October 21, 2021

The first monthly payments of the expanded Child Tax Credit (CTC), enacted as part of the American Rescue Plan, lifted 3 million children out of poverty. Rather than receiving the child tax credit in a lump sum as part of their tax refund, families received the credit through monthly deposits into their accounts or by check. Unlike the Supplemental Nutrition Assistance Program or Temporary Assistance for Needy Families, there are no complicated bureaucracies or unnecessary and demeaning enrollment requirements. These no-strings-attached payments ensure that families with children have money when they need it and trusts them to use the funds to best support themselves. The child tax credits are also fully refundable, meaning families will still receive the credit even if they don’t earn enough money to owe taxes. This is critical to helping keep all families out of poverty. Unfortunately, unless Congress takes action soon, families will lose this important tool, potentially plunging millions of children back into poverty. As of now, the expanded CTC will expire at the end of 2021.  

For the CTC to continue to be effective, it must be designed to meet the needs of those who are struggling the most. Utilizing our own research and reviews of the academic literature, ideas42 identified key principles for designing programs for families experiencing economic hardship. Families that are struggling to make ends meet need programs that cut the costs to participate, create slack, and empower program participants. The House Ways and Means Committee recently approved a portion of the Build Back Better Act that would expand the CTC through 2025. This proposed expansion follows the principles necessary to ensure that families experiencing poverty will benefit from the CTC. The provisions work in tandem and Congress must not weaken them. 

Easy Enrollment Cuts the Cost to Participate

Families in poverty do not just experience financial insecurity; they also face additional burdens on their finances, time, and cognition that those with more resources do not.  People living in poverty might have to spend extra money to cash a check without a bank account, spend extra time to buy food without a car, or use unreliable public transportation to get to work. Because of these additional burdens, even seemingly small hurdles can be insurmountable. Cutting the costs to participate in programs, as the CTC does, is particularly important for people who have the fewest resources. 

The Build Back Better Act would ensure that those who need it the most receive the benefit by cutting costs and making enrollment easier. This includes: 

• Continuing to use and expand upon automatic enrollment. Under the proposal, the IRS will be permitted to use not only information from tax filers, but also information from other government programs to automatically enroll children. In 2021, 729,000 children from families with the lowest incomes were automatically enrolled. However, the families of 4 million or more children—those whose families were not connected to the tax system—were not automatically enrolled*. Reaching all children is critical, and giving the IRS the tools to expand the automatic enrollment will help do that.
• Ensuring that there is an easy-to-use online portal. Through this site, families can sign up for the monthly CTC or make updates when their family circumstances change, such as the birth or adoption of a child or a change in marital status.
• Establishing presumptive eligibility by creating a period of time where caregivers who properly claim the credit when a child enters their care and is expected to remain in their care for at least a few months will be eligible to receive the credit and not be required to pay back any funds if it is later determined that they were not eligible for the credit.
• Creating a grace period for new caregivers to receive retroactive benefits if they did not enroll as soon as they became eligible.
  
• Increasing funding for outreach so that all families know about the CTC and have the support they need to sign up for it if they are not already enrolled. 

The CTC Creates Slack When Families Need It

By definition, people in poverty lack slack, or excess of a resource like money or time. Anyone might face an unexpected medical bill, but people in poverty lack slack to pay this bill and others on time. Creating slack for those living in poverty improves their ability to absorb shocks and support their families how they best see fit. 

To create slack, the Build Back Better Act:

• Maintains the credit increases until 2025. Increased cash creates slack to prevent families from falling further behind. This will lift an estimated 166,000 children out of poverty. The CTC reduced severe food insecurity among eligible families by approximately 30%. Experience from other programs that get money in the hands of the families improves infant and maternal health, child educational outcomes, and future earnings. Importantly, families are trusted to spend the credit how they see fit, which is good for them and the economy: this is estimated to boost consumer spending by $27 billion, generate $1.9 billion in revenues, and support over 500,000 jobs.
• Continues monthly payments. The monthly payments create predictability that allows families to plan ahead and ensures funds are available when recurring bills, like housing, food, and childcare, are due. The less money a family makes, the more valuable both the money and its predictability are to a family. Large lump sum payments are less helpful; for example, a benefit in December isn’t helpful if an unexpected bill is due by October. Monthly payments help families absorb shocks through the year to avoid and reduce debt. Fully, 43% of families report using their credit to pay off debt.
• Protects families, who through no fault of their own, receive more money than they were eligible, from having to repay the money. 

The CTC Empowers Families and Respects That They are Experts in their Own Lives

The House Ways and Means proposal better empowers low-income families by reframing harmful poverty narratives and promoting equity, particularly for families with the lowest incomes, families of color, and immigrant families. Too many anti-poverty programs embed paternalistic work requirements, drug testing, or invasive questioning. The CTC does not—and should not—include these practices, which perpetuate harmful poverty narratives. 

Instead, the proposal includes provisions that undermine harmful narratives and empower marginalized groups. These provisions:

• Keep the credit permanently refundable. A refundable credit means that families who do not file taxes, or enough taxes, can still receive the benefit, lifting an estimated 2.2 million children out of poverty. This also undermines narratives that families must reach an income threshold to “earn” the benefit. To the contrary, families with the lowest incomes were most likely to use the credit to buy necessities like food or rent.
• Increase access for families of color. Socioeconomic inequity is inextricably connected to racial inequity. To undermine harmful poverty narratives, we must close racial gaps. The expanded CTC cuts poverty rates in half for Black children. It also reduces food insecurity rates by 3.8% among Black households with kids and 5.6% for Latinx households. The current proposal continues to close racial gaps and promote equity.
• Remove requirements that excluded immigrant families. The proposal expands acceptable documentation so that previously excluded immigrant families, an estimated 1 million children, can access the benefit. This targets harmful narratives and affirms that all families, regardless of immigration status, deserve access to the benefit.

Conclusion

The temporary 2021 CTC expansion is an effective anti-poverty policy with immense social and economic benefits. The Build Back Better Act leverages behavioral science to help families even more: it cuts costs to participate and increases access, creates slack to improve the CTC’s effectiveness, and reframes harmful narratives and empowers families to promote equity. All of these pieces are necessary for the CTC to address poverty. Congress must pass this legislation and not permit any changes that would weaken it.

*Cox, C., Caines, R., Sherman, A., & Rosenbaum D.  (August 2021) State and Local Child Tax Credit Outreach Needed to Help Lift Hardest-to-Reach Children Out of Poverty. Center on Budget and Policy Priorities.