchicago.edu/doi/abs/10.1086/722137.
\25\ See Brandon Enriquez, Damon Jones, and Ernie Tedeschi, 2023,
``The Short-Term Labor Supply Response to the Expanded Child Tax
Credit,'' AEA Papers and Proceedings 113: pp. 410-405, https://
www.aeaweb.org/articles?id=10.1257/pandp.20231087; and Elizabeth
Ananat, Benjamin Glasner, Christal Hamilton, and Zachary Parolin, 2022,
``Effects of the Expanded Child Tax Credit on Employment Outcomes:
Evidence from Real World Data from April to December 2021,'' NBER
Working Paper, https://www.nber.org/papers/w29823. The most recent
version of the latter study includes a robustness check using the
timing of the work incentive change in March 2021.
Even as there remains debate about the short-run effects of the
2021 CTC change, along with serious questions about the methodological
approaches used, the most concerning issue is that some have used the
results of these studies which measure the effect of a temporary policy
change, to infer what would happen if those changes were made
permanent. For example, one study states: ``Evidence that even the
temporary wage cut in the 2021 CTC expansion did not reduce parent
employment thus strongly suggests that a permanent expansion would not
meaningfully reduce parent employment.''\26\ In fact, these studies do
not provide a useful guide to the effects of making the 2021 CTC
changes permanent. This is certainly the case for employment. But it is
also true for all other outcomes because reductions in employment would
offset reductions in poverty and potentially other hardship measures.
---------------------------------------------------------------------------
\26\ Elizabeth Ananat, Benjamin Glasner, Christal Hamilton, and
Zachary Parolin, 2022, ``Effects of the Expanded Child Tax Credit on
Employment Outcomes: Evidence from Real World Data from April to
December 2021,'' NBER Working Paper, https://www.nber.org/papers/
w29823.
There are four main reasons that evidence from the temporary 2021
CTC changes should not be used to extrapolate the long-term effects of
---------------------------------------------------------------------------
a permanent policy change.
First, it is unlikely that most parents actually understood how
work incentives changed in 2021. As late as September 2021, 462
economists wrote a letter to Congress in which they failed to recognize
the work incentive effects of the 2021 CTC changes. If hundreds of
economists failed to recognize the work incentive changes even as they
were advocating a permanent extension of the policy, it seems
unrealistic to think that a majority of parents still dealing with the
effects of pandemic-related shutdowns would have understood them even
more quickly.
Second, even if they understood the work incentive changes, parents
are less likely to quit their jobs in response to an unexpected and
temporary 6-month policy change. In real world labor markets, the
typical worker cannot suddenly quit their job and then automatically
get their job back 6 months later when the work incentives are
restored.
Third, the work incentive of the CTC is strongest earlier in the
year, but the American Rescue Plan Act was not passed until March 2021,
and many parents were likely unaware that the CTC was replaced until
July 2021 or later. The delay in implementing the policy until later in
the year muted the change in work incentives relative to a policy that
was announced and understood at the beginning of the year. For example,
a parent working full-time, year-round with an annual salary of $60,000
would have already earned $30,000 by the start of July 2021, qualifying
her family for the full CTC under 2020 law, and thus providing her with
no additional incentive (above and beyond her wages net of taxes and
transfers) to continue working the remainder of the year. Even if she
understood the work incentive changes induced by the switch to a child
allowance as soon as July 2021, she would face no change in work
incentives as a result. Only those individuals who had not yet worked
prior to learning about the work incentive change would be fully
affected by the weakening of work incentives in the switch to a child
allowance.
Fourth, even if parents understood the incentive change more
quickly than 462 economists, and even if they had jobs they could
seamlessly move into and out of, and even if they still faced the full
strength of the work incentive change by not working in early 2021
before learning about the policy, the 2021 experience would still
provide little help in understanding the consequences of a permanent
extension of this policy. The reason is that a lot was going on in 2021
that made it unique. We were facing a pandemic. We had undergone
multiple rounds of economic stimulus payments and boosted unemployment
benefit payments. Supplemental Nutrition Assistance Program benefits
and child care assistance were substantially expanded in 2021. Many
schools were just beginning to open up again. How parents respond to
work incentive changes in the midst of a pandemic and in the midst of
other unprecedented government aid is likely to differ from how they
would respond in less extreme times.\27\
---------------------------------------------------------------------------
\27\ As stated by Michael Karpman, Elaine Maag, Stephen Zuckerman,
and Doug Wissoker, 2022, ``Child Tax Credit Recipients Experienced a
Larger Decline in Food Insecurity and a Similar Change in Employment as
Nonrecipients Between 2020 and 2021,'' Tax Policy Center, https://
www.urban.org/research/publication/child-tax-credit-recipients-
experienced-larger-decline-food-insecurity-and: ``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'' (p. 2).
It is important to emphasize these issues, because some have
extrapolated from the experience with the 2021 CTC to what would happen
if those changes were made permanent. They have claimed that we now
have evidence that permanently extending the 2021 CTC changes would
have little effect on employment and thus dramatically reduce child
poverty. They are wrong.
conclusion
Ultimately, the decision over whether to replace the CTC with a
child allowance should be informed by an accurate understanding of the
costs and benefits. Unfortunately, the costs have been overlooked,
misunderstood and minimized, and the benefits have been oversold. I
hope my testimony can provide a corrective so that in the future you
can make better informed policy decisions.
______
Questions Submitted for the Record to Kevin Corinth, Ph.D.
Questions Submitted by Hon. James Lankford
Question. What impact have the Tax Cuts and Jobs Act's changes to
the Child Tax Credit had on reducing poverty? What other changes to the
Child Tax Credit should Congress consider to encourage work, provide
tax relief for families and reduce poverty?
Answer. The Tax Cuts and Jobs Act's changes to the Child Tax Credit
(CTC) increased resources directed to low income families and
encouraged work. It did so by increasing the maximum per child credit
from $1,000 to $2,000, and increasing the refundable portion to $1,400.
While the elimination of tax exemptions for dependents offset some of
the increased CTC benefit, net benefits rose for families, including
for those with lower incomes. The higher CTC and other provisions of
the Tax Cuts and Jobs Act that reduced individual taxes encouraged work
because parents could keep more of their earned income.
Increased CTC benefits and increased earnings from work contributed
to falling poverty rates after the Tax Cuts and Jobs Act was
implemented starting in tax year 2018. The official poverty rate for
the full population fell from 12.3 percent in 2017 to 10.5 percent in
2019, and the official poverty rate for children fell from 17.4 percent
in 2017 to 14.4 percent in 2019. Other poverty measures that address
the flaws of the official measure also find substantial poverty
declines. For example, a full income poverty measure that adjusts for
taxes and includes government transfers fell from 13.8 percent in 2017
to 10.5 percent in 2019. This decline in poverty resulted from a strong
labor market that increased labor force participation and raised wages
for lower skilled and historically disadvantaged groups, in addition to
the CTC changes that directly increased resources for low income
families.
Further changes to the CTC should maintain the existing tie to
earnings or a Federal income tax liability. Providing benefits to
families with neither earnings nor a tax liability would discourage
work and duplicate existing safety net programs that are better
targeted at low-income families and can more effectively address their
individual needs. Fortunately, there are ways to maintain the CTC's
work incentives while also providing more tax relief for families and
reducing poverty. For example, the CTC could begin phasing in with the
first dollar of earned income instead of not phasing in until the
existing $2,500 earnings thresholds is reached. Also, the existing cap
on the portion of the CTC that is refundable could be increased from
approximately $1,600 per child for the 2023 tax year to $2,000 per
child. These reforms would be targeted at lower income families, help
reduce poverty, encourage work, and be much less expensive than
replacing the CTC with a child allowance.
Question. In your opinion, will reforming the Child Tax Credit to a
direct cash assistance program create further dependence on government
assistance? If so, would that dependence reduce poverty?
Answer. Turning the Child Tax Credit (CTC) into a direct cash
assistance program would increase dependence on government assistance.
Before welfare reform in the 1990s, the Aid to Families with Dependent
Children (AFDC) program provided direct cash assistance to low income
families without requiring work. Recent research finds that 17 percent
of children's families in 1993 received at least half of their income
from the government, but that this share fell to 10 percent by 2000 in
conjunction with welfare reform. This decline in dependence occurred at
the same time as a decline in child poverty. Thus, it is possible to
both reduce dependence and reduce child poverty at the same time.
In the short run, it is likely the case that turning the CTC into a
direct cash assistance program would reduce poverty--transferring more
resources to families below the poverty line would mechanically lift
some of them above the poverty line. But in the long run, this
mechanical effect in alleviating poverty would be weakened and could
potentially be reversed, due to withdraw from the labor market for a
small but important subset of parents and potentially worse outcomes
for children upon reaching adulthood themselves. This makes a strategy
of reducing poverty by transferring more resources that are not
connected to work a risky one.
Question. In your testimony, you argued that a consequence of
replacing the Child Tax Credit with a cash allowance would be
increasing single parenthood. What impact would an increase in single
parenthood have on childhood poverty? What impact does marriage have on
reducing childhood poverty? What are additional steps Congress should
consider to incentivize marriage?
Answer. Replacing the Child Tax Credit (CTC) with a child allowance
could increase single parenthood relative to married parenthood,
because a nonworking parent separating from a working spouse could
partly offset the loss in earnings with the child allowance. As I noted
in my testimony, the rise in single parenthood flattened out after
welfare reform, suggesting that reverting back to unconditional cash
assistance like we had prior to welfare reform could risk increasing
single parenthood.
An increase in single parenthood would increase childhood poverty.
Single parenthood can be much more difficult than living in a married,
two-parent family, because single parents typically require child care
for young children in order to work at all and because single parent
families have only one potential earner rather than two. As a result,
children living in single parent families are more likely to be poor
than children living in married parent families. Having two parents in
a household increases the resources available to children which reduces
childhood poverty, and a committed partnership can allow for increased
investment in children which can promote positive long run outcomes.
Congress should consider incentivizing marriage, first of all, by
not imposing further marriage disincentives. That means not adopting
reforms like the replacement of the CTC with a child allowance that
would partially reverse welfare reform. Second, Congress should
consider mitigating marriage disincentives in tax and transfer
policies. For example, the Earned Income Tax Credit, due to its steep
phaseout rate for families with moderate levels of earnings,
disincentivizes marriage because while a single working parent can
qualify for a large benefit, marriage to a working spouse can largely
reduce or eliminate the benefit altogether. While there are budgetary
reasons to target benefits to those most in need, which can lead
married families to receive fewer benefits than single parent families,
the importance of marriage for strong and healthy families should
motivate policymakers to consider reforms that mitigate at least some
of the strongest marriage disincentives imposed by government policies.
______
Prepared Statement of Indivar Dutta-Gupta, President and
Executive Director, Center for Law and Social Policy
introduction
Thank you, Chairman Bennet, Ranking Member Thune, and members of
the subcommittee. My name is Indivar Dutta-Gupta, and I am the
president and executive director of the Center for Law and Social
Policy (CLASP). CLASP is a national, nonpartisan nonprofit utilizing
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, in turn
building a more prosperous country for all of us.
I'm honored to submit this written testimony on the extraordinary
bipartisan history and even more extraordinary quarter-century track
record of the Child Tax Credit (CTC). My own history working on the CTC
dates to 2006, when I was a research assistant at the Center for
American Progress, developing policies to reduce poverty in the United
States, including a more inclusive CTC. From 2007 through 2010, I
worked on a bipartisan basis to reduce the discrimination in the tax
credit against people with limited incomes as Professional Staff on the
Ways and Means Committee. We succeeded in shrinking the amount of
family earnings ignored from around $11,000 a year to $3,000 a year,
avoiding a worsening situation as more and more children who would
benefit the most would otherwise be excluded from the credit.
Subsequently, I worked at the Center on Budget and Policy Priorities--
and later at the Georgetown Center on Poverty and Inequality--to push
for a truly inclusive, more adequate, and more effective CTC that would
help families raise children in developmentally desirable environments.
The enhanced CTC in 2021 marked the high-water mark for these
collective and often bipartisan efforts.
This testimony highlights the CTC's role in reducing poverty and
expanding opportunity, as well as raising living standards over time by
growing our economy. I also focus my testimony on the history of
bipartisan support for the CTC and how and why Congress should improve
the credit. First, I start with some context-setting, explaining just
how harmful child poverty--even defined narrowly as simply having very
low childhood income--is.
the high cost of child poverty
Mounting research makes clear that childhood poverty harms children
and society overall.
Child Poverty's Effects on Children
Poverty is bad for all children and particularly bad for the
youngest children. Children who experience poverty are far more likely
than their peers to fail to finish high school, become parents as
teens, and experience poverty as adults.\1\ The time around the birth
of a child is frequently the point at which parental income is at a
nadir,\2\ meaning that the youngest children are most likely to live in
poverty, at a time that is critical for their development.
---------------------------------------------------------------------------
\1\ American Psychological Association, Effects of Poverty, Hunger
and Homelessness on Children and Youth, last updated July 2022, https:/
/www.apa.org/pi/families/poverty.aspx.
\2\ Austin Clemens and Kavya Vaghul, Economic Insecurity Rises
Around Childbirth, Explained in Four Charts, Washington Center for
Equitable Growth, 2016, https://equitablegrowth.org/economic-
insecurity-rises-around-childbirth-explained-in-four-charts/.
Poverty affects children through direct material hardships such as
food insecurity and hunger, inadequate clothing or diapers, lack of
health care, living in overcrowded or substandard housing, or being
homeless. But poverty also harms children by imposing high levels of
stress on their parents, which impairs their capacity to give their
children the care and attention any child needs to thrive.\3\ The harsh
realities of today's low-wage labor market--with the norm being little
paid time off and unpredictable and unstable schedules--ratchet up the
stress and make it harder for parents to fulfill their dual roles as
wage-earners and caregivers.\4\ Children's needs themselves are a major
source of motivation for parents, as well as sometimes a cause for
economic vulnerability and stress. As a result, parents facing poverty,
however loving and dedicated, often struggle to meet their children's
needs.
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\3\ Caroline Ratcliffe and Signe-Mary McKernan, Child Poverty and
Its Lasting Consequence, The Urban Institute, September 2012, https://
www.urban.org/research/publication/child-poverty-and-its-lasting-
consequence. Lawrence Aber, Pamela Morris, and Cybele Raver,
``Children, Families, and Poverty: Definitions, Trends, Emerging
Science and Implications for Policy,'' Society for Research in Child
Development, 2012, https://nyuscholars.nyu.edu/en/publications/
children-families-and-poverty-definitions-trends-emerging-science.
\4\ Elizabeth Lower-Basch and Stephanie Schmit. ``TANF and the
First Year of Life: Making a Difference at a Pivotal Moment.'' Center
for Law and Social Policy, October 2, 2015, https://www.clasp.org/
publications/report/brief/tanf-and-first-year-life-making-difference-
pivotal-moment/. Goldman, Tanya, Pronita Gupta, and Eduardo Hernandez.
``The Struggles of Low-Wage Work.'' Center for Law and Social Policy,
May 29, 2018, https://www.clasp.org/wp-content/uploads/2022/01/
2018_lowwagework.pdf.
A number of studies have attempted to identify the effect of
income, independent of the many other family and neighborhood factors,
on child well-being and future outcomes. A few representative findings
---------------------------------------------------------------------------
include:
Researchers were able to track 16,000 boys into adulthood
whose mothers applied for cash support from the Mothers'
Pension program between 1911 and 1930 due to the loss or
disability of their breadwinning father. Compared to the
children whose mothers' applications were rejected, male
children whose mothers received assistance lived 1 year longer,
obtained one-third more years of schooling, were less likely to
be underweight, and had higher income in adulthood.\5\
---------------------------------------------------------------------------
\5\ Anna Aizer, Shari Eli, Joseph Ferrie, and Adriana Lleras-Muney,
``The Long-Run Impact of Cash Transfers to Poor Families,'' American
Economic Review 106, no. 4, April 2016, 935-71, https://doi.org/
10.1257/aer.20140529.
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A study of variation in pandemic-era stimulus and CTC
payments found that each additional $100 in unconditional
transfers a family received while a mother was pregnant reduced
the prevalence of low birthweight by 2 to 3 percent. Low birth
weight in turn has strong predictive power for adverse health
outcomes throughout childhood and into adulthood.\6\
---------------------------------------------------------------------------
\6\ Krista Ruffini, ``Does Unconditional Cash during Pregnancy
Affect Infant Health?'', SSRN Scholarly Paper, March 29, 2023, https://
doi.org/10.2139/ssrn.4404319.
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A study taking into account that families with babies born
in December receive an additional year of child-related tax
benefits compared to families with babies born in January found
that a $1,000 tax transfer to low-income families results in
2.6 percent fewer referrals to child protective services
through age 2 and 7.9 percent fewer days spent in foster
care.\7\
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\7\ Katherine Rittenhouse, ``Income and Child Maltreatment:
Evidence from a Discontinuity in Tax Benefits,'' SSRN Electronic
Journal, 2023, https://doi.org/10.2139/ssrn.4349231.
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A randomized study of a cash transfer program for low-income
mothers of infants in four geographically diverse metro areas
found impacts on the children's brain wave patterns associated
with higher language, cognitive, and
social-emotional scores in older children.\8\
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\8\ Sonya V. Troller-Renfree et al., ``The Impact of a Poverty
Reduction Intervention on Infant Brain Activity,'' Proceedings of the
National Academy of Sciences 119, no. 5, February 2022: e2115649119,
https://doi.org/10.1073/pnas.2115649119.
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Educationally, each $1,000 in combined EITC and CTC Federal
tax credits increases a child's test scores by 6 to 9 percent
of a standard deviation, with higher effects seen in math
scores.\9\ Similar results, along with impacts on mental and
physical health, are found in a study of Canadian child
benefits that were overwhelmingly unconditional.\10\
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\9\ Raj Chetty, John N. Friedman, and Jonah Rockoff, ``New Evidence
on the Long-Term Impacts of Tax Credits,'' Statistics of Income Paper
Series, November 2011, http://www.irs.gov/pub/irs-soi/
11rpchettyfriedmanrockoff.pdf.
\10\ Kevin Milligan and Mark Stabile, ``Do Child Tax Benefits
Affect the Well-Being of Children? Evidence from Canadian Child Benefit
Expansions,'' American Economic Journal: Economic Policy 3, no. 3,
August 2011: 175-205, https://doi.org/10.1257/pol.3.3.175.
Family income during the prenatal period and early childhood is
particularly critical to healthy development and positive outcomes in
later life and may have a larger impact on long-term outcomes than
income later in life.\11\ Holding all else equal, for families with
early childhood (prenatal to age 5) incomes below $25,000, a $3,000
annual boost to family income during that period is associated with a
17-percent increase in adult earnings when that child grows up.\12\
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\11\ Greg J. Duncan and Katherine Magnuson, ``The Long Reach of
Early Childhood Poverty,'' Pathways, 2011, https://web.stanford.edu/
group/scspi/_media/pdf/pathways/winter_2011/
PathwaysWinter11_Duncan.pdf.
\12\ Hilary W. Hoynes, Diane Whitmore Schanzenbach, and Douglas
Almond, Long Run Impacts of Childhood Access to the Safety Net, Working
Paper, National Bureau of Economic Research, November 2012, http://
www.nber.org/papers/w18535.
The 2019 National Academies of Sciences, Engineering, and Medicine
(National Academies) report on Child Poverty comprehensively reviewed
---------------------------------------------------------------------------
the literature on the causal impact of poverty and found:
The weight of the causal evidence indicates that income poverty
itself causes negative child outcomes, especially when it
begins in early childhood and/or persists throughout a large
share of a child's life. Many programs that alleviate poverty
either directly, by providing income transfers, or indirectly,
by providing food, housing, or medical care, have been shown to
improve child well-being.\13\
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\13\ ``Beyond Rhetoric: A New American Agenda for Children and
Families. Final Report of the National Commission on Children,''
National Commission on Children, Conclusion 3-8, 1991, https://
eric.ed.gov/?id=ED336201.
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Child Poverty's Effects on Society
But the impact of child poverty is not limited to individuals. The
consequences of poverty as experienced in this country impose
significant costs on society as a whole through a few major mechanisms:
Lost worker productivity and earnings;
Greater morbidity and mortality, which can be especially
costly in a country with extraordinarily high health-care costs
and spending; and
Increased law enforcement and prison and jail costs, due to
policymakers' decisions to pursue a path of mass
criminalization and mass incarceration.
The evidence of societal costs is particularly strong for child
poverty, which lowers tax revenues and increases public spending
unnecessarily, in turn hindering our Nation's economic prosperity and
potential.\14\ One estimate finds societal costs of child poverty to be
approximately 5.4 percent of GDP in 2015.\15\
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\14\ National Academies of Sciences, Engineering, and Medicine, A
Roadmap to Reducing Child Poverty, The National Academies Press, 2019,
https://doi.org/10.17226/25246.
\15\ M. McLaughlin and M.R. Rank, ``Estimating the economic cost of
childhood poverty in the United States.'' Social Work Research, 42(2),
73-83, 2018.
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history of the child tax credit, 1991-2020
The policy origin of the United States Child Tax Credit dates to at
least 1991, and the credit has changed on numerous occasions on a
bipartisan basis since its original enactment in 1997, generally
becoming more inclusive and generous over time.
1991--National Commission on Children
The Child Tax Credit was first proposed in the March 1991 report of
the congressionally established National Commission on Children, a
bipartisan body whose 34 members were appointed by President Ronald
Reagan (in 1987) and both houses of Congress. The Commission
unanimously recommended a $1,000 per child refundable credit that would
be indexed for inflation (i.e., approximately $2,250 in today's
dollars), noting that the United States is ``the only Western
industrialized nation that does not have a child allowance policy or
some other universal public benefit for families raising
children.''\16\ The Commission noted that the Federal personal
exemption for dependent children does not meet the goal of assisting
families with the cost of raising children ``because it has declined in
value over the past 4 decades, because it is not available to families
that do not pay Federal income tax, and because it provides a greater
benefit to families with higher earnings.''\17\
---------------------------------------------------------------------------
\16\ Beyond Rhetoric, p. 94.
\17\ Beyond Rhetoric, p. 94.
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1991-1996--Legislative Momentum
The idea of a child tax credit was embraced by both Democrats and
Republicans. In 1994, the Contract with America, the Republican Party's
legislative agenda championed by Newt Gingrich, included a $500-a-year
child tax credit.\18\ In the 104th Congress, two Republican-led bills
also included this provision in the American Dream Restoration Act and
the Tax Fairness and Deficit Reduction Act, the latter of which passed
in the House.\19\ President Clinton also put out his own proposal on
what the child tax credit could look like with the Middle-Class Bill of
Rights Tax Relief Act of 1995, as did other Democrats including then-
Senator Tom Daschle and Rep. Charles Rangel with their own
proposals.\20\
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\18\ Republican National Committee, ``Republican Contract with
America,'' September 27, 1994, https://teachingamericanhistory.org/
document/republican-contract-with-america/.
\19\ Margot L Crandall-Hollick, ``The Child Tax Credit: Legislative
History,'' Congressional Research Service, December 23, 2021, https://
sgp.fas.org/crs/misc/R45124.pdf.
\20\ Robert Greenstein and Iris J. Lav. ``The Clinton Tax Plan,''
Center on Budget and Policy Priorities, July 3, 1997, https://
www.cbpp.org/sites/default/files/archive/clinttax.htm.
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1997--Initial Enactment
The CTC was first enacted as part of the Taxpayer Relief Act of
1997, with large margins of bipartisan support (92-8 in the Senate and
389-43 in the House).\21\ However, the CTC as enacted fell well short
of the Commission's recommendations. In particular, the credit was
worth only $400 (rising to $500 in 1999), and it was mostly
nonrefundable, meaning that it excluded those who would most benefit.
The only families who could get a refundable credit were those with
more than two children and whose payroll taxes exceeded their Earned
Income Tax Credit. For example, a minimum wage earner working full time
would have earned $10,300, below the filing threshold, and therefore
would not have benefited at all. The credit also began to phase out
starting at $75,000 in adjusted gross income for heads of household
filers and $110,000 for married joint filers. Neither the amount of the
credit nor the phaseout thresholds were indexed for growth in prices or
living standards.
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\21\ 143 Cong. Rec. H4816, 1997; 143 Cong. Rec. S8480, 1997.
---------------------------------------------------------------------------
2001-2004--First Steps Toward Inclusion
In 2001, the Economic Growth and Tax Relief Reconciliation Act,
which passed with a 58-33 Senate vote (46 Republicans and 12 Democrats)
and in the House with a 240-154 vote (211 Republicans, 28 Democrats,
and 1 Independent),\22\ represented one of President George W. Bush's
signature legislative achievements. It also made the credit partially
refundable--up to 10 percent of income over $10,000 for tax years 2001
to 2004, and 15 percent of taxable income over that threshold starting
in 2005.\23\
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\22\ 147 Cong. Rec. S5796, 2001.
\23\ Rockefeller Foundation, The Earned Income and Child Tax
Credits: The Federal Framework, Reform Efforts to Date, and Options for
Future Change, 2020, https://www.
rockefellerfoundation.org/wp-content/uploads/The-Rockefeller-
Foundation-EITC-Policy-Paper-2020-1.pdf.
This schedule was later accelerated by the Jobs and Growth Tax
Relief Reconciliation Act (JGTRRA) and the Working Families Tax Relief
Act, so that the expansion was fully phased in by 2004.\24\ JGTRRA was
passed by a vote of 231-200 in the House, with 7 Democratic votes, and
51-49 in the Senate.\25\ However, at that point, a single parent with
two children would not receive the full value of the CTC until their
taxable income reached $23,333--the equivalent of working full-time,
every week . . . in more than two minimum wage jobs in 2004 (see Figure
1.). The JGTRRA threshold was indexed for inflation and had reached
$11,750 by 2007.\26\
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\24\ Margot L Crandall-Hollick, ``The Child Tax Credit: Legislative
History,'' Congressional Research Service, December 23, 2021, https://
sgp.fas.org/crs/misc/R45124.pdf.
\25\ 149 Cong. Rec. S7087, 2003; 149 Cong. Rec. H4730, 2003.
\26\ ``Revenue Procedure 2006-53,'' Internal Revenue Service,
November 2006, https://www.irs.gov/pub/irs-drop/rp-06-53.pdf.
When the JGTRRA was signed into law in 2003, it failed to make the
CTC more fully refundable. Two Senators--Blanche Lincoln, a Democrat
from Arkansas, and Olympia Snowe, a Republican from Maine--led the push
for a vote weeks later to expand partial refundability, which had been
included in an earlier version of JGTRRA. This bill passed the Senate
94-2.\27\ However, the bill that was ultimately enacted--the Working
Families Tax Relief Act of 2004--extended the CTC and made changes to
the definition of a dependent, but it did not lower the threshold for
refundability. The Senate passed the bill in an overwhelmingly
bipartisan manner--by a 92-3 vote--and the House passed it by a 339-65
vote.\28\
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\27\ Ted Barett, ``Child Tax Credit Faces Hurdles in House,''
CNN.Com, June 6, 2003, http://www.cnn.com/2003/ALLPOLITICS/06/06/
child.tax/.
\28\ PL-108-311, The Working Families Tax Relief Act of 2004,
https://www.congress.gov/bill/108th-congress/house-bill/1308.
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2007-2015--Leaps Toward Inclusion
The earnings threshold was finally lowered in response to the 2007-
2009 financial crisis. The threshold was reduced first to $8,500 by the
Emergency Economic Stabilization Act of 2008 (passed in the Senate 74-
25, with 44 Democrats and 30 Republicans, and in the House 263-71, with
172 Democrats and 91 Republicans) and then temporarily to $3,000 by the
American Recovery and Reinvestment Act of 2009. The earnings threshold
was extended under the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010 and the American Tax
Relief Act of 2012, and finally made $3,000 permanently (with the
threshold no longer rising with inflation) by the Protecting Americans
from Tax Hikes (PATH) Act of 2015.\29\
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\29\ Rockefeller Foundation, The Earned Income and Child Tax
Credits: The Federal Framework, Reform Efforts to Date, and Options for
Future Change, 2020, https://www.
rockefellerfoundation.org/wp-content/uploads/The-Rockefeller-
Foundation-EITC-Policy-Paper-2020-1.pdf.
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2017--Substantial Expansions for High-Income Households
The Tax Cut and Jobs Act of 2017 (TCJA) made a series of changes to
the CTC that mostly benefited middle- to upper-income households. It
doubled the maximum credit per child to $2,000 and greatly increased
the phaseout thresholds, from $75,000 to $200,000 for heads of
household and from $110,000 to $200,000 for married joint filers. It
modestly reduced the start of the phase-in threshold, from $3,000 to
$2,500, but capped the refundable portion of the credit at $1,400. This
means that unless families owed at least $600 per child in Federal
income taxes, they did not receive the full benefit of the credit--both
the refundable and nonrefundable portions. (The $1,400 cap is adjusted
for inflation and rose to $1,500 for tax year 2021 and $1,600 for tax
year 2023.) The Center on Policy and Budget Priorities estimated 19
million children under age 17 in 2019 lived in families that did not
earn enough to receive the full credit.\30\ In addition, TCJA made more
restrictive the identification requirement for children for whom the
credit is claimed, requiring a Social Security number--issued before
the date of the tax return--for each child.\31\
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\30\ Elaine Maag, ``The TCJA Didn't Change Child Benefits for Most
Families With Children by Very Much,'' Tax Policy Center, October 8,
2019, https://www.taxpolicycenter.org/taxvox/tcja-didnt-change-child-
benefits-most-families-children-very-much.
\31\ Rockefeller Foundation, The Earned Income and Child Tax
Credits: The Federal Framework, Reform Efforts to Date, and Options for
Future Change, 2020, https://www.
rockefellerfoundation.org/wp-content/uploads/The-Rockefeller-
Foundation-EITC-Policy-Paper-2020-1.pdf.
As a result of the TCJA changes, many low-income families received
just $75 extra--resulting from the $500 lowering of the refundability
threshold, multiplied by the 15-percent phase-in rate. By contrast,
most newly eligible higher-income families received the maximum credit
of $2,000 per child.\32\
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\32\ Elaine Maag, ``The TCJA Will Help Families With Children, But
High Income Households Will Get Much of the Benefit,'' Tax Policy
Center, December 22, 2017, https://www.
taxpolicycenter.org/taxvox/tcja-will-help-families-children-high-
income-households-will-get-much-benefit.
To limit the scored revenue losses under the TCJA, most of its
provisions, including the changes to the CTC, will sunset after 2025.
Beginning in 2026, the parameters of the CTC will reset to their
previous levels--$1,000 per child through age 16, phasing in at 15
percent after ignoring the first $3,000 of earnings, and beginning to
phase out at $75,000 for heads of household and single filers--unless
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Congress enacts additional legislation to extend these changes.
Figure 1. Partially Refundable Credit Provides Less Support to Children of Low-Wage Working People
----------------------------------------------------------------------------------------------------------------
Credit
Earnings received by Credit she Number of
Maximum not single receives as minimum-
Maximum refundable counted mother with share of wage jobs
Year credit per credit per for 2 kids with maximum she'd need
child child refundable a full-time credit for to work for
credit minimum- 2 kids full credit
wage job
----------------------------------------------------------------------------------------------------------------
1999 $500 - NA - 0% 2.1
----------------------------------------------------------------------------------------------------------------
2004 $1,000 $1,000 $10,000 $45 2% 2.3
----------------------------------------------------------------------------------------------------------------
2009 $1,000 $1,000 $3,000 $1,725 86% 1.1
----------------------------------------------------------------------------------------------------------------
2018 $2,000 $1,400 $2,500 $1,800 45% 2.1
----------------------------------------------------------------------------------------------------------------
2021 $3,000 $3,000 NA $6,000 P(if 100% 0
($3,600 < 6) ($3,600 < 6) kids are >
6)
----------------------------------------------------------------------------------------------------------------
2023 $2,000 $1,600 $2,500 $1,800 45% 2
----------------------------------------------------------------------------------------------------------------
Source: CLASP calculations using IRS data.
2019--National Academies Roadmap on Reducing Child Poverty
In 2019, the National Academies of Sciences, Engineering, and
Medicine released a report on child poverty. The FY 2016 Omnibus bill
included an amendment proposed by Democratic Representatives Roybal-
Allard and Barbara Lee requesting that the National Academies conduct a
comprehensive study of child poverty, including the societal impacts
(discussed above) and the effectiveness of current efforts to reduce
child poverty, and propose recommendations with the goal of reducing
the number of U.S. children living in poverty by one-half in 10 years.
This amendment was supported by Republican Tom Cole, who was the
chairman of the House Appropriations Labor, Health and Human Services,
and Education Subcommittee at the time, and was passed in the
Republican-controlled House and Senate.\33\ The report found that while
no single policy could achieve this goal, packages of policies could.
Two of the proposed packages included a child allowance similar to a
fully refundable CTC.\34\
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\33\ Full Committee Markup--FY16 Labor, Health, Human Services, and
Education Appropriations Bill, June 24, 2015, 114th Congress (remarks
by Rep. Tom Cole), https://appropriations.house.gov/legislation/
markups/full-committee-markup-fy-2016-labor-health-and-human-services-
and-education.
\34\ Greg Duncan and Suzanne Le Menestrel, eds., A Roadmap to
Reducing Child Poverty, National Academies Press, 2019, https://
doi.org/10.17226/25246. Note: The National Academies recommended that
the child allowance be administered by the Social Security
Administration rather than the IRS because of concerns about the IRS's
capacity to administer monthly payments.
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the 2021 child tax credit: full refundability's sizeable
effect on child poverty
The American Rescue Plan Act's enhanced Child Tax Credit help slash
poverty nearly in half.
How the American Rescue Plan Act Temporarily Expanded the CTC
The American Rescue Plan Act made three changes to the CTC for tax
year 2021:\35\
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\35\ The White House, ``The Child Tax Credit,'' accessed July 9,
2023, https://www.whitehouse
.gov/child-tax-credit/.
1. The credit became fully refundable, meaning it would be
fully available to families without regard to their Federal
income tax liability, including to families with little to no
earnings;
2. The credit increased to $300 per month per child ages 0
through 5 and to $250 per month for children ages 6 through 17,
adding eligibility for 17-year-olds for the first time; and
3. The credit would be distributed to families monthly.
Eligible parents received up to half of their 2021 CTC through
monthly payments between July and December 2021 and then received the
second half of their credit when they filed their tax return in early
2022. Nearly 90 percent of children received the monthly payments
automatically, based on information the IRS already had.\36\ Families
could choose to opt out of receiving the monthly payments and instead
get their entire credit as a lump-sum payment amount when they filed
their return.
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\36\ U.S. Department of the Treasury, ``Treasury and IRS Announce
Families of 88% of Children in the U.S. to Automatically Receive
Monthly Payment of Refundable Child Tax Credit,'' May 17, 2021, https:/
/home.treasury.gov/news/press-releases/jy0177.
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The CTC Expansion's Impacts on Reducing Child Poverty
The temporary expansions to the CTC, similar to the recommendations
originally made by the Reagan Commission, dramatically reduced child
poverty--especially the credit's full refundability, which is the
component of the bill making the credit available to the lowest-income
families for the first time. In 2021, the CTC kept 1 million children
under the age of 6 out of poverty, and 1.9 million children between the
ages of 6 and 17, according to the U.S. Census Bureau.\37\ Child
poverty rates, as measured by the U.S. Census Bureau's Supplemental
Poverty Measure, declined nearly in half (to 5.2 percent) from the
previous low (9.7 percent in 2020, driven mainly by the stimulus
payments), thanks in large part to the expanded CTC.\38\
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\37\ Kalee Burns, Liana Fox, and Danielle Wilson, ``Child Poverty
Fell to Record Low 5.2% in 2021,'' United States Census Bureau,
September 2022, https://www.census.gov/library/stories/2022/09/record-
drop-in-child-poverty.html.
\38\ John Creamer, Emily A. Shrider, Kalee Burns, and Frances Chen,
``Poverty in the United States: 2021,'' Report Number P60-277, United
States Census Bureau, September 2022, https://www.census.gov/library/
publications/2022/demo/p60-277.html. Laura Wheaton, Linda Giannarelli,
Ilham Dehry, ``2021 Poverty Projections: Assessing the Impact of
Benefits and Stimulus Measures,'' Urban Institute, July 2021, https://
www.urban.org/research/publication/2021-poverty-projections-assessing-
impact-benefits-and-stimulus-measures.
The expanded CTC payments, especially the full refundability of the
credit, benefited Black and Latinx children. Due to factors such as
discrimination and wage gaps in the labor market and structural
influencers of family poverty, Black and Latinx kids are often
overrepresented among households with lower incomes. Because of this,
Black and Latinx kids were more likely to be among the one-third of
families who did not receive the full CTC benefit under prior law due
to their families earning too little.\39\ About 45 percent of Black
children and 39 percent of Latinx children did not get the full CTC
because their families' incomes were too low to qualify.\40\ Making the
CTC fully refundable expanded access for Black and Latinx kids, which
had huge ramifications for reducing child poverty.
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\39\ Sophie Collyer, David Harris, and Christopher Wimer, ``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 at
Columbia University, May 2019, https://www.povertycenter.columbia.edu/
news-internal/leftoutofctc.
\40\ Chuck Marr, Kris Cox, Sarah Calame, Stephanie Hingtgen, et
al., ``Year-End Tax Policy Priority: Expand the Child Tax Credit for
the 19 Million Children Who Receive Less Than the Full Credit,'' Center
on Budget and Policy Priorities, December 2022, https://www.cbpp.org/
research/federal-tax/year-end-tax-policy-priority-expand-the-child-tax-
credit-for-the-19-million.
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CLASP-Ipsos Survey Assessing Impacts of the CTC Expansions for Families
CLASP conducted a survey in collaboration with Ipsos, researchers
at the University of California, Berkeley, and other organizations to
evaluate the effects of the monthly CTC payments on families' finances
and well-being, and to assess tax-filing behavior among parents. The
surveys asked a nationally representative sample of over 1,000 parents
with low to moderate incomes about how they spent their CTC payments
and how the payments impacted the well-being of their families during
and after the distribution of the monthly payments.
In the October 2021 survey, parents largely reported spending the
monthly payments on bills, food and groceries, and rent and mortgage
payments.\41\ Parents who received the monthly payments reported that
it decreased their financial stress and helped them afford monthly
expenses more easily.\42\ Nearly 70 percent of survey respondents who
received the monthly payments said that the payments made them feel a
lot or a little less stressed about money.\43\ Some parents also
reported that receiving the monthly payments made it easier for them to
engage in paid work or to work more hours. About one-quarter of all
survey respondents receiving the monthly payments agreed that the
payments helped them work. Black respondents were twice as likely to
say the monthly payments helped them work compared to White
respondents.\44\
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\41\ 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/.
\42\ Ibid., Burnside, ``The Expanded Child Tax Credit is Helping
Families, But National Survey Shows Continued Outreach Remains
Essential.''
\43\ Ibid., Burnside, ``The Expanded Child Tax Credit is Helping
Families, But National Survey Shows Continued Outreach Remains
Essential.''
\44\ Ibid., Burnside, ``The Expanded Child Tax Credit is Helping
Families, But National Survey Shows Continued Outreach Remains
Essential.''
Once the monthly payments ended, respondents reported a reversal of
these positive trends--they were having a harder time affording
essentials, facing food instability, and experiencing more financial
stress, according to findings from the subsequent July 2022 survey.\45\
Sixty percent of parents who previously received the monthly payments
stated it had been more difficult for their family to meet their
expenses since the payments stopped.\46\ Respondents with lower incomes
(incomes of under $50,000) reported having more difficulty affording
these expenses than survey respondents with higher incomes (incomes
between $50,000 and $74,999, which was the highest income included in
the survey sample.) Hispanic respondents said they had more difficulty
meeting these expenses compared to white and Black respondents, as did
respondents with disabilities compared to respondents without
disabilities.\47\ Many respondents who had received the monthly
payments also said it was harder for their family to afford more or
higher-quality food and reported visiting food banks more frequently
after the monthly payments stopped. Fifty percent of Hispanic
respondents who had received the monthly payments reported being unable
to buy quality food and/or visiting a food bank more frequently after
the payments ended, compared to 39 percent of white respondents and 34
percent of Black respondents.\48\
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\45\ Ashley Burnside, ``Child Tax Credit: Key Findings from July
2022 National Survey,'' Center for Law and Social Policy, September
2022, https://www.clasp.org/publications/report/brief/child-tax-credit-
poll-3/.
\46\ Ibid., Burnside, ``Child Tax Credit: Key Findings from July
2022 National Survey.''
\47\ These findings will be published in an upcoming CLASP report
on the survey findings from the third survey distributed in July 2022.
\48\ These findings will be published in an upcoming CLASP report
on the survey findings from the third survey distributed in July 2022.
CLASP and researchers from the University of California, Berkeley
also conducted phone interviews with consenting survey respondents to
further discuss how households were faring after the end of the monthly
payments, and one parent described how they had changed their food
spending patterns to stretch their dollars further after the monthly
payments ended: ``I'm buying less expensive food and not as much. Try
to keep enough in the house, so there is a decent amount.'' During
these phone interviews, parents also explained how they could afford
enrichment activities for their kids, as well as other treats for their
families, when they were receiving the monthly payments. For example,
one parent said the monthly payments went toward their son's birthday
party--a celebration they had not been able to afford in prior years.
Another parent reported being able to afford a musical instrument for
their child while receiving the monthly payments, allowing the child to
join the school's marching band. Being able to afford these kinds of
gifts and experiences for children can have positive emotional effects
for both the child and the parent.
Other Research Assessing Impacts on Food Security, Mental Health, and
Other Well-Being Measures from the CTC Expansions
Other research studies on the effects of the expanded CTC have
found similar findings--the monthly payments supported families and
improved their well-being. Studies largely concluded that the monthly
CTC payments went toward basic necessities. About 9 in 10 families with
low incomes (incomes of less than $35,000) used their monthly CTC
payments for basic household expenses or education, according to an
analysis by the Center on Budget and Policy Priorities of Census Bureau
data from July, August, and September 2021.\49\ The Washington
University in St. Louis Social Policy Institute used Census Household
Pulse survey data from July and August 2021 to determine the most
common way recipients spent CTC payments, and in nearly all States--
with the exception of Mississippi--it was to purchase food.\50\
Research from the Urban Institute from September 2021 also concluded
that food was the most common way that recipients reported spending
their monthly CTC payments.\51\
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\49\ Claire Zippel, ``9 in 10 Families With Low Incomes Are Using
Child Tax Credits to Pay for Necessities, Education,'' Center on Budget
and Policy Priorities, October 2021, https://www.cbpp.org/blog/9-in-10-
families-with-low-incomes-are-using-child-tax-credits-to-pay-for-
necessities-education.
\50\ Stephen Roll et al., ``How are American families using their
Child Tax Credit payments? Evidence from Census Data,'' Social Policy
Institute, Washington University at St. Louis and Appalachian State
University, September 2021, https://cpb-us-w2.wpmucdn.com/sites.wustl.
edu/dist/a/2003/files/2021/09/CTC-National-Analysis.pdf. In
Mississippi, school costs and food nearly tied as the number one cost.
\51\ Michael Karpman et al., ``Who Has Received Advance Child Tax
Credit Payments, and How Were the Payments Used? Patterns by Race,
Ethnicity, and Household Income in the July-
September 2021 Household Pulse Survey,'' Urban Institute, November
2021, https://www.
urban.org/sites/default/files/publication/105023/who-has-received-
advance-ctc-payments-and-how-were-the-payments-used.pdf.
Research has concluded that monthly payment receipt was tied to
declines in food insecurity for families with children. The Census
Bureau reported that food insecurity rates among families with children
declined coincident with the distribution of the monthly payments in
July, compared to food insecurity rates remaining constant during the
same period for households without children.\52\ The Center on Poverty
and Social Policy at Columbia University concluded that monthly
payments reduced food insufficiency among families, especially for
families with incomes below $35,000. This finding was consistent among
Black, Latino, and White families.\53\ A survey from the Brookings
Institution found that the expanded CTC improved food security and
healthy eating habits among households that were eligible for the
expanded credit. Eligible households were 1.3 times more likely to
increase their fruit consumption, 1.5 times more likely to increase
their meat and protein consumption, and 1.4 times more likely to report
having an increased ability to afford balanced meals, when compared to
households that were not eligible for the expanded credit.\54\
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\52\ Daniel J. Perez-Lopez, ``Economic Hardship Declined in
Households With Children as Child Tax Credit Payments Arrived:
Household Pulse Survey Collected Responses Just Before and Just After
the Arrival of the First CTC Checks,'' 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.
\53\ Zachary Parolin et al., ``The Initial Effects of the Expanded
Child Tax Credit on Material Hardship,'' NBER Working Paper 29285,
National Bureau of Economic Research, doi: 10.3386/w29285, September
2021, https://www.nber.org/papers/w29285.
\54\ Leah Hamilton et al., ``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 Institution, April 2022, https://www.brookings.edu/
articles/the-impacts-of-the-2021-expanded-child-tax-credit-on-family-
employment-nutrition-and-financial-well-being/.
When families can afford essential costs of living like bills,
groceries, and rent, this can help reduce financial stress. Improved
food stability can also reduce stress for parents and improve their
health outcomes, including both physical and mental health. One study
found that higher CTC payments correlated with a decreased amount of
reported bad mental health days. These effects began 3 months after the
initiation of the monthly payments and went away once the monthly
payments ended.\55\
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\55\ Clemente Pignatti and Zachary Parolin, ``The Effects of an
Unconditional Cash Transfer on Mental Health in the United States,''
Institute of Labor Economics, IZA DP No. 16237, June 2023, https://
docs.iza.org/dp16237.pdf.
Families who receive SNAP benefits and who use Propel--a financial
service application for people with low incomes--reported in a survey
how receiving the CTC monthly payments impacted their families. Parents
who received the CTC payments in July and August 2021 were more likely
to think that they would be able to stay in their housing for the next
30 days, less likely to be evicted, and less likely to report having
slept in a shelter in the past 30 days. But despite this, some
households still reported their utilities being shut off (13 percent of
all households surveyed with children under 18 years old) and paying
their September rent late or not at all (50 percent of all households
surveyed with children under 18).\56\ Another survey of families
receiving the expanded CTC found that eligible households had
statistically significant declines in credit card debt when compared to
households that were not eligible for the CTC. Eligible households were
more likely to reduce their use of high-cost financial services, like
payday loans and pawn shops, and to have reduced their rates of selling
blood plasma. Eligible households were also more easily able to manage
emergency expenses and faced declines in evictions.\57\
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\56\ Propel, ``The Child Tax Credit is Bringing `A Sense of
Security and Relief' to Parents,'' October 2021, https://
www.joinpropel.com/ctc-in-depth-october.
\57\ Leah Hamilton et al., ``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, April 2022, https://www.brookings.edu/articles/
the-impacts-of-the-2021-expanded-child-tax-credit-on-family-employment-
nutrition-and-financial-well-being/.
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Evidence of CTC Expansions' (Lack of) Effects on Work
When the CTC was temporarily expanded to include families with
little to no earnings, some lawmakers expressed concern about the
effect the policy change would have on labor force participation.
Claims about the expanded credit significantly reducing workforce
participation go against what numerous research studies have
concluded.\58\ Studies from the United States and abroad find that a
generous child credit has minimal effects on employment. In addition,
expanding the CTC has positive benefits to society at large that pay
for any small cost of parents dropping their work hours or dropping out
of the workforce.
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\58\ George Fenton, ``Gains from Expanded Child Tax Credit Outweigh
Overstated Employment Worries,'' Center on Budget and Policy
Priorities, June 2023, https://www.cbpp.org/research/federal-tax/gains-
from-expanded-child-tax-credit-outweigh-overstated-employment-worries.
We can evaluate the effects of the expanded CTC on employment
behavior partly by evaluating the effects in 2021 when the monthly
payments were temporarily distributed to families. According to data
from the Bureau of Labor Statistics, employment increased by 1.7
percentage points among both parents and nonparents in 2021, meaning
the expanded CTC did not reverse employment participation gains for
parents who were eligible to receive the credit.\59\ Researchers at the
University of Michigan found no evidence of CTC receipt affecting labor
force participation, including both full-time and part-time employment,
using monthly survey data of households with at least one child under
18 from the Propel application available to SNAP recipients.
Specifically, the researchers concluded, ``We find no evidence that the
monthly CTC benefits led to a reduction in employment or labor force
participation in the 6 months during which the benefits were
distributed.''\60\ Similarly, an analysis by Columbia University
researchers of Current Population Survey and Census Pulse data found
``small, inconsistently signed and statistically insignificant''
impacts on both employment in the prior week and on active
participation in the labor force among adults in households with
children.\61\
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\59\ Ibid., Fenton, ``Gains from Expanded Child Tax Credit Outweigh
Overstated Employment Worries.''
\60\ Natasha Pilkauskas et al., ``The Effects of Income on the
Economic Well-being of Families with Low Incomes: Evidence from the
2021 Expanded Child Tax Credit,'' National Bureau of Economic Research
(NBER) Working Paper 30533, October 2022, https://www.nber.org/system/
files/working_papers/w30533/w30533.pdf.
\61\ Elizabeth Ananat et al., ``Effects of the Expanded Child Tax
Credit on Employment Outcomes: Evidence from Real-World Data from April
to December 2021,'' Working Paper, Working Paper Series (National
Bureau of Economic Research, March 2022), https://doi.org/10.3386/
w29823.
A comprehensive literature review from Megan Curran at the Center
on Poverty and Social Policy at Columbia University summarizes the
multiple research reports about the expanded CTC and its impacts,
including on employment outcomes. That report concluded that the
expanded CTC ``had no discernable negative effects on parental
employment'' based on the research evidence currently available.\62\
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\62\ Megan Curran, ``Research Roundup of the Expanded Child Tax
Credit: One Year On,'' Poverty and Social Policy Report Volume 6, No.
9, Center on Poverty and Social Policy at Columbia University, November
2022, https://static1.squarespace.com/static/610831a16c95260dbd68934a
/t/63732dd8efcf0e5c76aea26e/1668492763484/Child-Tax-Credit-Research-
Roundup-One-Year-On-CPSP-2022.pdf.
Parents are unlikely to change their employment status due to
receiving just a few extra hundred dollars a month from a monthly CTC.
The CTC payment generally does not equate to the revenue of an annual
salary and cannot supplant the health-care benefits that often come
with employment. The option to work fewer hours and provide more child
care is especially important for parents of children who have
disabilities, which may require more time-intensive care and is often
easier for a parent to provide rather than relying on child-care
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facilities.
An American Enterprise Institute survey found that 9 in 10
respondents reported that the CTC payments had not affected their
employment behavior or the employment of someone in their household.
The same percentage of respondents reported in the survey that the CTC
payments have helped them work more as those who said it has helped
them work less (5 percent), and only 1 percent of respondents said the
CTC payments have helped them work not at all.\63\
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\63\ Angela Rachidi, ``New Survey Data Raises Questions About the
Expanded Child Tax Credit,'' American Enterprise Institute, October
2021, https://www.aei.org/opportunity-social-mobility/new-survey-data-
raises-questions-about-the-expanded-child-tax-credit/.
By contrast, the study that Dr. Kevin Corinth and his colleagues at
the University of Chicago published in October 2021--which projected
that 1.5 million parents, representing 2.6 percent of all working
parents would exit the labor force due to the implementation of a
permanent, expanded CTC benefit--is not based on actual data from the
CTC expansion but is rather a calculation based on assumed elasticities
of labor supply.\64\
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\64\ Kevin Corinth et al., ``The Anti-Poverty, Targeting, and Labor
Supply Effects of the Proposed Child Tax Credit Expansion,'' Becker
Friedman Institute for Economics at the University of Chicago, October
2021, https://bfi.uchicago.edu/working-paper/2021-115/.
This leads to some strange and highly unlikely results: for
example, nearly a third of the expected impact under the Chicago study
comes from the calculation that about 400,000 parents with earnings of
over $50,000 would leave the labor market due to the CTC changes.\65\
While we cannot know for certain what will happen under a permanently
expanded CTC until the policy is implemented, we can also learn from
what has happened in other countries that have implemented permanent
child benefits.
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\65\ Jacob Bastian, ``Predicting the Employment Effects of a
Permanent 2020-to-2021 CTC Change: Comparing Bastian (2022), Corinth,
Meyer, Stadnicki, and Wu (2021), and Corinth and Meyer (2021),''
Rutgers University, November 2022, https://drive.google.com/file/d/
1Aa8Xfh
JEmSHcCRWs2TyK42OrvkQCDJpK/view.
Other countries provide child allowance programs for parents with
children that are more wide-reaching and that provide a larger benefit
than the United States CTC does. Canada, for example, provides families
with a credit of about $5,500 per child under the age of 6 and about
$4,600 per child ages 6 through 17.\66\ This is a permanent program
available to families with little to no earnings.
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\66\ These amounts were converted to U.S. dollars by the Center on
Budget and Policy Priorities. George Fenton, ``Gains from Expanded
Child Tax Credit Outweigh Overstated Employment Worries,'' Center on
Budget and Policy Priorities, June 2023, https://www.cbpp.org/research/
federal-tax/gains-from-expanded-child-tax-credit-outweigh-overstated-
employment-worries.
Canada has a higher labor force participation rate than the United
States (65.5 percent versus 62.6 percent), as of May 2023. The
differences are even larger among working-age women.\67\ Research has
confirmed that the introduction of the Canada Child Benefit in 2016 and
the expansion of the Canadian Universal Child Care Benefit in 2015 did
not impact the labor supply for single or married women.\68\ While
these two programs are different, and the two countries have varying
economic and labor market circumstances, it is still significant that
the Canada child allowance program has successfully existed for
multiple years--at a larger scale and with a greater benefit level than
was offered temporarily in the United States--and has not negatively
affected the labor market.
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\67\ Ibid., Fenton, ``Gains from Expanded Child Tax Credit Outweigh
Overstated Employment Worries.''
\68\ Michael Baker, Derek Messacar, and Mark Stabile, ``The Effects
of Child Tax Benefits on Poverty and Labor Supply: Evidence from the
Canada Child Benefit and Universal Child Care Benefit,'' National
Bureau of Economic Research, Working Paper 28556, doi 10.3386/w28556,
March 2021, https://www.nber.org/papers/w28556.
The increased income from the monthly CTC payments even helped some
parents work more hours. For example, our CLASP-Ipsos survey found that
one-quarter of survey respondents who received the monthly payments
reported that receiving the monthly payments helped them to work more
hours.\69\ During phone interviews, parents said that the monthly
payments helped them afford transportation costs, such as a necessary
car repair, to get to employment. Payments also helped parents afford
child care, which is critical for maintaining employment.\70\
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\69\ 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/.
\70\ Ibid., Burnside, ``The Expanded Child Tax Credit is Helping
Families, But National Survey Shows Continued Outreach Remains
Essential.''
Simply put, working can cost money. Without having the emergency
funds to cover an unexpected car repair, workers cannot get to their
jobs and maintain their employment. The reliability of the monthly CTC
payments provides one critical financial cushion for families to afford
these essential costs. Without reliable and sufficient child care, an
underfunded resource in our country, many parents are also left without
a pathway to maintain employment opportunities. Paid family leave is
another critical work support that is too often unavailable to parents
as they seek employment while taking care of their families. If
lawmakers want to promote work among families, it is essential that
they invest in child care and paid family leave, in addition to a fully
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refundable CTC.
Regardless of any changes in employment that may stem from the
permanent distribution of the expanded CTC payments, the purpose of the
program is to invest in the next generation of children. Research has
repeatedly confirmed the positive impacts on a child's education,
health, and long-term economic outcomes when families have additional
income during a child's early stages of development.\71\ The expanded
CTC also reduces child poverty at high rates, which has a large payout
for our society overall--more than $9 returned to society for each
dollar spent.\72\ These positive outcomes are worth any minor cost of
the changed employment behavior among a small share of parents.
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\71\ Arloc Sherman and Tazra Mitchell, ``Economic Security Programs
Help Low-Income Children Succeed Over Long Term, Many Studies Find,''
Center on Budget and Policy Priorities, July 2017, https://
www.cbpp.org/research/poverty-and-inequality/economic-security-
programs-help-low-income-children-succeed-over.
\72\ Irwin Garfinkel et al., ``The Benefits and Costs of a Child
Allowance,'' Journal of Benefit-Cost Analysis, Volume 13, Issue 3, doi:
10.1017/bca.2022.15, September 2022, https://www.
povertycenter.columbia.edu/news-internal/2021/child-allowance/cost-
benefit-analysis. This analysis looks at the cost and benefits of an
enhanced CTC compared to the current policy baseline (e.g., assuming
that the changes made by the TCJA are not allowed to expire after
2025).
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next steps for the child tax credit
At the end of 2025, major provisions of the TCJA, including those
that expanded the CTC in 2017, expire. This creates an opportunity to
permanently improve the CTC, drawing from the lessons of the 2021
expansion as well as the 25-year record of experimentation and
evidence. Of course, Congress need not wait until 2025 to make these
improvements.
The single most important thing for Congress to do in revising the
CTC is to make it fully refundable on a permanent basis, as recommended
by the 1991 National Commission on Children. The evidence for such an
approach is even stronger than it was at that time. In this testimony,
I have shared just a small sample of findings from the vast array of
rigorous empirical studies demonstrating that providing cash to
families with low incomes improves child health, stabilizes their
lives, and provides the foundation so that children can thrive. The CTC
can only achieve these critical outcomes if it is fully refundable so
that it reaches the lowest-income families, who need it the most. It is
worth noting that a fully refundable credit is important not just
because it reaches the lowest-income families, but because it makes
automatic monthly payments feasible, as the total benefit is more
predictable. Monthly payments are important for helping families meet
ongoing basic needs, like paying rent and preventing material hardship.
People will be afraid to accept monthly payments if it puts them at
risk of owing money back to the IRS at tax time. A hold-harmless
provision that protects people who lose their jobs could reduce this
concern, but not completely eliminate it.
A fully refundable credit also allows families who are not
otherwise required to file tax returns to claim the credit without
income reporting. This is important for ensuring that the benefit
actually gets to the families who need it. For people without
experience of filing--many of whom have multiple small-dollar sources
of income--tax filing can be a significant barrier to claiming credits.
Code for America found in a 2022 experiment that of nearly half a
million clients who used the simplified portal--GetCTC--to claim the
Child Tax Credit and were offered the opportunity to also claim the
EITC by reporting income data, less than 67,000 started a return
claiming the EITC and just 1,019 successfully submitted a return
claiming the EITC.\73\
---------------------------------------------------------------------------
\73\ ``The Importance of Simplified Filing,'' Code for America,
February 2023, https://files.codeforamerica.org/2023/02/13122111/
importance-of-simplified-filing-getctc-2022-learnings-report.pdf.
I also urge Congress to improve upon the 2021 CTC in certain
---------------------------------------------------------------------------
respects:
Make monthly payments available for parents of newborns. The
IRS was never able to create a way for people who had babies in
2021 to register for the monthly payments--ultimately, these
parents had to claim the credit when they filed their taxes in
2022. Given what we know about the importance of income in the
early years, this is deeply problematic. Congress should
authorize data sharing between IRS, Social Security, and State
Medicaid agencies for the purpose of automatically providing
credits to families of infants.
Examine ways to include children in foster care or otherwise
ineligible to be claimed by any taxpayer as a dependent due to
their unstable living arrangements. These are some of the most
vulnerable children in our society, and it makes no sense for
them to be excluded. It is worth noting that the 1991
Commission report that first recommended the creation of a CTC
urged that ``when children are living apart from their parents,
the adults who are primarily responsible for their care,
whether members of the extended family or foster parents,
should be eligible to collect the refundable child tax
credit.''\74\ Congress should also provide families with
protections against owing money due to changing circumstances.
Changing custody arrangements mean that children may live part
of the year with family members who are ultimately not eligible
to claim them as tax dependents; it's important that they not
be put at risk of having to repay monthly payments received
when the child lived with them.
---------------------------------------------------------------------------
\74\ Beyond Rhetoric, p. 95.
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Continue to support the IRS in easing the burden of filing
for people with low incomes, including continuing work on
developing and implementing the pilot for an IRS-run free file
site, investing in the Volunteer Income Tax Assistance (VITA)
program and other supports that provide free assistance to
people filing their taxes, investing instead of depleting
funding for the IRS, and exploring opportunities to make
payments automatically, as was done with the stimulus payments
and 2021 CTC. It is also critical to address the
disproportionate risk of audits for taxpayers with low incomes
(especially those claiming the EITC) and taxpayers of
color.\75\
---------------------------------------------------------------------------
\75\ Hadi Elazyn, et al., ``Measuring and Mitigating Racial
Disparities in Tax Audits,'' Stanford Institute for Economic Policy
Research (SIEPR), January 2023, https://siepr.stanford.edu/
publications/measuring-and-mitigating-racial-disparities-tax-audits.
Congress should also include all children living in the United
States regardless of immigration status.\76\ Additionally, children
living in Puerto Rico are eligible for the CTC, but their families must
file a Federal tax return to claim the credit, posing a barrier for
families on the island. These changes are necessary for the CTC to
achieve its anti-poverty and racial equity goals.
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\76\ For State-by-State estimates of those left out due to
immigration status, see Guzman, Marco, ``Inclusive Child Tax Credit
Reform Would Restore Benefit to 1 Million Young `Dreamers,' '' ITEP
(blog), April 27, 2021, https://itep.org/inclusive-child-tax-credit-
reform-would-restore-benefit-to-1-million-young-dreamers/.
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conclusion
The 1991 National Commission on Children's report was entitled
Beyond Rhetoric. It is way past time to make our support for children
more than rhetoric. One
evidence-based way to do so is by making a fully refundable CTC
permanent. The Census Bureau estimates that the 2021 CTC kept 2.9
million children out of poverty, including 716,000 Black children, 1.2
million Hispanic children, 820,000 White, non-Hispanic children, and
111,000 Asian children.\77\ Moreover, as discussed earlier, such an
investment would reap social returns that dwarf the initial fiscal
cost. We can--and should--be doing this every single year, throughout
the business cycle. The right time to have started such an investment
would have been no later than 1991 when the bipartisan commission that
was established in 1987 by President Reagan and both houses of Congress
recommended doing so. This Congress has an opportunity to help
guarantee every child a fair chance, starting with a policy that's as
proven as it is powerful.
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\77\ Kalee Burns, Liana Fox, and Danielle Wilson. ``Expansions to
Child Tax Credit Contributed to 46% Decline in Child Poverty Since
2020,'' September 13, 2022, https://www.census.gov/library/stories/
2022/09/record-drop-in-child-poverty.html.
______
Prepared Statement of Katherine Michelmore, Ph.D., Associate Professor,
Gerald R. Ford School of Public Policy, University of Michigan
Chairman Bennet, Ranking Member Thune, and distinguished members of
the subcommittee, thank you for the opportunity to testify. My name is
Katherine Michelmore, and I am an associate professor at the Gerald R.
Ford School of Public Policy at the University of Michigan. I have
dedicated my career to studying low-income families and the role of
public policy in mitigating the short-and long-term consequences of
growing up poor. The views expressed here are my own and should not be
attributed to the University of Michigan as a whole.
My testimony today will provide an overview of the children left
out of the Child Tax Credit under current law, as well as the impacts
of the historic American Rescue Plan Act (ARPA) reform to the Child Tax
Credit (CTC), which temporarily created a near-universal child benefit
in the U.S. I will also discuss the enormous long-term societal
benefits of making the 2021 reforms permanent.
The current structure of the Child Tax Credit prevents
approximately 19 million of the poorest children in the U.S. from
receiving the full credit.\1\ Excluding the poorest children in the
U.S. from the Child Tax Credit goes against the evidence we have about
the importance of income for children's future life chances: an extra
dollar matters most for children living in the poorest households.
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\1\ Cox, K., Marr, C., Calame, S., and Hingtgen, S. 2023. ``Top Tax
Priority: Expanding the Child Tax Credit in Upcoming Economic
Legislation.'' Center on Budget and Policy Priorities report.
One of the central debates about making the ARPA reforms to the CTC
permanent at the end of 2021 was about how the reforms might reduce
parents' incentives to work. However, recent evaluations of the ARPA
reforms found no evidence that the credit caused parents to work
less,\2\ with survey evidence suggesting that the credit actually
helped some parents work more.\3\ More importantly, the ARPA reforms to
the CTC contributed to a historic decline in child poverty and also
reduced food insecurity and other forms of material hardship.\4\ While
it is too soon to tell how these reforms will benefit children in the
long term, history tells us that the societal benefits are likely to be
enormous. Children who receive more income in early childhood through
tax credits like the Earned Income Tax Credit (EITC) and other social
programs like Food Stamps go on to have higher test scores in school,
have better health outcomes, complete college at higher rates, and have
higher earnings in adulthood.\5\ They are also less likely to live in
poverty and less likely to receive public assistance as adults.\6\ In
short, the evidence is clear that a permanent expansion of the CTC is
likely to pay off several times over, for both the beneficiaries
themselves, as well as society at large.
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\2\ Ananat, E., Glasner, B., Hamilton, C. and Parolin, Z., 2022.
``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 Working Paper No. 29823.
\3\ Saving, J. and Zhang, X. 2023. ``Did Expanded Child Tax Credit
Enable Parents in Financially Vulnerable Households to Work During
Pandemic?'' Dallas Federal Reserve, https://www.dallasfed.org/cd/
communities/2023/2301, accessed July 2023.
\4\ Creamer, J., Shrider, E.A., Burns, K., and F. Chen 2022.
``Poverty in the United States: 2021. Current Population Reports P60-
277.'' Washington, DC: United States Census Bureau, www.census.gov/
content/dam/Census/library/publications/2022/demo/p60-277.pdf, accessed
July 2023. Pilkauskas, N., Michelmore, K., Kovski, N. and Shaefer,
H.L., 2022. ``The effects of income on the economic well-being of
families with low incomes: Evidence from the 2021 expanded Child Tax
Credit,'' National Bureau of Economic Research Working Paper No. 30533.
Parolin, Z., Ananat, E., Collyer, S., Curran, M. and Wimer, C., 2023.
``The effects of the monthly and lump-sum Child Tax Credit payments on
food and housing hardship.'' In AEA Papers and Proceedings (Vol. 113,
pp. 406-412). American Economic Association.
\5\ Dahl, G.B. and Lochner, L., 2012. ``The impact of family income
on child achievement: Evidence from the earned income tax credit.''
American Economic Review, 102(5), pp. 1927-1956. Braga, B., Blavin, F.
and Gangopadhyaya, A., 2020. ``The long-term effects of childhood
exposure to the earned income tax credit on health outcomes.'' Journal
of Public Economics, 190, p. 104249. Bastian, J. and Michelmore, K.,
2018. ``The long-term impact of the earned income tax credit on
children's education and employment outcomes.'' Journal of Labor
Economics, 36(4), pp. 1127-1163.
\6\ Hoynes, H., Schanzenbach, D.W. and Almond, D., 2016. ``Long-run
impacts of childhood access to the safety net''. American Economic
Review, 106(4), pp. 903-934. McInnis, N., Michelmore, K., and
Pilkauskas, N. 2023. ``The Intergenerational Transmission of Poverty
and Public Assistance: Evidence from the Earned Income Tax Credit.''
NBER working paper No. 31429.
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the current child tax credit leaves out 19 million
of the poorest children in the u.s.
The Child Tax Credit is the single largest Federal expenditure
program for children in the U.S.\7\ Despite its scope, prior to the
historic expansion of the CTC as part of the 2021 American Rescue Plan
Act, only two-thirds of children in the U.S. were eligible for the full
benefit ($2,000 per child under the age of 17).\8\ Today, more than one
in four children who are not eligible for the full benefit represent
the poorest children in the U.S.\9\ Nearly all children living in the
bottom 10 percent of the income distribution are not eligible for any
CTC benefit (see Figure 1).\10\ On the other end of the distribution,
nearly all children residing in households in the top half of the
income distribution are eligible for the full benefit.\11\
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\7\ Throughout, I use the term ``child tax credit'' to include both
the CTC and the additional child tax credit (ACTC), which represents
the refundable portion of the CTC, established in 2001.
\8\ Collyer, Sophie; Harris, David; Wimer, Christopher. ``Left
Behind: The One-Third of Children in Families Who Earn Too Little to
Get the Full Child Tax Credit.'' Columbia University Center on Poverty
and Social Policy Brief.
\9\ Cox, K., Marr, C., Calame, S., and Hingtgen, S. 2023. ``Top Tax
Priority: Expanding the Child Tax Credit in Upcoming Economic
Legislation.'' Center on Budget and Policy Priorities report.
\10\ Goldin, J. and Michelmore, K., 2020. ``Who benefits from the
child tax credit?'' National Bureau of Economic Research working paper
No. 27940.
\11\ Goldin, J. and Michelmore, K., 2020. ``Who benefits from the
child tax credit?'' National Bureau of Economic Research working paper
No. 27940.
Eligibility for the CTC is racially and geographically
concentrated. As of 2023, nearly half (46 percent) of Black and more
than one-third (37 percent) of Hispanic children resided in households
that were not eligible for the full credit, compared to just 17 percent
of White children.\12\ Children living in rural areas are also less
likely to receive the full benefit compared to children living in metro
areas. More than 40 percent of children living in rural areas are not
eligible for the full benefit because they live in households that do
not have sufficient earnings.\13\
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\12\ Cox, K.; Marr, C.; Calame, S.; and Hingtgen, S. 2023. ``Top
Tax Priority: Expanding the Child Tax Credit in the Upcoming Economic
Legislation.'' Center on Budget and Policy Priorities Report, https://
www.cbpp.org/research/federal-tax/top-tax-priority-expanding-the-child-
tax-credit-in-upcoming-economic.
\13\ Collyer, Sophie; Harris, David; Wimer, Christopher. ``Left
Behind: The One-Third of Children in Families Who Earn Too Little to
Get the Full Child Tax Credit.'' Columbia University Center on Poverty
and Social Policy Brief.
The minimum earnings requirements, along with the phase-in
structure and partial refundability of the CTC account for why many
children residing in low-income households are not eligible for the
full credit. To provide a few concrete examples, a single-earner family
with two children working full-time, year round at the Federal minimum
wage would not be eligible for the full CTC. Such a family would need
to earn more than $30,000 per year to qualify for the full benefit,
which is well above the official poverty threshold, and more than twice
the earnings of someone working full-time, year round at the Federal
minimum wage.\14\
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\14\ According to the Census, the official poverty threshold for a
single adult and two children was $23,578 in 2022. A full-time, year-
round worker earning the Federal minimum wage would earn approximately
$15,500 in 2023 (assuming 2,000 annual work hours).
In contrast, under current law, a married couple with annual
earnings of $400,000 would qualify for the full, $2,000 per-child
benefit. In fact, nearly all children residing in households in the top
half of the income distribution are eligible for the full benefit,
while more than a quarter of the poorest children in the U.S. are not
eligible in 2023.\15\
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\15\ Marr, Cox, Calame, Hingtgen, Fenton, and Sherman. 2022.
``Year-End Tax Policy Priority: Expand the Child Tax Credit for the 19
Million Children Who Receive Less than the Full Credit.'' Center on
Budget and Policy Priorities Brief.
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historical ctc reforms have consistently expanded eligibility
The CTC was originally structured to provide tax relief to middle-
income tax filers, and the distribution of benefits reflected this
intention: historically, about 80 percent of CTC dollars went to
families with income in the middle three income quintiles, with the
remaining 20 percent split evenly between households in the top and
bottom quintiles.\16\ Because the credit was initially nonrefundable,
historically most low-income households were not eligible for any
benefit. Similarly, the credit began phasing out at $75,000 for
unmarried filers and $110,000 for married filers (not indexed to
inflation), resulting in few benefits for children residing in
households in the top income quintile.
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\16\ Maag, Rennane, and Steuerle. 2010. ``A Reference Manual for
Child Tax Benefits.'' Urban Institute Report.
The credit has been expanded several times in the more than 20
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years since its inception.
In 2001, as part of the Economic Growth and Tax Relief
Reconciliation Act (EGTRRA) reform, the per-child CTC benefit increased
from $500 to $1,000 and the credit was made partially refundable by the
creation of the Additional Child Tax Credit (ACTC). Because the 2001
reform did not make the CTC fully refundable and included a $10,000
\17\ minimum earnings threshold, the CTC continued to exclude the vast
majority of low-income households.\18\ At the time, the nonpartisan
Joint Committee on Taxation (JCT) estimated that EGTRRA reforms to the
CTC would cost about $25 billion each year for the first 10 years.\19\
An analysis by the Urban Institute estimated that just 6 percent of
that benefit went to families with income below the poverty line, while
nearly half went to households with income above 300 percent of the
Federal poverty line.\20\
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\17\ Indexed to inflation beginning in 2002.
\18\ Burman, Maag, Rohaly 2002. ``The Effect of the 2001 Tax Cut on
Low- and Middle-Income Families with Children.'' Urban Institute
Report.
\19\ Joint Committee on Taxation. 2001. ``Estimated Budget Effects
of the Conference Agreement for H.R. 1836.'' JCX-51-01, May 26.
\20\ Burman, Maag, Rohaly 2002. ``The Effect of the 2001 Tax Cut on
Low- and Middle-Income Families with Children.'' Urban Institute
Report.
Overall, an analysis by the Urban Institute estimated that just
over half (57 percent) of all children in the U.S. were eligible for
the full credit in the years following the EGTRRA reform (see Figure 2;
number of children presented in Table 1). Fourteen percent of children
were completely ineligible because their family earnings were too low,
and an additional 15 percent were eligible for a partial credit, for a
total of 29 percent of children in low-income households who were not
eligible for the full benefit. At the upper end of the income
distribution, 7 percent of children were eligible for a partial credit
and 7 percent were completely ineligible because their family earnings
were too high.\21\
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\21\ Burman, Leonard and Wheaton, Laura. 2005. ``Who Gets the Child
Tax Credit?'' Tax Notes.
In 2009, the CTC was expanded again as part of the American
Recovery and Reinvestment Act (ARRA). This reform primarily reduced the
minimum earnings threshold to qualify for a partial credit from $10,000
to $3,000. Following this reform, estimates suggest that about 62
percent of all children under the age of 17 were eligible for the full
benefit (see Figure 2). The poorest 20 percent of children resided in
households that did not qualify for the full credit because of
insufficient earnings (down from nearly 30 percent in 2005), and 18
percent of children resided in households with income too high to
qualify for the full credit (up from 14 percent in 2005).\22\
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\22\ More children became partially or completely ineligible at the
top of the income distribution because the phaseout thresholds are not
indexed to inflation, thus more children live in households with
incomes above $75,000 (unmarried) and $110,000 (married). Harris,
David. 2012. ``The Child Tax Credit: How the United States Underinvests
in its Youngest Children in Cash Assistance and How Changes to the
Child Tax Credit Could Help.'' Columbia University dissertation.
The next major reform to the CTC occurred in 2017 as part of the
Tax Cuts and Jobs Act (TCJA). The TCJA doubled the size of the credit
to $2,000 per child and greatly extended the upper income range to
qualify for a full benefit, increasing the phase-out threshold from
$75,000 for unmarried filers to $200,000, and increasing the threshold
for married filers from $110,000 to $400,000. This reform primarily
benefited households in the top income quintile, resulting in all but
the richest 2 percent of children qualifying for the full benefit.\23\
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\23\ Collyer, Sophie; Harris, David; Wimer, Christopher. ``Left
Behind: The One-Third of Children in Families Who Earn Too Little to
Get the Full Child Tax Credit.'' Columbia University Center on Poverty
and Social Policy Brief. Goldin, J. and Michelmore, K., 2020. ``Who
benefits from the child tax credit?'' National Bureau of Economic
Research Working Paper No. 27940.
At the other end of the income distribution, the TCJA also slightly
benefited some low-income households, since the minimum earnings
threshold was reduced from $3,000 to $2,500 and the refundable portion
of the credit (the ACTC) was expanded to $1,400 in 2018 (and indexed to
inflation). Somewhat counterintuitively, because the total CTC benefit
increased from $1,000 to $2,000 per child without a change in the
phase-in rate of the credit, the share of children too poor to receive
the full credit grew from 20 percent in 2011 to 34 percent in 2019 (see
Figure 2). This is because the value of the credit is calculated as a
percentage of income above $2,500 (and subject to having at least $600
of tax liability per child to be eligible for the full credit in 2019);
thus to reach the full $2,000 per-child benefit under the TCJA in 2019,
a family with two children would have to earn approximately $36,500 per
year, while under the previous law in 2017, they only needed to earn
approximately $16,350 to be eligible for the then-maximum benefit of
$1,000 per child.\24\
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\24\ Author's calculations using the National Bureau of Economic
Research's TAXSIM v35 for tax years 2017 and 2019 for a married filer
with two children.
As a result, the poorest one-third of children were living in
households that were not eligible for the full credit in 2019, while at
the top of the income distribution, all but the richest 2 percent of
children qualified for a full benefit (down from 18 percent in
2011).\25\ These changes meant that more families with children were
receiving the full credit than ever, but this was entirely a result of
expanding the credit to high-income families while the share of low-and
moderate-income families receiving the full credit fell.
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\25\ Collyer, Sophie; Harris, David; Wimer, Christopher. ``Left
Behind: The One-Third of Children in Families Who Earn Too Little to
Get the Full Child Tax Credit.'' Columbia University Center on Poverty
and Social Policy Brief. Goldin, J. and Michelmore, K., 2020. ``Who
benefits from the child tax credit?'' National Bureau of Economic
Research Working Paper No. 27940.
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the 2021 american rescue plan act (apra) reform
dramatically expanded eligibility
The 2021 ARPA reform to the CTC (hereafter referred to as the ARPA
CTC) marked a critical moment in CTC legislative history, transforming
the benefit into something akin to a universal child allowance. The
reform contained several key elements: the benefit was increased from
$2,000 per child to $3,000 per child aged 6-17 and $3,600 for children
under the age of 6, the credit was made fully refundable and the
minimum earnings threshold and phase-in range were eliminated, and half
of the benefit was distributed monthly in the latter half of 2021 ($250
per child aged 6-17; $300 per child under the age of 6).
Eligibility was based on IRS estimates of the number of qualifying
children and income using prior year tax returns.\26\ The remaining
half of the credit was distributed when families filed their taxes in
2022.\27\
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\26\ In cases where households did not file 2020 tax returns, 2019
returns were used. The IRS also set up an online portal for families to
provide information regarding their eligibility for those without a
record of tax filing in 2019 or 2020 or for those with changes to their
income or living arrangements.
\27\ Families who did not receive advance monthly payments could
claim the full amount upon filing their 2021 taxes. The reform also
increased the upper age limit from 16 to 17 years old.
The ARPA reform essentially turned the CTC into a near-universal
child allowance, with estimates suggesting that approximately 90
percent of all children in the U.S. were eligible for the full
benefit.\28\ The IRS reported that the monthly credits were distributed
to 61 million children in the latter half of 2021 and that 98 percent
of payments were made accurately.\29\ An estimated 95 percent of
families who benefited from making the credit fully refundable fall
into one or more of the following categories: the parent or caretaker
is working or worked in the previous 2 years, is ill or disabled, is
elderly, or has a child under the age of 2.\30\
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\28\ Tax Policy Center 2021. ``T21-0045--Tax Benefit of the Child
Tax Credit, by Expanded Cash Income Percentile 2021.'' Washington, DC.
https://www.taxpolicycenter.org/model-estimates/tax-benefits-
provisions-affecting-children-march-2021/t21-0045-tax-benefit-child-
tax.
\29\ U.S. Department of Treasury. ``Treasury and IRS Disburse Sixth
Monthly Child Tax Credit to Families of 61 Million Children.'' https://
home.treasury.gov/news/press-releases/jy0533, accessed July 2023.
\30\ Sherman, A., Marr, C., and Hingtgen, S. 2021. ``Earnings
Requirement Would Undermine Child Tax Credit's Poverty-Reducing Impact
While Doing Virtually Nothing to Boost Parents' Employment.'' CBPP
Policy Brief.
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the arpa ctc dramatically reduced child poverty and other hardships
The growing body of evidence on the impact of the 2021 ARPA reforms
to the CTC covers a range of outcomes such as consumption and
expenditures, child poverty, and material hardships (e.g., food
insecurity).\31\ The vast majority of evidence suggests that the ARPA
CTC had a real, positive impact on the well-being of families,
particularly low-income, working families.
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\31\ For an extensive discussion of the research on the impacts of
the ARPA CTC as of November, 2022, see Curran, M. 2022. ``Research
Roundup of the Expanded Child Tax Credit: One Year On.'' Poverty and
Social Policy Report.
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Expenditures
Consumer credit data from JP Morgan Chase suggest that families
spent a large portion of their monthly credits within 1 week of
receiving the payments. Overall, about 40 percent of CTC payments were
spent within the first week, rising to 80 percent among low-income,
low-liquidity households.\32\ Only a small fraction of CTC payments
went towards savings, particularly for low-income households. This
suggests that the CTC payments, in addition to providing much-needed
financial relief to low-income families, could generate positive,
macroeconomic growth.\33\
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\32\ JP Morgan Chase and Co. ``How Families Used the Advanced Child
Tax Credit.'' https://www.jpmorganchase.com/institute/research/
household-income-spending/how-families-used-advanced-CTC.
\33\ Sahm, C. 2021. ``Model Behavior: A Critical Review of
Macroeconomic Models for Guaranteed Income and the Child Tax Credit.''
New York: The Jain Institute. http://www.
jainfamilyinstitute.org/projects/parts/a-critical-review-of-
macroeconomic-models-for-guaranteed-income-and-the-child-tax-credit,
accessed July 2023.
Survey evidence suggests that families spent their benefits
primarily on basic needs such as food and housing, as well as child-
related items, and paying down debt. For instance, a recent National
Bureau of Economic Research (NBER) working paper estimated that
households spent approximately $75 of every $100 CTC payment, with the
largest spending going towards food ($28), housing ($31), and child-
related expenses ($15).\34\
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\34\ Schild, Jake; Collyer, Sophie; Garner, Thesia; Kaushal,
Neeraj, Lee, Jiwan; Waldfogel, Jane; Wimer, Christopher. 2023.
``Effects of the Expanded Child Tax Credit on Household Spending:
Estimates Based on U.S. Consumer Expenditure Survey Data.'' National
Bureau of Economic Research Working Paper No. 31412.
Low-income households in particular reported using the credit to
purchase food and pay past-due bills and reduce other forms of
debt.\35\ There is no evidence that families increased spending on
items like alcohol or tobacco.\36\
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\35\ Michelmore, Katherine and Pilkauskas, Natasha. 2023. ``The
2021 Child Tax Credit: Who Received it and How Did they Spend it?'' AEA
Papers and Proceedings 113: 413-419.
\36\ Schild, Jake; Collyer, Sophie; Garner, Thesia; Kaushal,
Neeraj, Lee, Jiwan; Waldfogel, Jane; Wimer, Christopher. 2023.
``Effects of the Expanded Child Tax Credit on Household Spending:
Estimates Based on U.S. Consumer Expenditure Survey Data.'' National
Bureau of Economic Research Working Paper No. 31412.
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Poverty and Material Hardship
The Census Bureau estimates that the 2021 CTC contributed to a
decline in child poverty by more than 4 percentage points in 2021,
keeping nearly 3 million children out of poverty, as measured by the
Supplemental Poverty Measure (SPM). The CTC expansion alone kept 2.1
million of those children out of poverty in 2021.\37\ Following the
expiration of the monthly payments in 2022, estimates suggested that
3.7 million more children were living below the monthly poverty line in
February 2022.\38\
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\37\ Creamer, J., Shrider, E.A., Burns, K., & F. Chen 2022.
``Poverty in the United States: 2021. Current Population Reports P60-
277.'' Washington, DC: United States Census Bureau. www.
census.gov/content/dam/Census/library/publications/2022/demo/p60-
277.pdf, accessed July 2023.
\38\ Parolin, Z., Collyer, S., and M. Curran 2022. ``Absence of
Monthly Child Tax Credit Leads to 3.7 Million More Children in Poverty
in January 2022.'' Poverty and Social Policy Brief, 6(2). New York:
Center on Poverty and Social Policy at Columbia University. https://
www.
povertycenter.columbia.edu/s/Monthly-poverty-January-CPSP-2022.pdf,
accessed July 2022.
Other measures of material deprivation also improved during the
months that the expanded CTC was in place. Material hardships,
including food insecurity and housing hardships declined substantially,
primarily in low-income households.\39\
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\39\ Pilkauskas, N., Michelmore, K., Kovski, N. and Shaefer, H.L.,
2022. ``The effects of income on the economic well-being of families
with low incomes: Evidence from the 2021 expanded Child Tax Credit.''
National Bureau of Economic Research Working Paper No. 30533. Parolin,
Z., Ananat, E., Collyer, S., Curran, M. and Wimer, C., 2023. ``The
effects of the monthly and lump-sum Child Tax Credit payments on food
and housing hardship.'' In AEA Papers and Proceedings (Vol. 113, pp.
406-412). American Economic Association.
A Columbia University report also found evidence that the monthly
payments addressed different forms of hardships than the lump-sum
payments. They found that the monthly payments reduced food insecurity,
while the lump-sum payments reduced housing hardships, measured by
inability to pay rent or mortgage.\40\ Survey evidence from the Urban
Institute suggests that more adults with children preferred the monthly
payments over a lump sum (45 percent versus 27 percent), and this
preference was stronger among lower-income households (54 percent
versus 19 percent).\41\ This work highlights how the monthly benefits
helped families meet their more regular needs, while the lump-sum
payments helped families catch up on larger expenses.
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\40\ Parolin, Z., Ananat, E., Collyer, S., Curran, M. and Wimer,
C., 2023. ``The effects of the monthly and lump-sum Child Tax Credit
payments on food and housing hardship.'' In AEA Papers and Proceedings
(Vol. 113, pp. 406-412). American Economic Association.
\41\ Maag, E. and Karpman, M. 2022. ``Many Adults with Lower Income
Prefer Monthly Child Tax Credit Payments.'' Urban Institute Brief.
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Children's Outcomes
The literature on the impacts of the ARPA CTC on child outcomes is
still in its nascent stages, but early evidence suggests that the CTC
reduced child maltreatment in the days following the payments and
increased infant birth weight.\42\ Both of these outcomes imply longer-
term improvements in child outcomes. Higher infant birth weight, for
instance, is positively associated with educational attainment and
earnings in adulthood.\43\
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\42\ Ruffini, K., 2023. ``Does Unconditional Cash during Pregnancy
Affect Infant Health?''. Available at SSRN 4404319. Bullinger, L.R. and
Boy, A., 2023. ``Association of expanded child tax credit payments with
child abuse and neglect emergency department visits.'' JAMA network
open, 6(2), pp.e2255639-e2255639.
\43\ Black, S.E., Devereux, P.J. and Salvanes, K.G., 2007. ``From
the cradle to the labor market? The effect of birth weight on adult
outcomes.'' The Quarterly Journal of Economics, 122(1), pp. 409-439.
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concerns about employment disincentives not
substantiated by empirical evidence
In the debates surrounding the potential extension of the ARPA
reforms at the end of 2021, one of the main concerns was whether making
the credit available to families regardless of their employment status
would create disincentives for low-income families to work, thus
reducing the overall effectiveness of the credit.
The vast majority of the evidence on the impacts of the ARPA
reforms found no effect of the credit on employment during the months
in which the credit was distributed. Researchers used a variety of
methods to try to causally estimate these employment effects. Comparing
families with children to families without children in the months prior
to and following the monthly CTC distribution in 2021, researchers
found no difference in the employment rates of families with children
during the months in which the credit was in place, relative to the
employment patterns of families without children over the same time
period.\44\ Other studies compared the employment patterns of families
who received larger CTC benefits relative to those who received smaller
benefits, again finding no effect of the payments on employment.\45\
Finally, another research team took the approach of comparing the
employment patterns of families who received different amounts of CTC
benefits relative to their income, finding no impact of receiving a
larger credit on employment. These researchers also compared the
employment patterns of these families in 2021 to a similar set of
families in 2019, finding no evidence that employment rates were
systematically lower in 2021, relative to 2019.\46\
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\44\ Ananat, E., Glasner, B., Hamilton, C. and Parolin, Z., 2022.
``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 Working Paper No. 29823.
\45\ Pilkauskas, N., Michelmore, K., Kovski, N. and Shaefer, H.L.,
2022. ``The effects of income on the economic well-being of families
with low incomes: Evidence from the 2021 expanded Child Tax Credit.''
National Bureau of Economic Research Working Paper No. 30533.
\46\ Enriquez, B., Jones, D. and Tedeschi, E., 2023, May. ``Short-
Term Labor Supply Response to the Expanded Child Tax Credit.'' In AEA
Papers and Proceedings (Vol. 113, pp. 401-405). 2014 Broadway, Suite
305, Nashville, TN 37203: American Economic Association.
It is not clear whether the lack of an effect on employment would
persist if the ARPA CTC were made permanent, nor is it clear if parents
were even aware of the changes in employment incentives brought on by
the ARPA CTC. It might take a few years before parents fully realize
how changes in employment impact their eligibility for various credits,
thus the longer-term employment effects may differ from short-term
responses. Despite these caveats, there is little evidence that the
ARPA CTC had any negative impact on parental employment during the
months it was distributed. In fact, survey evidence suggests that the
ARPA CTC allowed some families to work more by allowing them to afford
costs associated with work like child care and transportation.\47\
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\47\ Kaverman, E., Minoff, E., and J. Kashen 2022. ``A `Godsend':
How Temporary Investments in the Child Tax Credit and Child Care
Impacted Michigan Families.'' Washington, DC: Center for the Study of
Social Policy. https://cssp.org/resource/a-godsend-how-temporary-
investments-in-the-child-tax-credit-and-child-care-impacted-michigan-
families/. Lens, V., Arriaga, A., Pisciotta, C., Bushman-Copp, L.,
Spencer, K., and S. Kronenfeld 2022. ``Spotlight on the Child Tax
Credit: Transforming the Lives of Families.'' New York City: Robin Hood
Foundation. https://www.robinhood.org/wp-content/themes/robinhood/
images/poverty-tracker/pdfs/POVERTY_TRACKER_REPORT32.pdf.
Several studies attempted to model the longer-term employment
effects of the ARPA reform using simulations. In my own work on this
topic, my colleagues Jacob Goldin, Elaine Maag, and I estimated the
long-term costs and benefits of three different potential reforms to
the CTC, including the ARPA reform. Our simulations suggested that,
under common assumptions about how responsive parental employment is to
changes in taxes and income (known as a labor supply elasticity), the
predicted decline in parental employment as a result of the ARPA CTC
were quite modest (on the order of about 0.3 percent of the workforce)
relative to the direct costs of the program. We also found that the
long-term gains in earnings of the children benefiting from these
expansions far outweighed the costs associated with a modest decline in
parental employment. In particular, using estimates from the broader
literature on the impact of exposure to tax credits in childhood on
adulthood earnings, we estimated that the long-term gains in earnings
offset the direct costs of the ARPA expansion by about 20 percent.\48\
Our calculations did not include an enumeration of other societal
benefits of the ARPA expansion such as reducing poverty and public
assistance receipt in the long term, but based on previous studies,
these long-term benefits are projected to far outweigh any costs
associated with modest declines in parental labor supply in the short
term.\49\
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\48\ Goldin, J., Maag, E. and Michelmore, K., 2022. ``Estimating
the net fiscal cost of a Child Tax Credit expansion.'' Tax Policy and
the Economy, 36(1), pp. 159-195.
\49\ Garfinkel, I., Sariscsany, L., Ananat, E., Collyer, S.,
Hartley, R.P., Wang, B. and Wimer, C., 2022. ``The Benefits and Costs
of a Child Allowance.'' Journal of Benefit-Cost Analysis, 13(3), pp.
335-362.
The Joint Committee on Taxation also estimated that the expanded
credit would lead to only a modest, 0.2-percent decline in labor
supply, which staff of the Ways and Means Committee translated into an
even smaller reduction than above.\50\ Another analysis conducted by
Jacob Bastian, an economist at Rutgers University, estimated a similar,
modest decline in labor supply.\51\ These three studies used different
data and assumptions, but came to similar conclusions about the
expected declines in parental labor supply associated with the ARPA
reforms to the CTC: declines in parental employment were likely to be
quite modest.
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\50\ Fenton, George. 2023. ``Gains from Expanded Child Tax Credit
Outweigh Overstated Employment Worries.'' Center on Budget and Policy
Priorities Report. https://www.cbpp.org/sites/default/files/6-14-
23tax.pdf.
\51\ Bastian, J., 2022, November. ``Investigating the effects of
the 2021 Child Tax Credit expansion on poverty and employment.'' In
2022 APPAM Fall Research Conference. APPAM.
Another study led by economists at the University of Chicago
estimated a much larger decline in parental labor supply as a result of
the ARPA reform, of about 2.6 percent of working parents.\52\ The main
discrepancy between this study and the other studies is in the modeling
of the responsiveness of parents' employment decisions with respect to
the changes in income and marginal tax rates associated with the ARPA
reforms. The University of Chicago team relied on estimates based on
older data and relied on a much larger labor elasticity for single
mothers than typically used in the recent literature.\53\ This study
also made the seemingly unrealistic assumption that either both parents
would choose to remain employed or both parents would choose to drop
out of the labor force simultaneously. While modeling joint labor
supply decisions is more complicated, a more realistic assumption might
be that one parent reduces their labor supply in response to the
increased generosity of the credit and changes in marginal tax rates.
Based on prior research on how married couples alter their labor supply
in response to more generous EITC benefits (which also creates an
income effect and a substantial increase in marginal tax rates for
secondary workers due to the marriage penalty embedded in the benefit
structure), declines in married women's labor supply are likely to be
small.\54\ Men, regardless of marital status, tend to have a fairly
inelastic labor supply.\55\
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\52\ Corinth, K., Meyer, B.D., Stadnicki, M. and Wu, D., 2021.
``The Anti-poverty, Targeting, and Labor Supply Effects of Replacing a
Child Tax Credit with a Child Allowance.'' National Bureau of Economic
Research Working Paper No. 29366.
\53\ McClelland, R. and Mok, S., 2012. ``A review of recent
research on labor supply elasticities.'' Chetty, R., Guren, A., Manoli,
D. and Weber, A., 2013. ``Does indivisible labor explain the difference
between micro and macro elasticities? A meta-analysis of extensive
margin elasticities.'' NBER macroeconomics Annual, 27(1), pp. 1-56.
\54\ Eissa, N. and Hoynes, H.W., 2004. ``Taxes and the labor market
participation of married couples: The earned income tax credit.''
Journal of Public Economics, 88(9-10), pp. 1931-1958.
\55\ McClelland, R. and Mok, S., 2012. ``A review of recent
research on labor supply elasticities.''
More broadly speaking, the lack of employment effects found so far
in response to the ARPA reforms to the CTC are also consistent with the
larger literature on the impacts of cash transfers on employment
outcomes. Evidence from the Alaska Permanent Fund, for instance, finds
no evidence that the annual cash transfers decreased employment among
those who received them.\56\ Similarly, in Canada, where child benefits
are much more generous than the CTC and not contingent on work (though
the credits phase out at higher income ranges, which creates both an
income and a substitution effect that would predict a decline in
employment), there is no evidence that increasing the generosity of
child benefits affects parental labor supply.\57\
---------------------------------------------------------------------------
\56\ Jones, D. and Marinescu, I., 2022. ``The labor market impacts
of universal and permanent cash transfers: Evidence from the Alaska
Permanent Fund.'' American Economic Journal: Economic Policy, 14(2),
pp. 315-340.
\57\ Baker, M., Messacar, D. and Stabile, M., 2021. ``The Effects
of Child Tax Benefits on Poverty and Labor Supply: Evidence from the
Canada Child Benefit and Universal Child Care Benefit.'' National
Bureau of Economic Research Working Paper No. 28556.
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a permanent expansion of the ctc will likely generate
enormous societal benefits
While to date we can only observe the short-term effects of the
ARPA reforms to the CTC, a long literature on the impact of other
social safety net programs provides insights into the likely enormous
long-term societal benefits of making the ARPA CTC permanent.
A recent study by researchers at Columbia University estimated that
the $97 billion spent on the expanded Child Tax Credit could generate
$929 billion in long-term societal benefits, a return on investment of
more than $9 to $1.\58\ These calculations were based on a long line of
research that points to the importance of income for children's success
in both the short and long term. For instance, we know that children
exposed to more generous tax credits through the EITC are less likely
to be born low birth weight, have higher test scores, are less likely
to have births themselves as teenagers, and go on to attain college
degrees at higher rates.\59\ These children also grow up to have higher
earnings, are less likely to live in poverty, and are less likely to
rely on public assistance once they reach adulthood.\60\
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\58\ Garfinkel, I., Sariscsany, L., Ananat, E., Collyer, S.,
Hartley, R.P., Wang, B. and Wimer, C., 2022. ``The Benefits and Costs
of a Child Allowance.'' Journal of Benefit-Cost Analysis, 13(3), pp.
335-362.
\59\ Hoynes, H., Miller, D. and Simon, D., 2015. ``Income, the
earned income tax credit, and infant health.'' American Economic
Journal: Economic Policy, 7(1), pp. 172-211. Dahl, G.B. and Lochner,
L., 2012. ``The impact of family income on child achievement: Evidence
from the earned income tax credit.'' American Economic Review, 102(5),
pp. 1927-1956. Michelmore, K. and Lopoo, L.M., 2021. ``The effect of
EITC exposure in childhood on marriage and early childbearing.''
Demography, 58(6), pp. 2365-2394. Bastian, J. and Michelmore, K., 2018.
``The long-term impact of the earned income tax credit on children's
education and employment outcomes.'' Journal of Labor Economics, 36(4),
pp. 1127-1163.
\60\ McInnis, N., Michelmore, K., and Pilkauskas, N. 2023. ``The
Intergenerational Transmission of Poverty and Public Assistance:
Evidence from the Earned Income Tax Credit.'' NBER working paper No.
31429. Barr, A., Eggleston, J. and Smith, A.A., 2022. ``Investing in
infants: The lasting effects of cash transfers to new families.'' The
Quarterly Journal of Economics, 137(4), pp. 2539-2583.
A growing body of evidence points to the importance of
interventions that specifically target early childhood, which suggests
that providing a more generous child benefit for young children is
likely to pay even greater dividends in the long term. Recent evidence
demonstrates that children who receive an additional $1,300 in income
through tax credits like the EITC and dependent exemption in the first
year of life have 1-3 percent higher earnings in early adulthood.\61\
The importance of early childhood interventions for children's long-
term success have also been documented in the Food Stamps, Medicaid,
and Head Start literatures.\62\ Together, the evidence suggests
enormous long-term societal benefits of investing in children today
through programs like the ARPA CTC.
---------------------------------------------------------------------------
\61\ Barr, A., Eggleston, J. and Smith, A.A., 2022. ``Investing in
infants: The lasting effects of cash transfers to new families.'' The
Quarterly Journal of Economics, 137(4), pp. 2539-2583.
\62\ Bailey, M.J., Hoynes, H.W., Rossin-Slater, M. and Walker, R.,
2020. ``Is the social safety net a long-term investment? Large-scale
evidence from the food stamps program.'' National Bureau of Economic
Research Working Paper No. 26942. Brown, D.W., Kowalski, A.E. and
Lurie, I.Z., 2020. ``Long-term impacts of childhood Medicaid expansions
on outcomes in adulthood.'' The Review of economic studies, 87(2), pp.
792-821. Barr, A. and Gibbs, C., 2017. ``Breaking the cycle? The
intergenerational effects of Head Start.'' Manuscript. Texas A&M
University, College Station, TX.
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conclusion
The current CTC benefit structure prevents more than one-quarter of
the Nation's poorest children from receiving the full benefit, while
nearly all children in the top half of the income distribution were
eligible for the full credit in 2023. Black children, Hispanic
children, children living in rural areas, and children from larger
families are all more likely to be excluded from the full credit,
potentially widening inequalities across these groups.\63\ The 2021
reforms to the CTC as part of the American Rescue Plan Act helped
contribute to a dramatic decline in child poverty between 2020 and
2021, when the child poverty rate dropped by nearly half.\64\ The
research to date suggests that the monthly credits also helped families
make ends meet, keep food on the table, and purchase enriching items
for their children, with no evidence of deleterious effects on parental
employment.\65\ A permanent expansion of these reforms is likely to pay
enormous societal dividends in the long term by reducing child poverty
today, leading to better education, health, and employment outcomes
tomorrow, thus reducing future societal costs associated with poverty.
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\63\ Collyer, Sophie; Harris, David; Wimer, Christopher. ``Left
Behind: The One-Third of Children in Families Who Earn Too Little to
Get the Full Child Tax Credit.'' Columbia University Center on Poverty
and Social Policy Brief. Goldin, J. and Michelmore, K., 2020. ``Who
benefits from the child tax credit?'' National Bureau of Economic
Research Working Paper No. 27940.
\64\ Creamer, J., Shrider, E.A., Burns, K., and F. Chen 2022.
``Poverty in the United States: 2021. Current Population Reports P60-
277.'' Washington, DC: United States Census Bureau.
\65\ Pilkauskas, N., Michelmore, K., Kovski, N. and Shaefer, H.L.,
2022. ``The effects of income on the economic well-being of families
with low incomes: Evidence from the 2021 expanded Child Tax Credit.''
National Bureau of Economic Research Working Paper No. 30533. Parolin,
Z., Ananat, E., Collyer, S., Curran, M. and Wimer, C., 2023. ``The
effects of the monthly and lump-sum Child Tax Credit payments on food
and housing hardship.'' In AEA Papers and Proceedings (Vol. 113, pp.
406-412). American Economic Association.
[GRAPHIC] [TIFF OMITTED] T1323.007
Source: Goldin, J. and Michelmore, K., 2020. ``Who benefits
from the child tax credit?'' National Bureau of Economic Research
---------------------------------------------------------------------------
Working Paper No. w27940.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Sources: 2005 estimates come from Burman, Leonard and Wheaton,
Laura. 2005. ``Who Gets the Child Tax Credit?'' Tax Notes; 2010
estimates come from Harris, David. 2012. ``The Child Tax Credit: How
the United States Underinvests in its Youngest Children in Cash
Assistance and How Changes to the Child Tax Credit Could Help.''
Columbia University dissertation; and 2018 estimates come from Goldin,
J. and Michelmore, K., 2020. ``Who benefits from the child tax
credit?'' National Bureau of Economic Research Working Paper No.
w27940.
Table 1. Number of children under the age of 17 qualifying for the Child Tax Credit, based on 2005, 2010, and
2019 laws
----------------------------------------------------------------------------------------------------------------
Number of children (millions)
-------------------------------------------------
2005 (post- 2010 (post- 2019 (post-
EGTRRA) ARRA) TCJA)
----------------------------------------------------------------------------------------------------------------
Phase-in region No credit 9.5 7.22 6.68
----------------------------------------------------------------------------------------------------------------
Partial credit 10.0 7.10 17.06
----------------------------------------------------------------------------------------------------------------
Full credit 38.8 42.92 44.05
----------------------------------------------------------------------------------------------------------------
Phase-out region Partial credit 4.9 5.45 0.62
----------------------------------------------------------------------------------------------------------------
No credit 5.0 7.10 0.83
----------------------------------------------------------------------------------------------------------------
Total 68.2 69.79 69.24
----------------------------------------------------------------------------------------------------------------
Sources: 2005 estimates come from Burman, Leonard and Wheaton, Laura. 2005. ``Who Gets the Child Tax Credit?''
Tax Notes; 2010 estimates come from Harris, David. 2012. ``The Child Tax Credit: How the United States
Underinvests in its Youngest Children in Cash Assistance and How Changes to the Child Tax Credit Could Help.''
Columbia University dissertation; and 2018 estimates come from Goldin, J. and Michelmore, K., 2020. ``Who
benefits from the child tax credit?'' National Bureau of Economic Research Working Paper No. w27940.
______
Prepared Statement of Angela Rachidi, Ph.D., Senior Fellow and
Rowe Scholar in Poverty Studies, American Enterprise Institute
Chairman Bennet, Ranking Member Thune, and subcommittee members,
thank you for the opportunity to testify. My name is Angela Rachidi,
and I am a senior fellow on poverty and opportunity at the American
Enterprise Institute. Before I joined AEI, I was a Deputy Commissioner
for the New York City Department of Social Services, where for more
than a decade I oversaw the agency's policy research. My research
focuses on the intersection of safety net policy and employment as a
path out of poverty.
I want to make three key points in relation to the Child Tax
Credit. First, Congress initially created the Child Tax Credit as a tax
credit for working families with children, complementing the Earned
Income Tax Credit or EITC, which is primarily a refundable tax credit
for those who do not owe Federal income taxes. Second, over the years,
Congress increased benefits to low-income families by expanding the
refundability of the CTC, meaning that it now substantially overlaps
with the EITC. Finally, any efforts to turn the CTC into a child
allowance would move it away from the positive design features that
have made the EITC (and by extension the CTC) one of the most effective
anti-poverty policies we have. Policymakers should consider the
potential negative implications on employment of changing the CTC,
which would make long-term poverty reduction in the U.S. more
challenging. This is especially true in light of the poorly targeted
nature of proposals expanding the CTC into a child allowance.
First, it is important to acknowledge the history of the Child Tax
Credit. The CTC started in 1997 as a modest $500 per child non-
refundable tax credit for working families as a way to offset some of
their Federal income and payroll tax liability. Over the years and
through different congressional sessions and presidential
administrations, the CTC has expanded to the point that under current
law it is partially refundable, meaning that families without Federal
income tax liability can still receive some of the credit as a transfer
payment. Eligible families can receive a refundable credit of 15
percent of earnings above $2,500 per year, up to a maximum $1,500 per
child in tax year 2022 (the maximum refundable amount increases for
inflation each year until it reaches $2,000). The 15-percent phase-in
reflects the employee and employer share of payroll taxes. Families
with significant Federal income tax liability receive $2,000 per child
as a non-refundable credit on their Federal income taxes.
The CTC works in conjunction with the fully refundable EITC, which
primarily targets low-income working families without Federal income
tax liability. The EITC provided $67 billion to 31 million low-income
working families in 2022, of which 86 percent was refundable, while the
CTC provided $108 billion in 2022, of which 39 percent was
refundable.\1\ It remains true that the CTC provides less generous
benefits to families with low earnings, but that is because the EITC
targets these low-income working families.
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\1\ U.S. Internal Revenue Service, ``EITC Reports and Statistics,''
January 24, 2023, https://www.irs.gov/credits-deductions/individuals/
earned-income-tax-credit/eitc-reports-and-statistics.
Although some policymakers supported a child allowance throughout
the 1980s and 1990s, because of concerns over the potential employment
disincentives and the overall cost, it failed to garner broad support.
However, Congress still believed a need existed for a child-related
benefit, passing a nonrefundable CTC through the tax code as a way to
support working families and to address concerns over the personal
exemption not keeping pace with inflation.\2\ By the early 2000s, at
the urging of President George W. Bush's administration, Congress
expanded this modest CTC, making it partially refundable for families
with income at or above the EITC plateau--that is, available to
families without income tax liability who had reached the maximum EITC
benefit. The policy recognized that these EITC-eligible families faced
additional payroll tax liability but were not eligible yet for the full
CTC.
---------------------------------------------------------------------------
\2\ Angela Rachidi, ``America's Path Toward a Guaranteed Income for
Families with Children: How Nixon's Family Assistance Plan Shaped
Antipoverty Policy,'' American Enterprise Institute, October 27, 2021,
https://www.aei.org/research-products/report/americas-path-toward-a-
guaranteed-income-for-families-with-children-how-nixons-family-
assistance-plan-shaped-antipoverty-policy/; Scott Winship, ``Reforming
Tax Credits to Promote Child Opportunity and Aid Working Families,''
American Enterprise Institute, July 29, 2021, https://www.aei.org/
research-products/report/reforming-tax-credits-to-promote-child-
opportunity-and-aid-working-families/.
The 2009 American Recovery and Reinvestment Act completely
disconnected the CTC from the EITC by reducing the earnings floor from
$10,000 to $3,000, essentially duplicating the EITC for low-income
families. While President George W. Bush's administration had only made
the CTC refundable for low-income families with income high enough to
receive the maximum EITC amount, the 2009 ARRA reduced the income
necessary to qualify for the CTC, essentially adding refundable
benefits on top of the existing EITC. Congress made this change
permanent in 2015 and increased the benefit level in the 2017 TCJA.
These policy changes essentially expanded the CTC's role as a tax
credit for working families, which was complementary to the EITC, to
serve also as a transfer payment to low-income families in addition to
---------------------------------------------------------------------------
the EITC.
This brings me to my second point about the often-overlooked
aspects of the CTC's current design. By increasing the refundability of
the CTC over the years, policymakers have expanded it into a transfer
payment that targets low-income families who also receive several other
safety net benefits. The typical working single mother with two
children earning $12 per hour for full-time work, would receive the
refundable EITC, refundable CTC, and SNAP benefits, totaling more than
$12,000 in government benefits per year alone. Additionally, her
children would likely receive free school lunches, health insurance
through Medicaid, and they could receive housing assistance and child-
care assistance that could total another several thousand dollars in
assistance per year. Congress should consider any further reforms to
the refundable portion of the CTC within this context.
Another crucial point is that even though Congress has expanded the
refundability of the CTC over the years, Congress has always kept the
key features of the EITC as part of the CTC--such as phasing in the CTC
with earnings and requiring some earnings to maintain eligibility. This
changed, however, with the temporary 2021 CTC expansion, in which
Congress eliminated the phase-in and the work requirement. Although
supporters argued that this was necessary as pandemic-related relief,
making these policy changes permanent would reduce the labor supply of
the most disadvantaged groups, raising questions over its long-term
effects on poverty reduction.
Studies of the EITC have found that it reduces poverty, improves
child health and educational outcomes, and increases employment among
single mothers.\3\ The evidence suggests that any efforts to move the
CTC away from the EITC's design--such as by removing the phase-in--
could counteract these positive aspects and partially reverse decades
of progress. Research suggests that labor supply would decline should
Congress turn the CTC into a child allowance.\4\ This would turn the
clock back on 3 decades of social policy success in which single mother
employment has increased and child poverty has declined
dramatically.\5\
---------------------------------------------------------------------------
\3\ Bastian, Jacob and Katharine Michelmore. 2018. The Long-Term
Impact of the Earned Income Tax Credit on Children's Education and
Employment Outcomes. Journal of Labor Economics 36, no. 4, https://
www.journals.uchicago.edu/doi/epdf/10.1086/697477; Meyer, Bruce and Dan
Rosenbaum, 1999. Welfare, the Earned Income Tax Credit, and the Labor
Supply of Low-Income Mothers. National Bureau of Economic Research,
https://www.nber.org/papers/w7363.
\4\ Corinth, Kevin, 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).
\5\ Bruce Meyer, ``Testimony on Anti-Poverty and Family Support
Provisions in the Tax Code,'' Senate Committee on Finance, June 15,
2023, https://www.aei.org/research-products/testimony/testimony-on-
anti-poverty-and-family-support-provisions-in-the-tax-code/.
Changing the CTC's design permanently would affect labor supply
among those eligible to receive it, even though some analyses of the
2021 temporary CTC expansion suggested that there were no employment
effects associated with the fully refundable benefit. The complex
policy environment in 2021 during the time of the temporary expansion,
severely limits our understanding of the effects of the temporary CTC,
especially because researchers were unable to control for many
confounding factors that made analyzing the impact of 6 months of
payments to families almost impossible. Moreover, because the policy
was only temporary, we would not expect any short-term behavioral
effects to exist or to be as large as the long-term effects of a
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permanent policy.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
For these reasons, we should look to other research to suggest
how an expanded CTC might affect families over the long term. As
already mentioned, the EITC includes a phase-in and work requirement
and research shows that it has resulted in increased maternal
employment and positive child outcomes over many years.\6\ Rolling back
these features in the CTC likely would have effects in the opposite
direction. Furthermore, although not a direct comparison, we can look
to a recent randomized controlled trial of a child allowance-type
policy called Baby's First Years to provide evidence that unconditional
payments influence employment behavior. Baby's First Years randomly
assigned families with a new baby to a treatment group in which they
received $333 per month for 3 years or to a control group in which they
received a minimal $20. Researchers compared employment rates and hours
worked between the two groups. While there was no statistical
difference in employment rates on the extensive margin (whether a
mother worked or not at the time of the survey), the payments reduced
full-time employment by 11 percent across the 3 years and hours worked
by 12 percent.\7\ Because the Baby's First Years payment was on top of
the existing CTC, it did not eliminate the CTC's existing incentives,
suggesting that replacing the CTC with a similar payment would have an
even larger disemployment effect. Although we cannot extrapolate these
results to a child allowance that covers all children, it demonstrates
the importance of taking seriously concerns over how government
payments affect employment. My main concern is that eliminating the
phase-in of the CTC and the work requirement will reduce employment and
make upward mobility more challenging for low-income families.
---------------------------------------------------------------------------
\6\ Bastian, Jacob and Katharine Michelmore. 2018. The Long-Term
Impact of the Earned Income Tax Credit on Children's Education and
Employment Outcomes. Journal of Labor Economics 36, no. 4, https://
www.journals.uchicago.edu/doi/epdf/10.1086/697477; Meyer, Bruce and Dan
Rosenbaum, 1999. Welfare, the Earned Income Tax Credit, and the Labor
Supply of Low-Income Mothers. National Bureau of Economic Research,
https://www.nber.org/papers/w7363.
\7\ Maria Sauval, Greg J. Duncan, Lisa A. Gennetian, Katherine A.
Magnuson, Nathan A. Fox, Kimberly G. Noble, and Hirokazu Yoshikawa,
``Unconditional Cash Transfers and Maternal Employment: Evidence from
the Baby's First Years Study,'' November 2022.
My final point is that there are better ways to reduce poverty that
address concerns over employment and that better target those who are
in need. Turning the CTC into a child allowance has implications beyond
simply reducing short-term poverty rates. Nobel Laureate Dr. James
Heckman from the University of Chicago made a relevant point when
describing Denmark's welfare state, which includes generous universal
child benefits. He noted that while Denmark experiences lower income
inequality compared to the U.S. because of their universal social
policies, lower inequality has not translated into smaller education
and skill formation gaps--gaps that still prevent people from
progressing over the long term.\8\ His point was that imposing income
equality through redistribution fails to promote individual
advancement.
---------------------------------------------------------------------------
\8\ Heckman, James and Rasmus Landerso. 2021. Lessons from Denmark
about Inequality and Social Mobility, National Bureau of Economic
Research, https://www.nber.org/papers/w28543.
This is how an expanded CTC would work. Not only would it
discourage employment among those who need full employment the most,
but an analysis by the Penn Wharton budget model found that only 17.4
percent of new benefits in an expansion like 2021's would go to
families in the bottom income quintile, and only 50 percent of benefits
to those in the bottom two quintiles.\9\ Unlike the EITC, where 86
percent of Federal expenditures are refundable and therefore go to low-
income families, only 56 percent of expanded CTC benefits in 2021 were
refundable even though the policy extended to nonworking families.
---------------------------------------------------------------------------
\9\ Penn Wharton Budget Model, ``Expanding the Child Tax Credit:
Budgetary, Distributional, and Incentive Effects,'' October 25, 2021,
https://budgetmodel.wharton.upenn.edu/issues/2021/10/25/expanding-the-
child-tax-credit-effects.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Tax Foundation estimated that making the temporary
expansion of the CTC permanent would have cost $1.6 trillion over 10
years, which translates into over 1 trillion Federal dollars to support
an expanded CTC presumably aimed at reducing child poverty that is not
targeted toward low-income families. It would reduce employment for
some low-income families making the likelihood of long-term upward
mobility more challenging, while increasing benefits for middle- and
upper-
---------------------------------------------------------------------------
income households. This is not a winning policy.
To conclude, the CTC has historically served an important tax
relief purpose for working families, but expansions to its
refundability over the years largely duplicates the EITC. Nonetheless,
because it shares the same employment-related design features of the
EITC, it contributes to similar positive outcomes such as higher
employment levels among low-income families and lower poverty.
Proposals to move the CTC away from its original goals of tax relief
threaten this progress by discouraging employment and mistargeting
important Federal benefits.
Thank you, and I look forward to answering your questions.
______
Questions Submitted for the Record to Angela Rachidi, Ph.D.
Questions Submitted by Hon. James Lankford
Question. The Child Tax Credit currently aims to provide tax relief
for families and act as a work incentive. How does altering its
operation to a cash assistance program without work requirements also
alter its impact?
Answer. Without work requirements, the Child Tax Credit is no
longer primarily tax relief because it is available to nonworking
households. This would not only alter its impact, but it would
fundamentally change the relationship between the program and
recipients and risk reducing employment among some parents. Much of the
evidence we have on the work incentives of the Child Tax Credit come
from the Earned Income Tax Credit because they share the same
features--that is, they phase in as earnings increase and they are only
available to working families. The success of both credits relates to
their ability to provide financial assistance to low-income families
without the work disincentives common in other safety-net programs,
such as the Supplemental Nutrition Assistance Program (or Food Stamps)
and housing assistance, for example.
Turning the Child Tax Credit into a cash assistance program risks
reversing the employment gains among single mothers since the welfare
reforms in the 1990s. Those gains resulted from both work requirements
added to the Temporary Assistance for Needy Families (TANF) program and
from the work incentives of the Earned Income Tax Credit. Although
successful, even those policies were limited in scope because of the
work disincentives that remain in other programs. Adding additional
work disincentives though the Child Tax Credit on top of the
disincentives that already exist in other safety programs will limit
the Child Tax Credit's impact by reducing employment among vulnerable
populations and contributing to poverty over the long term. It will
also reverse poverty gains for low-income families that resulted from
welfare reform.
Question. Your testimony emphasizes the complimentary nature of the
Child Tax Credit to the Earned Income Tax Credit. How do these tax
credits work together to support low-income families? If work
requirements were removed from the Child Tax Credit, how would a
reduction in the labor supply impact poverty reduction in the long run?
Answer. The Earned Income Tax Credit and the Child Tax Credit share
important design features that incentive employment among low-income
populations. They work together to offer financial assistance on top of
earnings to help families cope with financial challenges. This
connection to employment contrasts with other safety-net programs that
disincentivize employment by not having a work requirement and phasing
out at rates that create high effective marginal tax rates (i.e.,
``benefit cliffs'').
There are several potential ways removing the work requirement from
the Child Tax Credit could negatively affect poverty reduction in the
end. Research suggests that eliminating the phase-in of the Child Tax
Credit could substantially affect labor supply. The changes in
employment behavior that might result could also affect benefit receipt
from other safety net programs, including the Earned Income Tax Credit
and make families financially less stable over time. Eliminating the
work requirements in the Child Tax Credit could offset the employment
incentives built into the Earned Income Tax Credit, making both
policies less effective at increasing employment among low-income
populations. Less employment makes it more challenging for families to
escape poverty and move up the income ladder over time. Already low-
income parents face substantial disincentives to employment through
other
safety-net programs, such as the Supplemental Nutrition Assistance
Program (or Food Stamps), housing assistance, and Medicaid. Eliminating
the work incentive of the Child Tax Credit could potentially harm
families in the long run by adding to existing work disincentives and
making it less likely families will escape poverty through employment
over time.
______
Question Submitted by Hon. Steve Daines
Question. As a mother, you understand the planning and preparation
that begins when a woman learns she's pregnant. Families incur costs
from prenatal care and supplies for their child. How would making
pregnant mothers eligible for the child tax credit help alleviate the
financial obligations associated with their pregnancy?
Answer. The purpose of the Child Tax Credit is to offset costs
associated with child rearing. Expectant mothers incur child-related
costs starting during pregnancy. This makes the policy goal of
offsetting child-related costs no different during pregnancy than after
the birth. The Child Tax Credit can be a useful tool to help parents
financially as they bring a new child into the world. There is prenatal
care and supplies that require resources. There are also times when
pregnant mothers must take time away from work to deal with their
pregnancy and some expectant mothers do not have access to paid time
off from their employer. A Child Tax Credit during pregnancy could help
cover these costs.
Another key point is that a Child Tax Credit during pregnancy
because of the timing of the refundable portion of the benefit. The
refundable Child Tax Credit covers the tax year of the birth, but
parents do not receive it until they file their taxes the following
year. This means that for a birth that happens in the first few months
of a new tax year, parents will not receive the Child Tax Credit until
1 year or more after the birth. Due to the timing of the benefit,
making the parents eligible for the Child Tax Credit during the year of
pregnancy will also help cover costs during the first year of the
baby's life.
Prepared Statement of Hon. John Thune,
a U.S. Senator From South Dakota
Thank you, Chairman Bennet. I appreciate you convening today's
hearing and appreciate the witnesses agreeing to be here to testify.
Today, we are here to discuss the Child Tax Credit and evaluate its
25-year history, review its effectiveness in helping to ease the
financial burden on American families, and discuss modifications to the
credit that Congress should consider. In 1997, the Child Tax Credit was
created as a $400 nonrefundable, per-child tax credit intended to help
make life a little easier for working families with children. Over the
last 25 years, the Child Tax Credit has expanded and evolved and,
unlike some issues we debate on this committee, it continues to have a
fair amount of bipartisan support.
Today, as a result of the Tax Cuts and Jobs Act, the credit
provides qualifying families with $2,000 per dependent child and $500
per nondependent child, up to the age of 16. And due to this expansion
of the Child Tax Credit, families across the Nation are able to reap
the benefits of a more lucrative credit. However, this expanded Child
Tax Credit is set to expire and revert back to pre-Tax Cuts and Jobs
Act levels beginning in 2026. If allowed to happen, families in South
Dakota and across the Nation would see their Child Tax Credit benefit
cut in half and back to 2017 levels. Therefore, it is my hope that my
colleagues on the Finance Committee and in the Senate see the necessity
for this expanded Child Tax Credit to not be allowed to simply expire
in just a few short years.
As we all know, there is a push by some to reinstate the temporary
changes to the Child Tax Credit that were included in the American
Rescue Plan Act in 2021 and have since expired. This is an approach
that I have serious concerns with, as do many others, including some of
our witnesses.
The American Rescue Plan Act went beyond simply increasing the per-
child tax credit amount. It extended the credit to children who are
almost adults. It adopted a completely new approach by mandating
taxpayers who did not opt-out to receive half their credit in advance,
significantly straining the IRS's resources and leading to refund
delays, surprise tax bills, and lengthy call wait times for two
consecutive tax filing seasons, among a host of other administrative
challenges.
Though we can debate the merits of any of these changes, in my view
the most concerning change was that Democrats eliminated the credit's
tie to working and earning a basic amount of income. This single change
essentially turned a credit that targets assistance toward working
families into universal basic income for anyone with a child. This
contentious and expensive change is also completely contrary to the
original intent of the Child Tax Credit.
Eliminating the tie between the Child Tax Credit and working takes
away a key incentive--a ``bonus'' of sorts--for certain parents to
enter and stay in the workforce. Such an incentive has been part of the
Child Tax Credit since its inception and one that is lauded in other
income support programs, such as the Earned Income Tax Credit.
While some try to reframe the discussion, the Child Tax Credit
originated during the broader ``back-to-work'' welfare reform push of
the 1990s and cannot be understood without comprehending the lessons of
this highly successful series of reforms. One primary objective of
welfare reform was to get families out of the cycle of perpetual
poverty, by providing them with a hand up rather than a handout. That
is why the Personal Responsibility and Work Opportunity Reconciliation
Act incorporated work requirements into various Federal programs.
These changes were decried by some at the time as being ``unfair''
or mean-
spirited and likely to lead to harm for those who need assistance. In
fact, the data is irrefutable to the contrary: welfare reform worked
and had amazing and positive outcomes for the most economically
vulnerable. By tying government assistance to workforce participation,
beneficiaries of various Federal programs are incentivized to get a
job, which provides the best pathway out of poverty and a host of other
positive outcomes.
Clearly there are certain instances in which a parent does not have
the ability to work, but there are current programs like the Earned
Income Tax Credit or WIC that do not require one to hold a job in order
to reap the full benefits of the program. However, turning the Child
Tax Credit into universal basic income is both duplicative and
counterproductive. And I believe this is the wrong approach. Instead, I
believe that it is imperative for Congress to ensure that we continue
to build on the successes of the Child Tax Credit that we have
witnessed over its 25-year history rather than ``fixing'' what is not
broken.
I look forward to hearing from our witnesses on this very important
issue and look forward to the discussion.
______
Communications
----------
American Citizens Abroad, Inc.
2001 L Street, NW, Suite 500
Washington, DC 20026
+1 202-322-8441
https://www.americansabroad.org/
American Citizens Abroad, Inc, and its sister organization, American
Citizens Abroad Global Foundation hereby submit our Statement for the
Record.
American Citizens Abroad, Inc. (ACA) is a leading advocacy organization
representing Americans living and working overseas. Headquartered in
Washington, DC, ACA is nonpartisan, non-profit (section 501 (c)(4)),
with a 40-plus-year history of advocating on behalf of the community of
Americans living and working overseas. Alongside ACA is its sister
charitable (section 501(c)(3)) research and educational organization,
American Citizens Abroad Global Foundation (ACAGF).
THE CHILD TAX CREDIT AND BENEFICIARIES ABROAD
ACA is grateful to the Senate Finance Committee and its Subcommittee on
Taxation and IRS Oversight for their public hearings exploring the
proposal to re-establish and make permanent the ARPA Expanded and
Advance Child Tax Credit. U.S. parents living abroad benefit from the
Child Tax Credit (CTC) in the same ways that parents living in the U.S.
do. They can afford more childcare which enables them to work more
hours and better provide for their families. They can better manage
household budgets and so avoid pay-day loans or other expensive credit
arrangements to manage lumpiness of household income. And, overall, the
reduction in financial distress results in less family distress.
We are disappointed, however, that the CTC proposal in S. 1992--Working
Families Relief Act of 2023 (as well as H.R. 3899--American Family Act)
replicates the CTC provisions in the American Rescue Plan Act that deny
CTC beneficiaries living abroad access to full refundability and
advance payments. This is disappointing and upsetting for non-resident
parents who already bear an inordinately costly and complex U.S. tax
filing burden.\1\
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\1\ Ordinary, middle-class taxpayers filing from abroad need to
understand the IRC's arcane provisions for non-resident filers and,
further, are required to navigate the convergence of U.S. tax rules and
the tax rules of the country where they live, including provisions in
the U.S. tax treaty.
Research published in 2022 about the U.S. citizens living abroad
includes gross household income data that indicates 76% qualify for the
whole of the CTC. Up to 96% would be eligible for some portion.\2\
Inflationary pressures persist in nations around the world, making this
a time of considerable financial distress for middle income U.S.
families regardless of where they reside. This cohort of U.S. citizens,
already identified as under-served by the IRS, is no less deserving of
government assistance and is in genuine need of support.
---------------------------------------------------------------------------
\2\ Once Uncomfortable, Now Suffocating: A 2022 Update on Tax and
Financial Access Issues of Americans Abroad, Democrats Abroad, November
2022. https://www.democratsabroad.org/2022_report_data.
We ask that the Senate Finance Committee reconsider the U.S. residence
requirement included in the bill's eligibility criteria for full CTC
refundability. It is not clear to us why, from an equity or a tax
administration point of view, the choice was made to include it in S.
1992. We recommend the new IRS portal for administering the CTC enable
CTC beneficiaries living abroad to register with their non-U.S.
addresses, phone numbers and bank accounts, thus eliminating any
obstacle to beneficiaries abroad receiving the CTC advance payments.
Providing U.S. parents abroad access to CTC full refundability and
advance CTC payments in S. 1992 and H.R. 3899 by removing the U.S.
residency requirement fulfills the obligation of the Congress to
observe equal protection provisions in making and implementing law.
Filing From Abroad
As noted, tax-related stress is not new to U.S. families abroad.
Organizations representing U.S. citizen abroad have been speaking to
Congress for decades about the need for relief from discriminatory tax
filing and financial account reporting rules. Complex, costly and
confusing tax filing for U.S. citizens living and working outside the
U.S. results in onerous taxation of foreign investments considered
Passive Foreign Investment Companies (PFICs), involves duplicate
reporting regimes like the Foreign Account Tax Compliance Act (FATCA)
Form 8938 and the Financial Bank Account Report (FBAR) (FinCEN Form
114), exposes filers to double taxation with the Net Investment Income
Tax (NIIT), involves wading through many regulations that overlap with
U.S. corporate international tax and, due to legislation like S. 1992
and H.R. 3899, is unfair with regard to the application of certain tax
credits for non-residents (CTC and Earned Income Credit),
This is just a sampling of the problems on the individual side of
reporting, not taking into consideration the filing requirements for
small business operations run by U.S. citizens abroad that need to deal
with the Transition Tax and Global Intangible Low-Taxed Income (GILTI)
regimes (and are denied access to programs available for small
businesses through the U.S. tax code such as the Employee Retention Tax
Credit and the CARES Act Paycheck Protection Program).
Residence Based Taxation
ACA has long advocated that the real solution to the problems of
overseas taxpayers is the adoption of Residence-based taxation (RBT)
which would tax U.S. citizens overseas on the basis of where income is
earned, therefore excluding foreign earned income from U.S. taxation
and only taxing U.S. sourced income. ACA was the first organization to
develop a side-by-side analysis that indicates where in the current tax
code changes could be made in a move to a system of taxation based on
residence. ACA has fielded two research projects on the subject with
District Economics Group (DEG), Washington, DC-based economic
consulting firm--one in 2017 and one in 2022--that provide valuable
information on the income, asset and taxation of U.S. citizens living
and working overseas. This data, one of a kind, supports our position
that RBT can be adopted and be revenue neutral and tight against abuse.
ACA's research studies provide invaluable data on the community of U.S.
citizens living and working overseas and most importantly, gives
Congress an accurate number for the size of the community of U.S.
citizens living and working overseas, which ACA estimates at
approximately 4 million (excluding U.S. military).\3\ Unfortunately,
many in Congress continue to source the U.S. State Department figure of
9 million which ACA, through the FOIA, has requested the methodology in
calculating (request made 2 years ago with an expected delivery in
2025). The 9 million estimate severely distorts not only government
estimates for a change in tax policy but the very nature of the
community, putting in question why there are so many citizens living
abroad and so few tax returns, further cementing the optic that U.S.
citizens overseas are tax evaders.
---------------------------------------------------------------------------
\3\ ACA and District Economics Group estimate that the total number
of Americans abroad at present, excluding members of the military and
other government employees and contractors, is approximately 3.9
million individuals.
---------------------------------------------------------------------------
Congressional Hearings on Taxation and U.S. Citizens Abroad
ACA believes that the time has come for the Congress to hold hearings
on the issues affect this very important group of U.S. citizens. ACA
has presented our research and data to all the Tax Writing Committees
on Capitol Hill, but the time has come for our data and knowledge, and
that of other organizations and individuals, be put on official record
with Congress. Recently Congresswoman Titus introduced H.R. 2729 which
would call for the creation of a commission to begin investigating the
concerns of this community.\4\ This Commission would be an excellent
start to the process of holding hearings which would provide invaluable
information and data to help in crafting remedies to some of the
problems highlighted in our letter today.
---------------------------------------------------------------------------
\4\ H.R. 2729--118th Congress (2023-2024): Commission on Americans
Living Abroad Act of 2023, Congress.gov, Library of Congress (The
Commission on Americans Living Abroad Act).
ACA would like to thank the Senate Finance Committee for the
opportunity to submit this statement. For more information, please
visit the ACA website www.
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americansabroad.org.
______
Center for Fiscal Equity
14448 Parkvale Road, #6
Rockville, Maryland 20853
fiscalequitycenter@yahoo.com
Statement of Michael G. Bindner
Chairman Bennet and the Ranking Member Thune, thank you for the
opportunity to submit these comments for the record. These comments
restate and expand upon those made to the full committee last month on
Anti-Poverty and Family Support Provisions in the Tax Code. I comment
today not to praise the Child Tax Credit, but to reform it.
I would make the Child Tax Credit generous enough to abolish Food
Stamps for families with children. The Child Tax Credit should provide
adequate income to feed, clothe and house an additional child, which
can be up to $1,000 per month. The current amount, which is set to
expire in 2025, is $2,000 per year. It will revert to $1,000 per year,
or less, because it is non-refundable. During the pandemic, it was
$3,000 per year, or $3,600 for younger children. The President's Budget
proposes this amount be restored and made permanent. It is not
adequate, but it's a start.
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. Again, 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. Some of the bipartisan
opposition in the Senate came from those who consider direct subsidies
from the IRS to have the ``stink of welfare'' that the Gentleman from
West Virginia so objects to. I advise such Senators in both parties to
raise the minimum wage so that no one is having to work just to receive
this credit and that the best way to distribute the credit is with
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.
Students with families in government funded training programs, from ESL
to the last two years of high school to an associates degree, with
families would also receive the Child Tax Credit. The credit in these
cases, along with training stipends, should receive their credits
through the training institution.
Additionally, for people receiving Unemployment Insurance, there should
be just one check and it should include the Child Tax Credit. The
Credit should also replace dependent payments under Social Security
Survivors and Disability Insurance programs, which will increase their
solvency.
Tax reform can be used to facilitate the reform 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.
One of the central proposals in this plan is the creation of a
Subtraction Value-Added Tax (Net Business Receipts Tax), which would
replace the corporate income tax and filing of business taxes as part
of the personal income tax. The difference between changing quarterly
withholding and enacting a subtraction VAT is six of one and a half
dozen of the other.
The reason for this is that the proposed subtraction VAT is based on
the notion that employers would be responsible for paying and
reconciling the taxes now filed by employees. This would add little
additional burden to employers (especially the self-employed) but end
the burden of filing taxes for all but the highest salaried employees.
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. Again, the government should not
be the national paymaster for every family.
These reforms MUST be scored as pro-life legislation and be funded more
broadly than the President has promised. We are all for raising taxes
on the wealthy, but these funds should be targeted to national defense,
net interest payments and debt reduction (starting with the Social
Security Trust Fund). An asset value-added tax (which is described
below with our employer-paid subtraction VAT) should be the primary way
the wealthy are taxed--along with surtaxes on middle- ($85,000-
$200,000) and upper-income salaries ($200,000+).
Having served on the staff of a major abortion rights organization in
the past, I can assure you that no such organization would ever oppose
higher living standards for women and their families!
The chief obstacle for funding families is not the feminist movement.
It is the so-called right to live movement who would rather women be
penalized for having abortions than subsidized so that they are not
necessary. Over the course of many decades, I have had conversations
with conservative members of the pro-life community. When push comes to
shove, they oppose the measures above because their objections to
abortion are more about sexuality than the welfare of children.
In the pro-choice movement, many jump to the defend women's bodies
argument before first addressing the need for adequate family income.
Doing so now will shame the leadership of the pro-life movement into
supporting these provisions to Build Back Better.
Many in the pro-life movement already do. Catholic Charities USA,
NETWORK and the Catholic Health Association all stand with working and
poor women. They must be very publicly leveraged to get the U.S.
Conference of Catholic Bishops behind them as well--and to have the
bishops insist that these measures be considered must-pass legislation
for the computation of pro-life voting records.
Catholic members of Congress and the President should also lead on this
effort. It is time to stop grandstanding on this issue. The movement
got what it wanted in Dobbs (although to speak frankly, the states
which banned abortion were not friendly to it to begin with).
Eventually, some form of compromise between a national ban and
nationally guaranteed rights must take place in Congress. This was
always inevitable. For the present, however, the primary pro-life issue
must be to assure that, now that abortion is now illegal in some
places, it must be made rare by adequate support of families with
children.
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.
______
Children's HealthWatch
801 Albany Street, 3rd Floor
Boston, MA 02119
Phone: 617.414.6366
Fax: 617.414.7915
www.childrenshealthwatch.org
Chair Bennet, Ranking Member Thune, and Members of the Subcommittee:
Thank you for convening the recent subcommittee hearing, ``Assessing 25
Years of the Child Tax Credit (1997-2022),'' to evaluate the
effectiveness of the Child Tax Credit (CTC) and consider policy changes
based on this evidence. 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 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.
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.
By putting money back into families' pockets, family tax credits are an
effective tool that help families meet basic needs and protect against
material hardship, which in turn protects all family members' health
across the lifespan. Boosting income through these credits maintains
families' freedom to prioritize their own basic needs and to make
choices that are best for their family. A significant body of research
demonstrates that the temporarily expanded 2021 CTC reduced child
poverty, buffered family incomes and helped meet basic needs, reduced
financial stress and hardship--including food insufficiency, and
promoted racial equity.\1\, \2\, \3\,
\4\
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\1\ Burns, K., Fox, L., Wilson, D. Expansions to the Child Tax
Credit contributed to 46% decline in child poverty since 2020. United
States Census Bureau. 2022. Available at: https://www.census.gov/
library/stories/2022/09/record-drop-in-child-poverty.html.
\2\ Curran, M.A. Research roundup of the expanded Child Tax Credit:
The first 6 months. Center on Poverty and Social Policy at Columbia
University. 2021. Available at https://static1.
squarespace.com/static/610831a16c95260dbd68934a/t/
61f946b1cb0bb75fd2ca03ad/1643726515657/Child-Tax-Credit-Research-
Roundup-CPSP-2021.pdf.
\3\ Shafer, P.R., Gutierrez, K.M., Ettinger de Cuba, S., Bovell-
Ammon, A., Raifman, J. Association of the Implementation of Child Tax
Credit Advance Payments With Food Insufficiency in U.S. Households.
JAMA Network Open. 2022;5(1):e2143296.
\4\ 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.
Children's HealthWatch research similarly found that the expanded CTC
helped families with young children catch up on rent, improved food
security, protected parents' health, and supported mothers' mental
health.\5\, \6\ Our qualitative research also revealed,
consistent with other reports, that the boosted and advance payments
allowed families breathing room to afford bills, basic needs, and
essentials for their growing children.\5\ However, once the payments
expired, food insufficiency in families with children returned to pre-
expansion levels.\7\ Furthermore, our research showed notable
disparities in health outcomes based on which families received the
CTC, demonstrating opportunities for future improvement to the credit
structure and implementation.\5\
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\5\ 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.
\6\ 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.
\7\ Bovell-Ammon, A., McCann, N., Mulugeta, M., Ettinger de Cuba,
S., Raifman, J., Shafer, P. Food insufficiency in families with
children increased after expiration of Child Tax Credit monthly
payments. White paper. 2022. Available at: https://
childrenshealthwatch.org/wp-content/uploads/Post-CTC-food-
insufficiency-brief-vf.pdf.
The 2021 CTC temporarily removed extensive barriers to receiving the
credit for millions of families, including working families whose
incomes were too low to qualify for the full benefit under the 2017 tax
law. Prior to the 2021 expansion, low-wage working families were
largely left out of the credit due to the phase-in requirements. For
example, a single parent working full-time at minimum wage would still
not earn enough to receive the full credit.\8\ We are concerned with
comments made by members and witnesses during this Subcommittee hearing
demonstrating a lack of understanding of the robust evidence base about
the CTC expansion's effects and an attitude that lacks insight into the
hard work performed by families caring for children or earning minimum
wage. The expanded credit does not and cannot replace a job, and
research shows that the payments did not lead to employment declines
among those we expect to be working.\9\, \10\ To the
contrary, making the credit fully refundable actually encourages
parents to seek and maintain employment by helping pay for essential
work supports like child care and transportation.\11\
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\8\ 2017 tax law's child credit: A token or less-than-full increase
for 26 million kids in working families. Center on Budget and Policy
Priorities. 2018. Available at: https://www.cbpp.org/sites/default/
files/atoms/files/8-27-18tax.pdf.
\9\ Roll, S., Hamilton, L., Chun, Y. Expanded Child Tax Credit
payments have not reduced employment: Evidence from Census data.
Washington University in St. Louis, Social Policy Institute;
Appalachian State University. 2022. Available at: https://
humanityforward.com/wp-content/uploads/2022/01/CTC-and-Employment-
012620221.pdf.
\10\ Ananat, E., Glasner, B., Hamilton, C., Parolin, Z. Effects of
the expanded Child Tax Credit on employment outcomes. Center on Poverty
and Social Policy, Columbia University. 2021. Available at: https://
static1.squarespace.com/static/610831a16c95260dbd68934a/t/61ef91c98d
4e3a1f8b42e2d6/1643090378593/Child-Tax-Credit-Expansion-on-Employment-
CPSP-2021.pdf.
\11\ Ain, J. Work requirements for the child tax credit are
draconian and counterproductive. The Hill. 2021. Available at https://
thehill.com/opinion/finance/578285-work-requirements-for-the-child-tax-
credit-are-draconian-and/.
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 other evidence-based family tax credits, namely
the Earned Income Tax Credit (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 Individual Tax Identification
Number (ITIN), who were eligible prior to the 2017 tax law, 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 CTC is effective at reaching communities of color, and expansions
have historically had a larger net positive impact for people of
color--particularly Black and Latinx women and families--who are
overrepresented among low income workers and disproportionately
experience higher rates of poverty and associated poor health outcomes
compared to white families and men.\12\ 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).\5\, \13\ Furthermore, when immigrant children and
families are left out of benefits or face threats or harmful
consequences for participating, immigrant family participation across
public assistance programs among those eligible
declines.\14\, \15\ An inclusive CTC that ensures all
children are eligible regardless of immigration status would begin to
address this and would also enhance the health, anti-poverty, and
equity impact of the credit.
---------------------------------------------------------------------------
\12\ 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.
\13\ 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.
\14\ Bovell-Ammon, A., Ettinger de Cuba, S., Coleman, S., Ahmad,
N., Black, M.M., Frank, D.A., Ochoa, E., Cutts, DB. Trends in food
insecurity and SNAP participation among immigrant families of U.S. born
young children. Children. 2019.
\15\ 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 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.
We thank the Subcommittee for convening this important hearing and
holding bipartisan discussions on opportunities to improve and
strengthen the CTC.
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
______
Democrats Abroad
P.O. Box 15130
Washington, DC 20003
(202) 733-6790
July 26, 2023
The Honorable Michael F. Bennet The Honorable John Thune
Chairman Ranking Member
United States Senate United States Senate
Subcommittee on Taxation and IRS
Oversight Subcommittee on Taxation and IRS
Oversight
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
RE: July 13, 2023 Hearing entitled, ``Assessing 25 Years of the Child
Tax Credit (1997-2022)''
Dear Chairman Bennet and Ranking Member Thune:
Thank you for the opportunity to comment on the Child Tax Credit, which
is an important benefit for both stateside and American families living
abroad.
We ask that the Committee ensure a residency requirement is not applied
when the Child Tax Credit is renewed.
We would also like to highlight the obstacles and burdens faced by
Americans abroad, specifically working and middle-class families
benefiting from the Child Tax Credit.
While Americans abroad suffer from the stereotype that they are high-
net-worth individuals, 2020 IRS data showed that 60% of returns filed
from abroad yielded no revenue.
This categorizes a majority of overseas filers as working or middle-
class.
Financial Burden to Qualify for Child Tax Credit
To qualify for the Child Tax Credit from abroad, individuals must be
below a certain income and file Form 1116 (Foreign Tax Credit), which
the IRS estimates requires 6 hours to complete.\1\
---------------------------------------------------------------------------
\1\ https://www.irs.gov/instructions/i1116.
The cost of paying a professional to prepare Form 1116 can exceed the
benefit of the Child Tax Credit itself, which is why many families
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abroad miss out on this important credit.
Many international taxpayers opt for an alternative route by filing
Form 2555 (Foreign Earned Income Exclusion) with an estimated 2.5-hour
burden. Filing this form instead prevents families from obtaining the
Child Tax Credit.
Our 2022 tax and financial-access survey of Americans abroad found
that--because of the disproportionate complexity involved in filing
when living abroad--a majority of respondents who paid for tax
preparation services spent $1,001-$5,000 (for some, a whole month's
salary) to engage a specialist tax return preparer.\2\ Compared to
stateside tax preparation costs, this is at least three times more.
---------------------------------------------------------------------------
\2\ https://www.democratsabroad.org/2022_report.
The current excessive tax-filing burden on Americans abroad fuels the
private tax compliance industry, while yielding little tax revenue for
the U.S. Government. This is why we recommend policies enabling the
government to clamp down on overseas tax evasion without harming the
estimated nine million Americans living abroad.\3\
---------------------------------------------------------------------------
\3\ https://travel.state.gov/content/dam/travel/CA-By-the-Number-
2020.pdf.
---------------------------------------------------------------------------
Sincerely,
Martha McDevitt-Pugh Rebecca Lammers
International Chair Chair, Taxation Task Force
Democrats Abroad Democrats Abroad
chair@democratsabroad.org taxadvocacy@democratsabroad.org
Cc:
The Honorable Ron Wyden The Honorable Mitch McConnell
Chairman Republican Leader
U.S. Senate U.S. Senate
Committee on Finance S-230, United States Capitol
219 Dirksen Senate Office Building Washington, DC 20510
Washington, DC 20510
The Honorable Kevin McCarthy The Honorable Richard E. Neal
Speaker of the House Ranking Member
U.S. House of Representatives U.S. House of Representatives
H-232, United States Capitol Committee on Ways and Means
Washington, DC 20515 1129 Longworth House Office
Building
Washington, DC 20515
The Honorable Charles Schumer The Honorable Daniel I. Werfel
Majority Leader Commissioner of Internal Revenue
U.S. Senate Internal Revenue Service
S-224, United States Capitol 1111 Constitution Avenue, NW
Washington, DC 20510 Washington, DC 20224
The Honorable Jason T. Smith The Honorable Janet Yellen
Chairman Secretary of the Treasury
U.S. House of Representatives U.S. Department of the Treasury
Committee on Ways and Means 1500 Pennsylvania Avenue, NW
1139 Longworth House Office
Building Washington, DC 20220
Washington, DC 20515
The Honorable Dina Titus The Honorable Don Beyer
Americans Abroad Caucus Americans Abroad Caucus
2464 Rayburn House Office Building 1119 Longworth House Office
Building
Washington, DC 20515 Washington, DC 20515
The Honorable Mike Crapo The Honorable Hakeem Jeffries
Ranking Member Democratic Leader
U.S. Senate U.S. House of Representatives
Committee on Finance 2433 Rayburn House Office Building
219 Dirksen Senate Office Building Washington, DC 20515
Washington, DC 20510
______
First Focus on Children
Statement of Bruce Lesley, President
Chairman Bennet and Ranking Member Thune, on behalf of First Focus on
Children, I am writing to provide further context and the perspective
of how a Child Tax Credit incrementally improved over the course of
1997 to 2022 in a manner that ultimately led to a Child Tax Credit that
benefited nearly every child in this country in a fashion that, if the
2021 expansion were extended, would positively impact every aspect of
the lives of children, improve the well-being and future of children,
and benefit our entire country by significantly reducing the costs that
are encumbered by society as a result of policy choices that lead to
crippling child poverty rates in the United States that are among the
highest of all wealthy nations.
That version of the Child Tax Credit, which was adopted from Sen.
Michael Bennet's and Rep. Rosa DeLauro's American Family Act and
included as part of the American Rescue Plan Act (ARPA) that was signed
into law on March 11, 2021, increased the Child Tax Credit to $3,600
for children under the age of 6 and to $3,000 for children over the age
of 6, expanded the credit to 17-year-old who were previously denied the
credit, and made the credit fully refundable to all children on a
monthly basis. Unfortunately, APRA's provision was temporary and so
expired at the close of 2021.
Prior to 2021 and now again under current policy due to the expiration
of the improved Child Tax Credit, one-third of our nation's children
are tragically ``left behind'' by the Child Tax Credit. The reason is
that their parents make too little to qualify for the full credit.\1\
This policy is an unfortunate choice, as it excludes the nation's
poorest children from reaping the full benefit of the Child Tax Credit.
With the exception of 2021, this policy contributes to child poverty
rates in this nation that have been more than 50% higher than adult
poverty.\2\
---------------------------------------------------------------------------
\1\ Collyer, Sophie, David Harris, and Christopher Wimer (2019, May
13), Left Behind: The One-Third of Children in Families Who Earn Too
Little to Get the Full Child Tax Credit, Columbia University's Center
on Poverty and Social Policy, Vol. 3, No. 6.
\2\ Schrider, Emily A., Melissa Kollar, Frances Chen, and Jessica
Semega (2021, September), Income and Poverty in the United States:
2020, U.S. Census Bureau.
The consequence of this policy is that it compounds the negative impact
that child poverty has on nearly every aspect of the lives of children,
including their health, education, hunger, housing, and incidents of
child abuse and neglect and engagement with the criminal justice
system.\3\ Furthermore, child poverty has life-long and
intergenerational consequences. In fact, evidence shows that money
matters and supports like the Child Tax Credit are effective in
improving children's long-term success, which leads to better health
outcomes, higher educational attainment, and increased earnings as
adults.\4\
---------------------------------------------------------------------------
\3\ See, for example, First Focus on Children (2023, June), ``Child
Investment Research Hub.''
\4\ National Commission on Children (1991), Beyond Rhetoric: A New
American Agenda for Children and Families; Greg J. Duncan and Jeannie
Brooks-Gunn (1997), Consequences of Growing Up Poor, Russell Sage
Foundation; National Academy of Sciences, Engineering, and Medicine
(2019), A Roadmap to Reducing Child Poverty, eds. Greg Duncan and
Suzanne Le Menestrel; First Focus on Children (2023, June), ``Child
Investment Research Hub.''
Moreover, the cost to society of child poverty in this nation is
estimated by the National Academy of Sciences, Engineering, and
Medicine (NASEM) to be as much as $1.1 trillion annually.\5\
---------------------------------------------------------------------------
\5\ National Academy of Sciences, Engineering, and Medicine (2019),
A Roadmap to Reducing Child Poverty, eds. Greg Duncan and Suzanne Le
Menestrel.
So, whose children are we devaluing? According to a May 2021 study by
the Center on Poverty and Social Policy at Columbia University, those
``left behind'' by the lack of refundability of the Child Tax Credit
were disproportionately: (1) children under the age of 6 (40% receive
only partial or no credit); (2) Black and Hispanic children; (3)
children in single parent households (``70% of children in families
headed by single parents who are female do not receive the full
credit''); and, (4) children in rural communities.\6\
---------------------------------------------------------------------------
\6\ Collyer, Sophie, David Harris, and Christopher Wimer (2019, May
13), Left Behind: The One-Third of Children in Families Who Earn Too
Little to Get the Full Child Tax Credit, Columbia University's Center
on Poverty and Social Policy, Vol. 3, No. 6.
As a nation, we should not tolerate child poverty and the harm it
inflicts on our nation's kids. For many children, its impact is akin to
a form of violence \7\ created by policy choices, but it does not have
to be this way. Other nations, such as Canada and the UK, have
successfully cut child poverty and we even nearly cut child poverty in
half in 2021, despite a global COVID-19 pandemic and worldwide
recession.\8\
---------------------------------------------------------------------------
\7\ Allen, Josephine A.V. (2001), ``Poverty as a Form of
Violence,'' Journal of Human Behavior in the Social Environment, Vol.
4, No. 203, 45-59.
\8\ Waldfogel, Jane (2010), Britain's War on Poverty, Russell Sage
Foundation; Shadi Houshyar and Jane Waldfogel (2010, December),
Tackling Child Poverty and Improving Child Well-Being: Lessons from
Britain, First Focus on Children; Joshua T. McCabe and Elizabeth Popp
Berman (2016), ``American Exceptionalism Revisited: Tax Relief, Poverty
Reduction, and the Politics of Child Tax Credits,'' Sociological
Science, 540-567; Ron Haskins and Timothy Smeeding (2019, March 8),
``How to cut child poverty in half,'' The Hill; Sophie Collyer, Megan
A. Curran, Irwin Garfinkel, David Harris, Mark Stabile, Jane Waldfogel,
and Christopher Wimer (2020, July 21), ``What a Child Allowance Like
Canada's Would Do for Child Poverty in America,'' Century Foundation.
Furthermore, as a nation, we also dramatically cut poverty for our
nation's elderly when our nation decided to make it a priority. The
---------------------------------------------------------------------------
contrast is acute. As NPR's Greg Rosalsky reports:
Our welfare system has long spent generously on the old, but it
has consistently skimped on the young. While America spends
about as much, or even more on the elderly than many other rich
nations, it spends significantly less on kids. Among the almost
40 countries in the OECD, only Turkey spends less per child as
a percentage of their GDP. It's a big reason why the United
States has a much higher rate of child poverty than most other
affluent countries--and even has a higher rate of child poverty
than some not-so-affluent countries.\9\
---------------------------------------------------------------------------
\9\ Rosalsky, Greg (2022, February 22), ``Why America Has Been So
Stingy in Fighting Child Poverty,'' NPR; see also, Hilary W. Hoynes and
Diane Whitmore Schanzenbach (2018, May), Safety Net Investments in
Children, National Bureau of Economic Research, Working Paper 24594;
Anna Aizer, Hilary W. Hoynes, and Adriana LLeraas-Muney (2022,
February), Children and the US Social Safety Net: Balancing
Disincentives for Adults and Benefits for Children, National Bureau of
Economic Research, Working Paper 29754.
More than 30 years ago, the bipartisan National Commission on Children
was established in 1987 under President Ronald Reagan and tasked with
the goals of improving the lives and well-being of our nation's
children. As a major part of its final report sent to President George
H.W. Bush in 1991, the bipartisan commission recommended the creation
of a fully refundable Child Tax Credit that would go to all families
with children and not be withheld in whole or in part from the poorest
children.\10\
---------------------------------------------------------------------------
\10\ National Commission on Children (1991), Beyond Rhetoric: A New
American Agenda for Children and Families.
As the bipartisan commission explained in its report entitled Beyond
---------------------------------------------------------------------------
Rhetoric: A New American Agenda for Children and Families:
The United States is the only Western industrialized nation
that does not have a child allowance policy or some other
universal, public benefit for families raising children. . . .
Other nations that have adopted child allowances policies
regard such subsidies as an investment in their children's
health and development and in their nation's future strength
and productivity.\11\
---------------------------------------------------------------------------
\11\ Ibid.
As a reminder, this recommendation was made in 1991. Since then,
opponents of making the Child Tax Credit fully refundable have
attempted to make ``deservedness'' arguments, as if children are
somehow undeserving of equitable support due to their family's
hardship, lower economic status, or zip code. Not only do such policies
target certain children for harm, they also penalize parents who choose
---------------------------------------------------------------------------
to do the hard work and ``stay at home and care for their children.''
Again, as the bipartisan commission explained:
Because it would assist all families with children, the
refundable child tax credit would not be a relief payment, nor
would it categorize children according to their ``welfare'' or
``nonwelfare'' status. In addition, because it would not be
lost when parents enter the work force, as welfare benefits
are, the refundable child tax credit could provide a bridge for
families striving to enter the economic mainstream. It would
substantially benefit hard-pressed single and married parents
raising children. It could also help middle-income, employed
parents struggling to afford high-quality child care. Moreover,
because it is neutral toward family structure and mothers'
employment, it would not discourage the formation of two-parent
families or of single-earner families in which one parent
chooses to stay at home and care for the children.\12\
---------------------------------------------------------------------------
\12\ Ibid.
The first draft of legislation to create a Child Tax Credit by
Republican leadership in Congress in 1995 would have, as Niskanen
Center's Josh McCabe explains, made the Child Tax Credit refundable by
``providing families relief from both income and payroll taxes.''\13\
---------------------------------------------------------------------------
\13\ McCabe, Josh (2023, June 2), ``Reclaiming the GOP legacy on
the child tax credit,'' Washington Examiner.
McCabe adds this would have ``granted more relief to working-class
families who tend to pay more in payroll taxes than income taxes,'' but
unfortunately, ``the credit was ultimately made nonrefundable to make
more room for other tax cuts.''\14\
---------------------------------------------------------------------------
\14\ Ibid.
Over the years, after passage of the initial Child Tax Credit by a Newt
Gingrich-led Congress and signed into law by President Bill Clinton in
1997, incremental improvements have been made to the Child Tax Credit
over time. For example, the Child Tax Credit was first made partially
refundable by legislation signed into law by President George H.W. Bush
in 2001. The Child Tax Credit was improved further and made more
equitable (or less discriminatory toward children living in poverty)
during the presidencies of Barack Obama (2009) and Donald Trump
(2017).\15\
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\15\ Crandall-Hollick, Margot L. (2021, December 23), The Child Tax
Credit: Legislative History, Congressional Research Service, R45124.
Moreover, as part of the 2017 tax bill, amendments by Senators. Marco
Rubio and Sherrod Brown to further expand and improve the refundability
of the Child Tax Credit were supported in some form by 68 senators,
more than two-thirds of senators, but were not passed as votes in favor
were unfortunately split between the two amendments.\16\
---------------------------------------------------------------------------
\16\ Gerson, Michael (2017, December 4), ``Republicans had a chance
to reject their inner plutocrat. They blew it,'' Washington Post; see
U.S. Senate Roll Call Votes #295 and #296 in the 115th Congress.
And yet, parallel efforts to cut child poverty were in the works due to
a bipartisan amendment to the FY 2016 Labor-HHS Appropriations bill by
Reps. Lucile Roybal-Allard and Barbara Lee with the support of Chairman
Tom Cole asked NASEM to study ways to cut the crushing and unacceptable
levels of child poverty, which hovered close to 20 percent, by
half.\17\
---------------------------------------------------------------------------
\17\ First Focus Campaign for Children (2015, June 24), ``House
amendment would fund landmark child poverty study.''
In its final report in 2019, the non-partisan NASEM highlighted the
enormous negative consequences of child poverty to both children and
society. NASEM's final report, A Roadmap to Reducing Child Poverty,
recommended improving the Child Tax Credit to increase its value and to
make it fully refundable, as was initially recommended back in
1991.\18\
---------------------------------------------------------------------------
\18\ National Academy of Sciences, Engineering, and Medicine
(2019), A Roadmap to Reducing Child Poverty, eds. Greg Duncan and
Suzanne Le Menestrel; Barbara Lee (2019, February 28), ``Reps. Roybal-
Allard and Lee Celebrate Release of Landmark Child Poverty Study They
Led the Effort to Fund.''
Fortunately, a majority in the House and Senate voted to adopt these
recommendations as part of ARPA. Therefore, the U.S. Census Bureau
estimates that child poverty was cut by 46% in 2021, and the Child Tax
Credit alone lifted nearly 3 million children out of poverty.\19\
---------------------------------------------------------------------------
\19\ Bruns, Kalee, Liana Fox, and Danielle Wilson (2022, September
13), ``Expansions to Child Tax Credit Contributed to 46% Decline in
Child Poverty Since 2020,'' U.S. Census Bureau.
The impact of the improved Child Tax Credit cannot be overstated. The
number of children it lifted out of poverty is equivalent of filling
Ball Arena, home to the NBA champion Denver Nuggets, to capacity nearly
152 times or Dykhouse Stadium, home to the FCS football champion South
---------------------------------------------------------------------------
Dakota State Jackrabbits to capacity 150 times.
Across our great nation, families with children benefitted greatly from
the improved Child Tax Credit.\20\ The American people recognized the
benefits. In a May 2022 poll by Lake Research Partners, American voters
surveyed favored an extension of the Child Tax Credit by a wide 72-21%
margin.\21\
---------------------------------------------------------------------------
\20\ Hamilton, Leah, Stephen Roll, Mathieu Despard, Elaine Maag,
Yung Chun, Laura Brugger, Michal Grinstein-Weiss (2022, April), The
impact 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), Working Paper #173.
\21\ First Focus on Children (2022, June 30), ``Fact Sheet: Voters
Strongly Support Making Investments in Our Children and Grandchildren''
(citing poll by Lake Research Partners).
Furthermore, by an overwhelming 83-13% margin, the American people
expressed concern (60% very concerned) about the negative consequences
to children of having poverty rates 59% higher than adult poverty. By
an 86-12% margin, respondents also were concerned that ``child poverty
costs our society up to $1.1 trillion a year.''\22\
---------------------------------------------------------------------------
\22\ Ibid.
Although the House of Representatives responded to the concerns of
voters by including an extension of the improved Child Tax Credit as
part of the Build Back Better Act (BBBA) on August 12, 2022, the Senate
allowed it to expire. This has been devastating to millions of families
and children across the country, as it resulted in a tax increase to
families of anywhere between $1,000 to $3,600 per child. The
consequence was that more than 3 million children were pushed back into
poverty because, once again, their parents made too little to qualify
for the full Child Tax Credit.\23\
---------------------------------------------------------------------------
\23\ Curran, Megan A. (2022, November 15), Research Roundup of the
Expanded Child Tax Credit: One Year On, Columbia University's Center on
Poverty and Social Policy, Vol. 6, No. 9; Elise Gould (2022, September
22), ``Child Tax Credit expansions were instrumental in reducing
poverty rates to historic lows in 2021,'' Economic Policy Institute;
Chris Stein (2022, December 8), `` `Huge flip of circumstances': end of
US child tax credit pushing kids into poverty,'' The Guardian.
Importantly, there are a range of proposals to expand the Child Tax
Credit from both Democrats and Republicans in this Congress and the
previous one. For example, Senator Sherrod Brown introduced S. 1992,
the Working Families Tax Relief Act of 2023, during Children's Week
this June.\24\ His bill would improve and extend the Child Tax Credit
and has 41 Senate cosponsors. Furthermore, Rep. Rosa DeLauro introduced
H.R. 3899, the American Family Act, which has 209 cosponsors.
---------------------------------------------------------------------------
\24\ Lesley, Bruce (2023, June 13), ``The Child Tax Credit:
Boosting the Lives and Well-Being of Our Children,'' First Focus on
Children via Medium.
We would urge the Senate Finance Committee to take up and pass this
legislation as soon as possible. The bicameral bills would help the
families of more than 60 million children in this nation and would lift
more than 3 million children out of poverty by restoring the Child Tax
Credit to 2021 levels and making it fully refundable.\25\
---------------------------------------------------------------------------
\25\ See, for example, John Carr and Kim Daniels (2022, December
13), ``What can bring together pro-life Republicans and progressive
Democrats? Expanding the child tax credit,'' America: The Jesuit
Review.
Furthermore, as Irwin Garfinkel and his colleagues at Columbia
University find, ``Our estimates indicate that making the $2,000 Child
Tax Credit fully refundable and increasing benefits to $3,000/$3,600
[as the Brown and DeLauro bills do] would cost $97 billion per year and
generate social benefits of $929 billion per year.''\26\
---------------------------------------------------------------------------
\26\ Garfinkel, Irwin, Laurel Sariscsany, Elizabeth Ananat, Sophie
Collyer, Robert P. Hartley, Buyi Wang, and Christopher Wimer (2022),
``The Benefits and Costs of a Child Allowance,'' Journal of Benefit-
Cost Analysis, Vol. 13, No. 3, 335-262.
Other bills to expand the Child Tax Credit have been proposed or
---------------------------------------------------------------------------
introduced by:
Senator Mitt Romney (see the Family Security Act);\27\
---------------------------------------------------------------------------
\27\ Orr, Robert (2022, July 26), ``Comparing Rubio and Romney's
child benefit proposals,'' Niskanen Center; Bruce Lesley (2022, August
17), ``The Child Tax Credit Must Not Treat Children as an
Afterthought,'' First Focus on Children via Medium; see also, Naaz
Modan (2022, July 8), ``Republican proposal reignites child tax credit
expansion plans,'' K-12 Dive.
---------------------------------------------------------------------------
Senator Marco Rubio (S. 74, Providing for Life Act of 2023);\28\
---------------------------------------------------------------------------
\28\ Ibid.
---------------------------------------------------------------------------
Senator Chuck Grassley (S. 4589, the Family and Community
Inflation Relief Act of 2022);\29\
---------------------------------------------------------------------------
\29\ McCabe, Joshua (2022, July 25), ``Indexing the Child Tax
Credit is long overdue,'' Niskanen Center.
---------------------------------------------------------------------------
Senator Josh Hawley (S. 1426, the Parent Tax Credit, which was
introduced in 2021); and
Senator Steve Daines (S. 2092, the Child Tax Credit for Pregnant
Moms Act of 2023).\30\
---------------------------------------------------------------------------
\30\ Lesley, Bruce (2023, June 30), ``Who's Child Matters?'', First
Focus on Children via Medium.
With respect to the bills by Senators. Rubio, Romney, and Daines, they
would all seek to expand the Child Tax Credit in various ways to
---------------------------------------------------------------------------
pregnant women.
Maternal and child health issues have always been a priority of mine.
For example, I worked for Sen. Jeff Bingaman when he introduced the
bipartisan Start Healthy, Stay Healthy Act with Senators. Richard
Lugar, John McCain, Jon Corzine, and Blanche Lincoln.\31\ That
legislation, which added pregnant women coverage as an option to the
Children's Health Insurance Program (CHIP), was enacted into law in
2009.
---------------------------------------------------------------------------
\31\ Bingaman, Jeff and Jon S. Corzine (2002, February 7), ``Health
of the Mother,'' New York Times; Kaiser Family Foundation (2001, June
11), ``Bipartisan Bill Introduced in Senate Would Extend CHIP, Medicaid
Coverage, Particularly for Pregnant Women, Infants.''
Furthermore, in my current capacity at First Focus Campaign for
Children, we have long been supportive of Medicaid, CHIP, WIC, the
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Maternal Child Health Block Grant, Healthy Start, etc.
With respect to Sen. Daines's Child Tax Credit bill, he argues,
``Whether it's prenatal care or stocking up on baby supplies, parents
know better than anyone that providing for their child begins the
minute they learn they're expecting a baby.''\32\
---------------------------------------------------------------------------
\32\ Daines, Steve (2023, June 21), ``Daines, Miller-Meeks Lead
Colleagues in Effort to Provide Tax Relief for Pregnant Moms.''
A few Republican senators have expressed support for that legislation.
In a press release in favor of the bill, Sen. James Lankford said,
``Federal benefits available to moms should be available to all moms.
I'm glad to join Senator Daines and our colleagues to ensure the
federal government treats all moms the same, no matter how small or
young her baby is.''\33\
---------------------------------------------------------------------------
\33\ Daines, Steve (2023, January 2022), ``Daines, Senate
Colleagues Fight for Pregnant Moms to Receive Tax Relief.''
However, despite well-intentioned rhetoric, the legislation by Sen.
Daines does not support ``all moms the same, no matter how small or
young her baby is'' precisely because the underlying Child Tax Credit
---------------------------------------------------------------------------
discriminates against low-income children and families.
Under Senator Daines's bill, a pregnant woman with income of $400,000 a
year would receive the full credit, but millions of low-income pregnant
women and their babies would not. The inequities under the Daines,
Rubio, and Romney proposals would be profound, as pregnant women often
experiences financial hardship due to both the costs of having a baby
and the complications that can arise, such as losing income because of
physician-advised best rest, or leaving employment or going unpaid
during pregnancy, labor or deliver of a child.
Young women are particularly vulnerable and are more likely in a moment
of their life-course in which they have fewer resources (e.g., in
school, changing jobs, have lower income jobs, etc.), and thus, have
greater hardship than wealthier families. Both the women and their
babies would be left behind under these bills. In fact, although
several of these bills attempting to add pregnant women to the Child
Tax Credit try to address some of these problems by using a prior tax
year for eligibility, they may compound problems for some families,
particularly younger families who are in school, change jobs, or
experience income interruptions.
As Robert Orr explains, some of these bills would ``do little for a 19-
year-old woman with an unplanned pregnancy and limited work
experience.'' As he adds, ``Removing the child benefit's income phase-
in entirely for infants and young children would be immensely helpful
for families navigating the income disruptions and associated stresses
common to the period surrounding the birth of a child.''\34\
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\34\ Orr, Robert (2022, July 26), ``Comparing Rubio and Romney's
child benefit proposals,'' Niskanen Center. See also, Josef Zweimuller,
Andreas Steinhauer, Camille Ladais, Johanna Posch, and Henrik Kleven
(2019, May 14), ``Child penalties across countries: Evidence and
explanations,'' Centre for Economic Policy Research/VoxEU.
Denying these mothers and their babies the Child Tax Credit compounds
their financial burdens and clearly does not treat ``all moms the
same'' nor their babies. In fact, it disfavors and penalizes those moms
and babies. I would hope we could all agree that Congress should always
refrain from adopting policies that disproportionately harm babies,
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particularly those most in need.
Furthermore, to provide the full Child Tax Credit to a pregnant woman
whose income is $400,000 a year while denying one-third of our nation's
children the same benefit is simply wrong. Therefore, if you truly want
to help families overcome financial hurdles and the health care costs
of having a child, the only fair solution is to make the Child Tax
Credit fully refundable, as was recommended in 1991 by the bipartisan
National Commission on Children.
Today, our nation's children stand at a crossroads.\35\
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\35\ Lesley, Bruce (2022), ``Making Children a National Priority:
Overcoming the Marginalization and Invisibility of Children,'' in Our
Children Can't Wait: The Urgency of Reinventing Education Policy in
America, ed. Joseph P. Bishop, Teachers College Press.
In recent years, every aspect of their lives was negatively impacted by
the twin disasters of the COVID-19 pandemic and the worldwide economic
recession. We are witnessing a tragic and troubling increase in child
mortality in this country that is associated with rising gun violence
and suicide rates.\36\ Families are struggling with rising inflationary
food, energy, and housing costs.\37\ Unplanned births are on the rise,
and they will be, as Melissa Jeltsen writes, ``concentrated in some of
the worst states for infant and maternal health.''\38\
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\36\ Woolf, Steven H., Elizabeth R. Wolf, and Frederick P. Rivara
(2023, March 13), ``The New Crisis of Increasing All-Cause Mortality in
US Children and Adolescents,'' Journal of the American Medical
Association, Vol. 329, No. 12, 975-976; Adrianna Rodriguez (2023, March
17), ``After years of medical progress, American children are now less
likely to reach adulthood,'' USA TODAY.
\37\ Sawhill, Isabel V., Morgan Welch, and Chris Miller (2022,
August 30), ``It's getting more expensive to raise children. And
government isn't doing too much to help,'' Brookings.
\38\ Jeltsen, Melissa (2022, December 16), ``We Are Not Prepared
for the Coming Surge of Babies,'' The Atlantic.
Congress should be doing many things to address the myriad of problems
facing our nation's children.\39\ With respect to the Child Tax Credit,
it is well past time to put aside ideological differences, notions of
``deservedness'' related to adults that impose harm to millions of
children, and the decades of failure to fully address the needs and
concerns of children and families in this country.\40\
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\39\ First Focus Campaign for Children (2023), A Children's Agenda
for the 118th Congress.
\40\ Hoynes, Hilary W. and Diane Whitmore Schanzenbach (2018, May),
Safety Net Investments in Children, National Bureau of Economic
Research, Working Paper 24594; Committee for a Responsible Federal
Budget (2018, August 16), Budgeting for the Next Generation: Does the
Budget Prioritize Children?; First Focus on Children (2020), Children's
Budget 2020; Heather Hahn, Cary Lou, Julia B. Isaacs, Eleanor
Lauderback, Hannah Daly, and C. Eugene Steuerle, Kids' Share 2020,
Urban Institute; Anna Aizer, Hilary W. Hoynes, and Adriana LLeraas-
Muney (2022, February), Children and the US Social Safety Net:
Balancing Disincentives for Adults and Benefits for Children, National
Bureau of Economic Research, Working Paper 29754.
Child poverty is a policy choice. We know how to significantly reduce
it. Furthermore, the American people--across partisan, racial, gender,
regional, and generational lines--all agree by overwhelming margins
that Congress should extend and improve the Child Tax Credit. This is
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in the best interest of children and our nation's future.
As to the question, ``Who's child matters?'' The short answer is that
they all do, and another generation of children can no longer wait for
us to understand that fundamental point.
______
National Parents Union
email: ariel@npunion.org
Phone: 720-903-0344
www.nationalparentsunion.org
National Parents Union represents more than 1,000 affiliated parent
organizations in all 50 states, Washington, DC and Puerto Rico, the
National Parents Union is the united, independent voice of modern
American families. We channel the power of parents into powerful
policies that improve the lives of children, families and communities
across the United States.
Over the past 6 months, National Parents Union has confirmed the
popularity of the Child Tax Credit expansion and the necessity for the
continuation of the program. The Child Tax Credit resulted in the
largest reduction of childhood poverty in our country's history and we
know that it would alleviate the persistent economic stress that hard
working American families are under. Bringing back the Child Tax Credit
expansion would help American Families and set our children up for a
future in which they can thrive.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
81% of Parents strongly support or somewhat support bringing back
the Child Tax Credit in our latest May polling- including 81% of
Democrats and 71% of Republicans.
86% of Parents say that receiving the child tax credit would help their
financial situation significantly.
The fact of the matter is, American families are reaching their
breaking point--the cost of everyday goods and housing are still
through the roof paired with the expiration of poverty reduction
programs like SNAP and the Child Tax Credit--are creating a situation
where parents are struggling to make ends meet every month.
We urge members of Congress to support the Bipartisan effort to solve
childhood poverty in our country and insure that every family across
this country has some breathing room so that they can raise the next
generation of leaders, doctors, teachers and engineers for our
communities.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The data presented are from our national parent survey conducted by
Echelon Insights on behalf of NPU. The survey was fielded online from
May 1-3, 2023 in English among a sample of 1,036 parents of public
school students in grades kindergarten through 12th grade.
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