Public debate on the root causes of child poverty has often focused on individual—usually parental—behavior. This means that safety net policies have often concentrated on encouraging or discouraging certain behaviors among parents and caregivers, usually through program eligibility requirements like minimum work hours or citizenship, rather than focusing on societal obstacles to alleviating poverty.
The American Rescue Plan represents a dramatic departure from this individual-focused understanding of child poverty because of a subtle, but critical, detail in how it delivers a key tax credit to families: The legislation expanded the Child Tax Credit (CTC), a program that uses children themselves as the basis of eligibility for key benefits, instead of determining whether children are eligible to receive benefits based on requirements (e.g., work, citizenship, etc.) that only their parents can meet.
For example, the expanded CTC no longer has a minimum earnings requirement, which means that 23 million children who were previously excluded from the CTC because their families earned too little to qualify are now eligible to receive the credit. In addition, the CTC is now fully refundable, which means that families who have little or no tax liability can receive the credit (or the difference between the credit and any taxes owed) as cash back from the government. In other words, the new CTC is essentially akin to a direct cash transfer and operates like a guaranteed income for eligible children, and is now paid in monthly installments (rather than one lump sum at tax time) to help cover children’s needs throughout the year.
Because the CTC uses children as the basis for eligibility, and because it uses a child’s (not their parent’s) citizenship status to determine benefit eligibility, the program also has the potential to reach more children than even the Earned Income Tax Credit (EITC). The EITC, unlike the new CTC, does have a minimum earnings requirement and requires all members of the family receiving the credit to have a Social Security Number. In addition to now reaching the 23 million children whose families’ incomes were previously too low to qualify, the CTC also has the potential to reach approximately 4 million U.S.-citizen children of Individual Taxpayer Identification Number holders who are not currently eligible for the EITC.
The CTC, however, is far from perfect in its ability to reach all children. While the CTC does not require parents to have a Social Security Number, it does leave out nearly 1 million children who themselves lack a Social Security Number. Tax system-based benefits also remain difficult to access for families whose incomes are below the threshold required for filing taxes, who have limited English proficiency, or that include members not born in the United States. While the IRS recently launched a tool to reach families who are not required to file a tax return, many of these families have limited access to information about the benefits for which they are eligible, lack internet access to download or complete the necessary forms, are unfamiliar with and daunted by the complexity of the rules that govern the tax filing process, or have concerns about privacy and use of information. Without addressing these barriers, the American Rescue Plan will likely fall short of its goal of reducing child poverty by half—especially for Latino and immigrant communities.
While there continues to be discussion about whether the CTC should be universal or aimed more specifically at low-income children, the American Rescue Plan’s changes to the CTC are important because they acknowledge the benefits to society of investing directly in our children by reducing child poverty—and, in turn, by mitigating poverty’s detrimental impact on child development. We should continue to build support systems in which children themselves are the basis for eligibility and are seen as the direct beneficiaries. For these policies to have the full societal effect, however, we must ensure that the policies themselves, and the systems for disbursing their benefits, are able to reach all children—including children in immigrant families, children in families without access to bank accounts or financial services, and children whose families move often or are experiencing homelessness.
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