It’s Not About The Child Tax Credit. It’s About Cash Supports.

The latest report from the Census Bureau shows that the child poverty rate, measured using the Supplemental Poverty Measure (SPM), spiked from 5.2% in 2021 to 12.4% in 2022. The Official Poverty rate for children (under the age of 18) saw no significant change across the two years and held steady at 15%. A key reason that SPM rates have been lower for children between 2009 and 2022 than the official rates is the role played by government programs, such as the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC) and food stamps through SNAP. In particular, the gap between the SPM and the OPM widened considerably during the pandemic as households received economic stimulus payments and benefited from the expanded CTC. The CTC kept nearly 5.3 million people out of poverty in 2021, but only 2.4 million out of poverty in 2022, due to expiration of the pandemic expansions. This has lead to continued demands for an extension of the pandemic CTC program. However, it is worth noting that the pandemic CTC program was fundamentally different than the traditional CTC program because it more closely resembled direct cash assistance (albeit to families with children only). It’s not surprising that direct cash assistance resulted in lower levels of poverty. What lessons can we learn from this experiment to respond to the challenge of child poverty?

The pandemic CTC had several features that made it more accessible to lower income households. One, it removed the earned income requirement and allowed for full refundability of the credit to all families. This meant that families who were traditionally ineligible for the credit because they did not meet the minimum taxable income requirement could now qualify. Low income families now had the same benefits as high income families. Two, the maximum size of the credit was expanded from $2000 per child (under the Tax Cuts and Jobs Act) to $3000 per child aged 6-18 or $3600 per child aged 0-6 years. Third, and perhaps the most critical aspect, is that accessibility was improved dramatically. Instead of people filing their tax returns and receiving the money at the end of the fiscal year, the IRS automatically mailed monthly checks to many families based on prior tax information. Applying for the CTC was made easy through online applications that were simple and easy to fill out. The monthly payments not only provided cash support but also reduced income volatility for families in poverty.

The features of the expanded CTC that worked to reduced poverty in 2021, were also part of other pandemic programs during 2020 and 2021. Congress changed how government deals with citizens in fundamental ways during the pandemic. It became much easier to access cash supports, the level of support fundamentally increased, and in many cases, the onus was on the government to figure out ways to send cash to families in need. For example, cash support from unemployment insurance (UI) was expanded greatly and gave people an extra $600 per week on top of regular UI. The replacement rate for retail and leisure and hospitality workers touched 134%. People who had traditionally been left out of this safety net program, like gig economy workers, suddenly became eligible. Economic Impact payments or cash checks were sent to families directly and a family of four could expect to receive over $3000 in financial relief. There were three rounds of these payments. The Paycheck Protection Program supported businesses through cash transfers (loans that have been largely forgiven) that enabled them to hold onto their employees while making rent and other expenses. It’s a separate question whether Congress did too much, did it well, and how we can improve targeting of help going forward to address costs. But what is undeniable is that cash help became readily available and government did what it could to find people who needed it.

The ease with which cash became available to families was a game changer. The reason it mattered, and matters today, is that the traditional safety net is often hard to access for families, especially on a continuous, sustained basis. In my research, I have looked at the role of SNAP, TANF, Medicaid, WIC, Unemployment Insurance and SSI in helping families in need. As I wrote earlier, using the Survey of Income and Program Participation household survey for 2019, I find that only 31 percent of households at or below 130% of the federal poverty receive multiple social safety net benefits through the combination of programs mentioned above. But 46 percent of households in this group respond that receive none of these benefits. The other 23 percent of households in this group receive a single benefit (often Medicaid or SNAP). While household surveys have been shown to report under-utilization of benefits, there are also clear administrative challenges that people face in applying for and receiving benefits. A recent academic paper shows that missed interviews with caseworkers were a reason that nearly one-third of SNAP applicants were denied benefits in Los Angeles county. Simply allowing more flexibility in scheduling resulted in a 13% increase in program participation. Access to TANF is hard as evidenced by the stories of these three women in the Real Voices of Welfare. Tax credit programs are easier to access in some ways than these programs since they require filing tax paperwork once a year. However, non-tax credit programs involve multiple applications, different visits to caseworkers and the difficulty of navigating whether access to one program makes you ineligible for others.

As we think about ways to reduce child poverty, and poverty more broadly, we need to keep some lessons from the pandemic in mind. One, easing access to the safety net, and to direct cash supports is key, even in non-pandemic times. If programs exist to support families, we should figure out ways that we can make them easily accessible. Two, we need to balance making support easy without leading to dependence on government assistance i.e. reducing work incentives. As I have written earlier, a system of timed, temporary but direct cash support that provides immediate assistance to families in need should be part of a safety net redesign. This initial support should come with few strings attached, and should be broadly available and easy to access. After that initial period, access to the traditional safety net that comes with work incentives should continue to be part of the system. But even there a one-stop shop where people can file paperwork at one time to access multiple programs, gauge eligibility and receive benefits, is critical.

Child poverty is a problem. Not only is it an immediate issue for families, but it has longer-term consequences for families as well. It’s important to get the solution right. While the focus has recently turned to the CTC, I believe what really worked for families during the pandemic is a bit more complicated and will require a more fundamental change in how our safety net operates.

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