The Child Tax Credit and Family Well-Being: An Overview of Reforms and Impacts

• Published date: 01 March 2023
• DOI: http://doi.org/10.1177/00027162231205148
• Author: Sophie Collyer,Megan A. Curran,Irwin Garfinkel,David Harris,Zachary Parolin,Jane Waldfogel,Christopher Wimer
• Date: 01 March 2023

224 ANNALS, AAPSS, 706, March 2023

DOI: 10.1177/00027162231205148

The Child Tax

Credit and

Family Well-

Being: An

Overview of

Reforms and

Impacts

By

SOPHIE COLLYER,

MEGAN A. CURRAN,

IRWIN GARFINKEL,

DAVID HARRIS,

ZACHARY PAROLIN,

JANE WALDFOGEL,

and

CHRISTOPHER WIMER

1205148ANN THE ANNALS OF THE AMERICAN ACADEMYTHE CHILD TAX CREDIT AND FAMILY WELL-BEING

research-article2023

The Child Tax Credit (CTC) has become an increas-

ingly important element of the U.S. safety net. We

discuss the structure of the CTC and its effects on

childhood poverty and other indicators of well-being

during its three distinct phases: prior to the 2021

American Rescue Plan (ARP) expansion, during the

expansion, and after the expansion’s expiration. We also

examine recent efforts to establish state-level CTCs.

We show that, in 2020, roughly one in three children

were ineligible for the full CTC because it is tied to

family earnings. The temporary expansion under the

ARP extended full CTC eligibility to nearly all of these

children, thus moving more than three million children

out of poverty in the expansion months. State-level

analyses show how states could establish CTCs that

reduce child poverty rates by half, either as a comple-

ment to an expanded federal CTC or in the absence of

a continued federal expansion.

Keywords: Child Tax Credit; American Rescue Plan;

child poverty

In 2016, several coauthors of this article con-

sidered how a child allowance, or some more

generous version of the Child Tax Credit

Correspondence: smc2246@columbia.edu

Sophie Collyer is a doctoral student in social welfare

policy at Columbia University. Her research focuses on

antipoverty policies at the national and local levels. She

holds a dual degree (MPA/MSW) in social policy and

economic analysis from Columbia.

Megan A. Curran is the director of policy at the Center

on Poverty and Social Policy at Columbia University.

She has worked in policy, research, and direct services

to address poverty in the U.S., United Kingdom, and

Ireland. She holds a PhD in social policy from University

College Dublin.

Irwin Garfinkel is a professor emeritus at the Columbia

University School of Social Work. He conducts research

on the costs and benefits of welfare state programs. He

holds a PhD in social work and economics from the

University of Michigan.

Correction (January 2024): Article updated online

to remove the discussion of CTC’s $10,000 earnings

requirement tied to the Tax Relief Act of 1997.

THE CHILD TAX CREDIT AND FAMILY WELL-BEING 225

(CTC), might impact the child poverty rate in the U.S. (Garfinkel et al. 2016).

Their interest was motivated by the U.S.’s outlier status: the child poverty rate in

the U.S. is higher than nearly all other wealthy nations (OECD 2022), and other

wealthy nations spend a larger share of their GDP on income-based policies

benefitting children (OECD 2023). Moreover, while the U.S. spends dispropor-

tionately less on children, one of its largest expenditures—the CTC—fails to

reach those children who are most in need because it is not fully refundable and

is tied to earnings. Their report demonstrated that a $2,500 per child CTC avail-

able to families regardless of low or no earnings or low or no tax liability1 could

cut the child poverty rate by nearly one-third. Subsequent studies reached simi-

lar conclusions (National Academy of Sciences [NAS] 2019; Shaefer et al. 2018).

Achieving these predicted reductions in child poverty was predicated upon

two key changes: no minimum earnings requirement and full refundability.

Historically, families have been required to earn a certain amount in order to

qualify for any portion of the CTC. But even those who meet the earnings

requirement may not receive the full credit if their tax liability is low because the

credit is not fully refundable.2 A refundable tax credit first acts to reduce one’s

tax bill to zero; but in cases where the total credit amount exceeds tax liability, it

offers a cash refund for the difference (for example, if a family owed $1,000 in

taxes but was eligible for a refundable $2,000 tax credit, their $1,000 tax liability

would be eliminated and they would receive the remaining $1,000 as a cash

refund). A nonrefundable credit would reduce or eliminate a family’s tax bill but

offer no additional cash refund; any remaining credit balance is lost (Internal

Revenue Service [IRS] 2023a). Many low- and moderate-income households

have low tax liabilities due to low levels of earnings, and, due to this combination,

these families have been historically unable to reap the full benefits of the credit.

Making the credit fully refundable and removing the credit’s earnings require-

ment is thus necessary for ensuring the full access of children in families with low

and moderate incomes.3

David Harris is the president of the Children’s Research and Education Institute, a senior

research fellow at Columbia University’s Center on Poverty and Social Policy, an affiliate of

Stanford University’s Center on Poverty and Inequality, and a senior research fellow at

UNICEF Innocenti, Global Office of Research and Foresight. He received a PhD in social

welfare from Columbia.

Zachary Parolin is an assistant professor of social policy at Bocconi University in Milan and a

senior research fellow with Columbia University’s Center on Poverty and Social Policy. His

recent work on poverty, inequality, and social policy has been published in the American

Sociological Review, Demography, Nature Human Behaviour, and elsewhere.

Jane Waldfogel is Compton Foundation Centennial Professor for the Prevention of Children’s

and Youth Problems at Columbia University School of Social Work, codirector of the Columbia

Population Research Center, and a visiting professor at the Centre for Analysis of Social

Exclusion at the London School of Economics. She received her PhD in public policy from the

Harvard Kennedy School.

Christopher Wimer directs the Center on Poverty and Social Policy at Columbia University.

He conducts research on the measurement of poverty, historical trends in poverty, and the

impacts of social policies on the poverty rate. He received his PhD in sociology and social

policy from Harvard University.

226 THE ANNALS OF THE AMERICAN ACADEMY

In 2021, a fully refundable CTC that was decoupled from earnings, similar to

what these prior studies had modeled, was temporarily implemented as part of

the American Rescue Plan Act (ARP). The ARP transformed the CTC into a

nearly universal child allowance for 2021 by expanding eligibility to include fami-

lies with little or no earnings; increasing the maximum credit amounts from

$2,000 per child under 17 to $3,000 per child aged six to 17 and $3,600 per child

under age six; and delivering half of the annual credit amount in six monthly

installments (up to $250 per older child and up to $300 per young child) over the

second half of 2021, with the balance of the credit delivered in a lump sum at tax

time in spring 2022.4 These reforms made nearly all low- and moderate-income

children eligible for the full CTC for the first time in the policy’s history.5 In turn,

studies have evaluated the consequences of the temporary reforms on outcomes

such as poverty, employment, and food hardship. Still, the ARP expansion of the

CTC expired at the end of the 2021 tax year; and despite continued calls from

members of Congress and President Biden,6 a continuation of the CTC expan-

sion has not become law as of fall 2023.

The purpose of this article is to provide an overview of research related to the

structure of the CTC and its effects on childhood poverty and other indicators of

well-being across three distinct phases: (1) prior to the 2021 ARP expansions, (2)

during the 2021 ARP expansions, and (3) after the expiration of the ARP

expansions.

First, in covering the evolution of the CTC and research on its impacts prior

to the 2021 expansions, we emphasize the policy’s considerable coverage gaps.

Given that the CTC was not fully refundable, one in three children were ineligi-

ble for the full CTC because their family’s earnings were too low to qualify

(Collyer, Harris, and Wimer 2019b; Goldin and Michelmore 2022). Black and

Latino children were more than twice as likely to be ineligible for the full credit

than were white children; in turn, making the credit fully refundable and decou-

pling it from earnings has the potential to reduce long-standing disparities in

access to the credit, as well as poverty rates, for Black and Latino children versus

white children.

Second, we consider research focused on the effects of the temporary ARP

expansions in 2021 and document evidence that monthly CTC payments signifi-

cantly reduced child poverty (Greve 2022; Parolin, Collyer, et al. 2021; Wheaton

and Giannarelli 2021), reduced food hardship, improved a broad suite of well-

being measures, and had no meaningful impacts on employment.

Third, given the temporary nature of the ARP, we turn toward what the CTC

could have become in 2022 and what it might become in the years ahead. As of

tax year 2022, the CTC reverted back to its pre-ARP parameters: it is not fully

refundable, the amount a child receives depends on family earning levels, and

the maximum credit is $2,000 per child under age 17 per year. As a result,

roughly one in three children is again ineligible for the full CTC because their

families have low or moderate incomes. That said, interest in the CTC has

grown: consider, for example, that in July 2019, the number of times that the

term “SNAP” (referring to the Supplemental Food Assistance Program) was