Bookkeeping

The key to reducing child poverty? Child tax credits distributed monthly

With last month’s extraordinary 8.3% inflation rate pushing Americans down, rapidly rising costs associated with food, fuel, housing and child care are putting countless families in financial danger.

Knowing that the nation would face continued economic pressure from the pandemic, the US government adopted and implemented an ambitious policy agenda last year, which included the expanded Child Tax Credit (CTC) program. In just six months, this landmark initiative has dramatically reduced child poverty and injected local economies with an estimated $19 billion per month in additional spending.

One of the main reasons for the success of the child tax credit? Checks are paid into parents’ bank accounts once a month.

This idea is not new. Just look at the country’s most effective anti-poverty program – Social Security – which distributes benefits to recipients throughout the year. We know that Social Security protects older Americans from poverty, but — as columnist Bryce Covert recently pointed out in The New York Times — America has chosen not to prioritize children in the same way.

The fact that CTC payments were distributed monthly as part of the US bailout is key to understanding why this direct cash program worked so well and why 3.7 million more children are living in poverty after the Congress authorized the program to expire at the end of last year. .

New analysis from the Columbia University Center on Poverty and Social Policy proves this point directly, breaking down the anti-poverty benefits of monthly CTC and showing that monthly payments are more effective than an annual lump sum.

When CTC payments are distributed once a year at tax time, child poverty drops significantly by about eleven percentage points or from 22.4% to 11%. However, anti-poverty benefits often decline in May. Compare that to monthly payments – which keep almost a third more children out of poverty each month they are distributed, according to Columbia findings..

According to this report, monthly Child Tax Credit payments could prevent about one in 10 children from experiencing a period of poverty at any time of the year, compared to annual payments, which often alleviate poverty for only one or two months during tax time.

Monthly checks reduce child poverty throughout the year by reducing income volatility, which destabilizes the month-to-month fluctuations in income that affect low-income families the most. Not only do monthly payments reduce the risk of children being persistently poor, they also reduce the risk of children becoming poor throughout the year.

The Columbia data shows what we actually saw in real life when the Child Tax Credit was in effect.

When CTC checks began hitting bank accounts in July 2021, the impact of credit on life was immediately clear. In six weeks, food insufficiency decreased by about a quarter. The improvements were significant among black and Hispanic families, who experience the highest rates of eating difficulties.

As we navigate this “new normal,” we cannot forget this important lesson of the US bailout: monthly cash payments prevent children from falling into poverty. These payments also help families in other valuable ways. Bills come in every month, and monthly CTC checks help buy groceries, pay bills, and pay rent or mortgage on time. In a survey of low-income families, three-quarters of SNAP recipients used their CTC payments on bills, including to avoid utility cuts, evictions and foreclosures. Families across the country have been able to take a breath of fresh air and report feeling less financial stress thanks to the CTC.

Economists are still learning about the long-term impact of the child tax credit on the financial health of American families. However, preliminary data – as well as the real-life experiences of millions of families – show that the monthly CTC payments not only had no discernible negative effect on employment, but supported work and life. entrepreneurial spirit among some parents. Additionally, monthly CTC payments have helped parents reduce their credit card debt and reduce their reliance on payday loans, pawnshops, and even the sale of blood plasma.

Monthly payments have been a key part of CTC’s success, and that model must be maintained if — and when — Congress brings the program back to life.

Christine Hamilton is a postdoctoral fellow at the Center on Poverty and Social Policy at Columbia University School of Social Work.

Natalie Foster is the president and co-founder of the Economic Security Project, a network committed to advancing the conversation about cash benefits and basic income in the United States.