The American Rescue Plan Act of 2021, perhaps better known as the $1.9 trillion COVID relief bill, contains an expansion of the child tax credit. Previously, parents were eligible for a credit of $2,000 per child. Parents can now receive up to $3,600 per child under age 6 and $3,000 per child ages 6-17. Another major change is that the credit can be paid out in advance by the IRS in monthly payments of $300 and $250, respectively. And the expansion makes the credit refundable for all families making less than $112,000 or $150,000 for joint filers, meaning that families with no income are eligible for the credit. We asked David T. Ellwood, the Isabelle and Scott Black Professor of Political Economy at Harvard Kennedy School, to share his insights on the ways that this policy change will affect children, families, and the broader U.S. economy. As Assistant Secretary for Planning and Evaluation at the U.S. Department of Health and Human Services under former U.S. President Bill Clinton, Professor Ellwood played a key role in the administration's efforts around welfare reform and served as the co-chair of President Clinton's Working Group on Welfare Reform, Family Support and Independence. He is recognized as one of the country’s leading experts on poverty, welfare, and social policy.
Q: The Biden administration is saying that the expanded child tax credit will cut child poverty in half. Do you think their projections are accurate?
Most projections I have seen suggest child poverty reductions of between 40 and 50 percent. And I have no reason to doubt these numbers. This is astonishingly good news, and Biden and his team deserve enormous credit for the achievement. I do hope people realize what this does and does not mean. The poverty line is a number that was set many years ago and is updated for inflation every year. The projected poverty line for a family of four for 2021 is $26,500—not much in today’s world. The increased size and refundability of the child tax credit helps people who have income from earnings or other sources cross over this threshold. It is unlikely to transform their lives all by itself. Note also that many provisions are due to expire in a few years, so absent additional legislation, some of the improvements may be temporary.
Q: One notable aspect of this expansion is that there is no work requirement, and families with no income will be eligible. This seems like a big shift from the conventional wisdom of recent decades, at least in Washington, that government assistance should be conditional on recipients looking for work. What effect do you think this policy will have, if any, on labor markets?
Honestly, I think this story line is being overplayed in the press. I actually see this program as a pro-work policy. The expanded child tax credit of $3,000 per child age 6 and older and $3,600 for younger children is certainly nowhere near enough to cover the costs of raising a child. It is possible that a few people might cut back a bit on a second job or reduce their hours somewhat, but it is also quite likely that some people will use the money to pay for better/more reliable child care or to get more training and education which will improve their own job prospects. Moreover this support is far better than traditional public assistance (“welfare”) which creates strong work disincentives because benefits are cut as recipients’ earnings rise. Every household head with income below $112,000 ($150,000 for joint filers) gets the full benefit, so earning more does not lead to reduced benefits for anyone with income below those thresholds.
Q: Another notable aspect of the expansion is that parents will receive the tax credit in monthly advance payments from the IRS, in effect providing a guaranteed income per child. What benefits and/or drawbacks do you think this approach might have?
Ironically, though other issues get more attention, the really big news is the way it is delivered and the fact that virtually every child qualifies for it. When scholars talk about escaping poverty, we should mean more than achieving a reasonable standard of living. Our aspiration is that people achieve the dignity that comes from having real power over their lives and being part of and valued in the larger community. Too often when we target money and services only to struggling families, we create a rat’s nest of complexity and humiliation. Our system clearly signals that we are extremely disappointed in their failure to earn an adequate income by demanding people prove just how poor they are by revealing everything about their income and assets. We tell them that continued eligibility depends on their doing whatever we demand of them and then reporting back on what they did. We signal in so many ways that they deserve no dignity, and they aren’t full members of our community. Giving struggling families access to the exact same child tax credit we give to families of nearly every child (over 90 percent of families with children benefit from the new plan), and delivering it through the tax system for everyone, signals that they are important members of the society just like everyone else. The same support middle class families rely on for added support goes to those struggling to enter the middle class as well.
Q: As mentioned, the administration says the expanded credit will cut child poverty in half. What do you think it would take to help the “other half”? Is it simply a matter of making the credit more generous, or are there other logistical challenges?
I have never believed that the primary solution to poverty was just writing a large check. Instead we need to give people the tools and support they need to overcome the large array of challenges many face, from low quality education, to systemic racism, to lack of effective networks, to low paying jobs. What people need are opportunities, not just more cash. But cash is an appropriate part of support for struggling families.
Q: Moving forward, what metrics or outcomes will you be monitoring to gauge the effectiveness of this policy, besides the child poverty rate? In other words, how do you think the effects of the expanded credit might cascade into other areas besides income, such as education or health?
I will certainly be looking at the level of work, whether people are able to move to better neighborhoods, how the children fare in school, the health of children and parents including physical and mental health, engagement with the criminal justice system, and more. I think this bill really is the most exciting step to come forward in my adult lifetime. We can learn a great deal from what happens next.
Banner image: A cafeteria worker serves a Pre-K elementary school student as part of the federal free lunch program in Chattanooga, Tenn. Troy Stolt/Chattanooga Times Free Press
Faculty portrait by Martha Stewart