By Dana Thomson and Susan Balding, Child Trends, June 22, 2021
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.
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