A bipartisan group of lawmakers forged a deal last week to make permanent the Covid-era expanded child tax credit. While seemingly beneficial, the plan shows that both parties are short-sighted when it comes to welfare policy. There may be some positive effects from the expansion in the short run, but permanently expanding the child tax credit will have few positive long-lasting effects on child poverty.
The child tax credit currently provides up to $2,000 per child to help offset the costs of raising a family. The American Rescue Plan Act of 2021 expanded the tax credit by increasing the value of the minimum credit and eliminated the earnings requirement, making the credit available to families who had lost jobs during the pandemic. Supporters of making the Covid-era expansion permanent argue that it will benefit 16 million children, lifting a potential 400,000 children above the poverty line.
Reducing child poverty, especially at the levels described, is a worthy goal and something policymakers should prioritize. The problem is that these decreases in child poverty will only be temporary, a reality we couldn’t see with the American Rescue Plan, because it was passed in response to a major economic shock. Making the expansion permanent would reduce the incentive for parents to work and marry, all without any positive effect on intergenerational economic mobility.
A 2021 study by University of Chicago economists found that the expanded credit could push nearly 1.5 million workers — almost 2.6 percent of all working parents — out of the labor force, primarily affecting single-parent households. This decline in employment and the associated earnings loss would mean that child poverty would not fall as substantially as the rosiest estimates suggests. Worst of all, no children would escape from the deepest levels of poverty following the expansion.
Over time, the permanent expanded child tax credit will reduce low-income families’ attachment to the labor force. And this makes sense — there are many competing priorities that families must juggle every day, and eliminating work takes something off a parent’s plate.
The problem is that attachment to the labor force is key to escaping the cycle of poverty. One study by the Center for Poverty and Inequality Research at UC Davis found that increasing employment from 20 to 30 weeks out of the year raises the chance that someone will rise above the poverty line by 16 percent and lowers the chances of reentering poverty by a third.
Long-term effects matter. Like we saw with the expansion in the American Rescue Plan, the child tax credit may cause an initial drop in child poverty, but in the long run the poor children are no better off than their parents. We already see this with our current welfare system — the decline in child poverty over the past several decades has not been accompanied by any increase in intergenerational income mobility.
Programs like the child tax credit also create a “marriage penalty.” Married couples get fewer tax benefits than single parents. These penalties vary, ranging up to $4,000 for a couple. For low-income families, saving even a small amount may be worth offsetting marriage in favor of single parenthood or cohabitation. But such decisions produce poor outcomes for children. Living in a household with two married parents is associated with superior educational outcomes, better child behavior, and a lower likelihood of criminal activity. As economist Melissa Kearney pointed out in her recent book “The Two-Parent Privilege,” the decline in marriage and the corresponding rise in children living with only their mothers has resulted in large economic disadvantages and inequalities that only make poverty cycles worse.
Policymakers are right to tackle the very real and pressing issue of child poverty, but it is important to look at both the short and long term when doing so. Expanding the child tax credit will only push children further into the poverty cycle.
Susannah Barnes is a Young Voices contributor and a fiscal policy manager in the D.C. metro area. She has a masters in economics from George Mason University.