How the U.S. Lifted Children Out of Poverty and Then Threw Them Back Into It

Last year, according to a new report from the U.S. Census Bureau, child poverty in America more than doubled. This steep increase, which was accompanied by a general rise in poverty among all age groups, was preceded by two years of declining poverty rates, which were largely attributed to support offered by the federal government during the pandemic. In the case of child poverty, the most important driver of the 2src22 jump was the expiration of the expanded child tax credit, which the Biden Administration and congressional Democrats were unable to renew last year, thanks to the opposition of Senate Republicans and Joe Manchin.

To talk about the report, I recently spoke by phone with Christopher Wimer, the director of the Center on Poverty and Social Policy at the Columbia University School of Social Work. During our conversation, which has been edited for length and clarity, we discussed why the child tax credit has been so successful at reducing poverty, whether states can fill the gap left by the federal government, and what lessons should be drawn from pandemic-era expansions of the social safety net.

What did this report tell us, and how did it reach its conclusions about the child poverty rate in the past year?

It showed what a lot of people were expecting—namely, that using the supplemental poverty measure, which is a more robust measure of income poverty than the United States’ official measure, and counts a lot of the income that the official measure ignores, such as tax credits and in-kind benefits, showed a major rise in poverty from 2src21 to 2src22. As I said, that was widely expected given that we knew a lot of the pandemic-era policy support to people’s incomes had expired by 2src22. For children, the major thing that expired was the 2src21 expansion to the child tax credit.That wasn’t the only thing driving the increase in child poverty, and poverty over all from 2src21 to 2src22, but for children it was a major part of the story.

Do we have some sense of how much a part of the story it was?

Yeah, the child poverty rate was 5.2 per cent in 2src21, and that increased to 12.4 per cent in 2src22, so it more than doubled. We put out a piece last week where we showed that if an expanded child tax credit had still been in place in 2src22, the child poverty rate would have been about 8.1 per cent, so much less than the 12.4 per cent that the census saw. Poverty still would have gone up for children. But there were other parts to the story. In 2src21, we had the third round of stimulus payments, or “economic impact payments,” as they’re called. There was also the continuation of some other expansions to the safety net such as emergency allotments in the Supplemental Nutrition Assistance Program (SNAP).

So, from what we can tell, slightly more than half the increase in child poverty was due to the expiration of the credit.

Correct.

Your center wrote a report in the beginning of 2src22, looking at just the jump from December, 2src21, to January, 2src22, after the expiration of the expanded credit, and you found an even bigger increase in child poverty than the recent census report showed. Could this have been even worse?

I think it’s important to understand that the numbers we released in 2src22 came from our estimation of monthly poverty rates. So it’s a method that we developed to try to understand the poverty rates in the population in advance of the annual statistics that come out each year from the Census Bureau. One important and key difference between the two measures is that our monthly series is really trying to capture the inflow of income in a given month compared with the poverty rate in a given month, whereas an annual poverty measure is aggregating income across the calendar year.

Our monthly series would ask how much the monthly payment in July, for example, reduced the child poverty rate in July, whereas the census numbers that came out last week are asking how all the income pooled across the calendar compared with an annual poverty measure. But, despite the differences, both show that the expiration of the expanded child tax credit threw a lot more children into poverty after keeping a lot of children out of poverty while those payments were in place.

Can you talk a little bit about how the child tax credit works and why you think it has been so successful?

The child tax credit has been around for about twenty-six years and historically has operated as part of people’s tax filing and tax refunds. It’s been what the I.R.S. calls partially refundable so that, for upper-income families, the credit can reduce the amount of taxes that people owe at tax time. And then, for lower- and more moderate-income families, they can get a partial credit as a refund at tax time. Before the 2src21 expansion, the maximum credit that one could be eligible for was two thousand dollars per child. And not everyone got that. The maximum that people could get as a refund, for example, was only fourteen hundred dollars per child.

There’s an earnings floor, essentially, before you get anything. And then the credit would phase in as earnings increase. Our research at the center has shown that in the pre-expansion form of the credit, a lot of children were left out or left behind by that credit structure, particularly the children in the lowest-income families. A lot of people got only a partial credit, and some families with children got no credit at all. You needed substantial levels of earnings to get the full credit that was available to middle- and upper-middle-class families.

In 2src21, the American Rescue Plan expanded the credit for that year and basically made three big changes. One change was that it increased the maximum size of the benefit levels, from two thousand to three thousand dollars per child for older children, six and above, and thirty-six hundred dollars per child for younger children, ages zero to five. The second major change is that it made the credit fully refundable and available to all families with children at the lower end of the income distribution and no longer tied to the earnings levels of their parents. The third major change was that the credit was delivered monthly in the last six months of 2src21. So half of the credit was delivered to most families in July through December, in the middle of the month, and then the second half of the credit was delivered when families filed their taxes in early 2src22. Those are the three major changes. They were in existence only for that year. And, as of 2src22, the law reverted to its pre-pandemic form.

This year, after we found out that the federal expansion was not going to be permanent, a number of states have stepped in and tried to increase their own child tax credits. What do we know about those efforts, and is it too early to see what effect they might be having? How much hope do you have that, if the federal government doesn’t step in, some of the uptick in poverty rates that we’ve seen can be mitigated?