New Data Show That the Child Tax Credit Fueled a Substantial Reduction in Child Poverty

Posted September 19, 2022, By the Annie E. Casey Foundation

A young Black mother helps load her two small children—one of whom carries a soccer ball—into their car.

New­ly released data from the U.S. Cen­sus Bureau reveal a major pub­lic pol­i­cy suc­cess. The nation’s child pover­ty rate dropped by half in 2021, from an esti­mat­ed 10% in 2020 to a his­toric low of 5%. This was pri­mar­i­ly thanks to the expand­ed child tax cred­it, accord­ing to the Sup­ple­men­tal Pover­ty Mea­sure (SPM).

While the Cen­sus Bureau updates the SPM and the offi­cial pover­ty mea­sure each year, the Annie E. Casey Foun­da­tion is an advo­cate for using the SPM as it accounts for a broad­er range of fam­i­ly resources such as:

  • non­cash ben­e­fits (e.g., food and hous­ing assistance);
  • stim­u­lus pay­ments; and
  • tax cred­its.

It also fac­tors in nec­es­sary house­hold expens­es and region­al vari­a­tion in cost of liv­ing. (See child pover­ty rates using the SPM for your state.)

The offi­cial pover­ty mea­sure, on the oth­er hand, is based on pre­tax cash income. In 2021, the offi­cial pover­ty thresh­old was $27,479 for a fam­i­ly of two adults and two chil­dren. Fam­i­lies can earn well over this amount and still strug­gle to meet their basic needs, espe­cial­ly in high-cost areas. Addi­tion­al­ly, since the offi­cial pover­ty mea­sure does not account for fam­i­ly resources such as in-kind ben­e­fits and tax cred­its, it did not show the same reduc­tions in child pover­ty. It has remained at 17% of kids below the offi­cial pover­ty line — unchanged since 2019.

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The SPM pro­vides an oppor­tu­ni­ty to assess the effec­tive­ness of gov­ern­ment anti-pover­ty inter­ven­tions by account­ing for safe­ty net ben­e­fits, includ­ing the expand­ed child tax cred­it as part of the Amer­i­can Res­cue Plan Act of 2021. The results are pow­er­ful. Accord­ing to Cen­sus Bureau data, the child tax cred­it (CTC) lift­ed 2.9 mil­lion kids out of pover­ty in 2021, one-third of whom were under age 6. Some ana­lysts note that all eli­gi­ble fam­i­lies did not receive the CTC, indi­cat­ing anoth­er 1.6 mil­lion chil­dren could have been lift­ed out of pover­ty if all qual­i­fied fam­i­lies had received it.

Pover­ty Rates Dropped Sharply for Chil­dren of Color

The child tax cred­it expan­sion also led to sig­nif­i­cant reduc­tions in SPM child pover­ty rates for mul­ti­ple racial and eth­nic groups, with par­tic­u­lar­ly large drops for Black and Lati­no chil­dren. While this is mean­ing­ful progress, 2021 SPM pover­ty rates remain dis­pro­por­tion­ate­ly high for Black (8%), Lati­no (8%) and Amer­i­can Indi­an and Alas­ka Native chil­dren (7%), com­pared to white (3%) and Asian and Pacif­ic Islanders (6%) kids. In fact, both the SPM and the offi­cial pover­ty mea­sure demon­strate that chil­dren and fam­i­lies of col­or con­sis­tent­ly have dis­parate access to eco­nom­ic oppor­tu­ni­ties and resources result­ing from gen­er­a­tions-long inequities and dis­crim­i­na­to­ry poli­cies and practices.

The Effects and Cost of Child Poverty

Grow­ing up in pover­ty is one of the great­est threats to healthy child devel­op­ment. The effects of eco­nom­ic hard­ship, par­tic­u­lar­ly deep and per­sis­tent pover­ty, can dis­rupt children’s cog­ni­tive devel­op­ment, phys­i­cal and men­tal health, edu­ca­tion­al suc­cess and oth­er life out­comes. These impacts rever­ber­ate through­out adult­hood. Researchers have esti­mat­ed the total U.S. cost of child pover­ty at $800 bil­lion to $1.1 tril­lion per year based on lost pro­duc­tiv­i­ty and increased health care and oth­er expenditures.

What Can Be Done About Child Poverty?

The new Cen­sus data illus­trate that dra­mat­i­cal­ly reduc­ing child pover­ty — espe­cial­ly for chil­dren of col­or — is an achiev­able U.S. pol­i­cy goal. Unfor­tu­nate­ly, the expand­ed child tax cred­it, a tem­po­rary pan­dem­ic-relief mea­sure, expired in ear­ly 2022. With­out swift action by pol­i­cy­mak­ers, the progress of 2021 like­ly will be undone, and child pover­ty rates will climb back up.

As chil­dren head back to school this fall, many grap­ple with learn­ing loss from the pan­dem­ic and men­tal health chal­lenges. At the same time, fam­i­lies are fac­ing ris­ing costs for food, hous­ing and health care. Now more than ever, chil­dren need secu­ri­ty and sta­bil­i­ty. We can­not let mil­lions of chil­dren slip back into poverty.

Nat­u­ral­ly, tem­po­rary pan­dem­ic relief mea­sures were not meant to be long-term solu­tions. But now that we know what works to reduce child pover­ty, pol­i­cy­mak­ers can move for­ward with con­fi­dence to imple­ment effec­tive, last­ing solu­tions, includ­ing expand­ing the child tax cred­it. Strong safe­ty net pro­grams are essen­tial to ensur­ing that all chil­dren have equi­table access to the oppor­tu­ni­ties and resources they need to thrive.

Access More of the Foundation’s Child and Fam­i­ly Pover­ty Information

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