Monthly child tax credit payments have stopped. Will they be back?

Experts believe the future of the expanded child tax credit is hard to predict

The monthly child tax credit payments millions of American parents may have gotten used to over the past six months won’t be landing in wallets this week. But since families can start filing their 2021 income tax returns, collecting the other half of the credit as a lump sum, the realization that the expanded child tax credit is dead may be delayed.

At least for now.

As of this month, the tax credit has returned to its pre-2021 level: $2,000 per child, with a requirement parents or guardians earn a certain amount of income to claim it during tax-filing season.

As part of Congress’ effort to help American family finances during the COVID-19 pandemic, the child tax credit was temporarily made available even to families that don’t normally earn enough to qualify, with no work requirement. They just had to file a tax return. The amount was also increased to $3,600 a year for children under 6 and $3,000 for those 6 to 17. Unless they opted to receive a lump sum, families received monthly payments between July and December.

Is the ‘Build Back Better’ Act dead or just drifting?

The Build Back Better plan proposed by the Biden administration would extend the expanded version of the child tax credit through at least 2022, with proponents hoping its popularity would make it permanent. But that bill is stalled, with Democrats unable to use their slim single-party majority; Sen. Joe Manchin, D-West Virginia, objects to both the cost and the lack of a work requirement. It’s a sentiment echoed by some across the aisle, including Sen. Marco Rubio, R-Florida, who pushed for the larger credit, but who doesn’t believe families should receive the credit if they don’t make enough earned income.

While critics and champions of the expanded child tax credit debate its merits, they agree it’s hard to predict its future, both in terms of the form that credit might take and the impact on families.

“I know about the CTC and families’ experience,” said Sarah Halpern-Meekin, associate professor of human development and family studies at the University of Wisconsin-Madison. “The question now is a political one as opposed to a policy one. Clearly, there are internal deliberations in the Democratic party, especially with Joe Manchin. There’s not a lot of public movement right now.”

Different degrees of need, help

Nor is there a single type of impact on families from either having or losing the expanded benefit, said Halpern-Meekin. She said higher-income families that were already getting a child tax credit are less likely to need monthly payments to help smooth income from month to month. For working-class families on tighter budgets, the monthly payments likely helped more.

The last group includes families that were not getting all of — or perhaps any of — the child tax credit before because their earned income was not high enough.

“Those are the lowest-income kids and those were the ones for whom we were seeing really big changes in child poverty,” said Halpern-Meekin. For them, the difference could be whether they can afford gas or pay the electric bill or rent.

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One boon from having monthly benefits between July and December was how well it matched when people tend to spend the most on children, Halpern-Meekin added.

“We see spikes in spending in August and September — people are gearing up to go back to school and getting kids the supplies that they need — and around holiday time,” she said.

Those are months away from when people receive a tax refund, she noted, “so having that money available at the times of year that you’re spending can make a big difference, maybe not in what you buy, but how much debt you’re taking on and how much interest you’re paying to make those purchases.”

The Social Policy Institute at Washington University in St. Louis used Census Bureau data to quantify the impact of the monthly payments. It said close to 60 million American children in 35 million households got the payments. It also found more than 70% of recipients spent the monthly payments on food and essentials like clothing or household bills or to pay down debt. Fewer than 3 in 10 put the money into savings.

Halpern-Meekin believes families that had a little money coming in each month might also have been more likely to provide small perks for their kids, like a reward for good grades or a fun activity.

“Sometimes people are dismissive of the importance of treats, but one thing that’s important to parents is getting to feel that you’re not denying your kids all the joys of childhood. I think people can disregard the importance to parents and kids, both individually and in terms of their feelings of social inclusion. I would expect that we might see a small number of dollars going to those, but they're symbolically important,” she said.

Greg Nasif, spokesman for Humanity Forward, a bipartisan nonprofit advocacy organization in Washington, D.C., noted that the expanded child tax credit paid off in big ways.

“We’ve never seen a government program that operates this efficiently. It gets money directly to the people who need it. It’s reaching well over 90% of the people it’s intended to support. Families are using it to feed their kids better. They’re using it to go back to work. By putting the money towards childcare expenses, that frees them up to work more hours. There’s been a marked growth in the number of low-income people who are self-employed, starting new businesses, expanding nonprofits, etc.,” he said.

Impact on whether parents work?

One of the big questions in ongoing policy debates is whether parents will be more or less likely to work for pay under the expanded form of the tax credit. There’s some disagreement. 

The Becker Friedman Institute for Economics at the University of Chicago published a working paper in October that predicted the lack of a work requirement “would lead 1.5 million workers (constituting 2.6% of all working parents) to exit the labor force. The decline in employment and the consequent earnings loss would mean that child poverty would only fall by 22% and deep child poverty would not fall at all with the CTC expansion,” it said.

Others have reached different conclusions.  

When researchers under the auspices of the National Academies of Science, Engineering and Medicine wrote a consensus study report on the links between poverty and a child’s “ability to grow and achieve adult success,” they predicted that a financial boost would result in much smaller job losses than those predicted by the Chicago researchers. 

They said the benefits of providing economic stability is significant: Poor children lag in terms of language, memory and self-regulation skills, grow up to earn less and require more public assistance, in addition to having worse health.

Others, including the National Bureau of Economic Research, put the job losses higher than the consensus study, but lower than the University of Chicago research. 

Research by Humanity Forward, Washington University in St. Louis and Appalachian State University said more than 90% of families did not plan to reduce employment and some intended to work more after they got the payments. Columbia University also reported child tax credit didn’t hurt employment, but did reduce the number of children in poverty. The Niskanen Center said the monthly payments especially helped those in rural communities. 

Cynthia Osborne, professor of early childhood education and policy and executive director of the Prenatal-to-3 Policy Impact Center at Vanderbilt University, said she was part of a National Academies of Sciences, Engineering and Medicine research team that looked at ways to reduce child poverty. They found little disincentive to work from bolstering financial support to families, though there “may be some families struggling to work because of child care, the pandemic and things we know are making employment hard, including low wages. But research to date shows the effect is relatively modest.”

Most economists are not saying that the child tax credit is why inflation is so high, said Halpern-Meekin. “What it shows is the ways families are applying resources in support of raising their kids. I think sometimes we have stereotypes about parents or about people getting by on low incomes. ... We should want evidence-based and values-driven policy,” she said.

Rooting for a reboot

Osborne’s among the academics and policy researchers who hope the expanded version of the child tax credit makes a comeback. “The expanded child tax credit seems to be the singular policy that is making the direct impact we want it to make,” she told the Deseret News. She called the impact “profound” and predicts American policymakers will learn a lot now that the expansion is over and families won’t be getting the checks.

But “reading the tea leaves on what lawmakers will do is above my pay grade,” she added.

“If I were betting on the most likely outcome, I’d put money on a big child care expansion as what ends up getting Manchin’s agreement and becoming (Build Back Better’s) big family policy initiative,” said Shawn Fremstad, senior policy fellow at the Center for Economic and Policy Research. “It’s the one thing that united both the Manchin wing of the Democrats (what little remains of it), the Democrats in the Progressive Caucus and has always been a core part of Biden’s campaign agenda, as well as other Democratic candidates. It’s also a kind of ‘wedge issue’ that divides the GOP.”

He’s still hoping, he said, that “some kind of deal can be reached that includes turning the child tax credit into a more inclusive child allowance.” But unless other Republicans besides Utah Sen. Mitt Romney, who has proposed a version of a child allowance, join the effort and “promote it as a better alternative to universal child care, it’s hard to see that happening,” Fremstad said.

Surprises do happen, though, Osborne noted. She would not have predicted any version of a child allowance or monthly benefit like the expansion of the tax credit. But now that policymakers have seen potential benefits and families have experienced it, “I think it has potential to stick around.” 

Nasif said his organization is working with members of Congress on both sides of the aisle to see that the expanded child tax credit continues. “There is interest — more interest, I think, than people would expect on the other side of the aisle to get something to keep this policy going in some form.”

Between the omicron variant of COVID-19, rising inflation and the expiration of the expanded tax credit, he said, “this is very much an emergency for some folks.” 

Nasif is optimistic the expansion will find “bipartisan support to keep it going.”

“I think it’s a matter of when, not if,” he said. “We will see a bipartisan version of this coming out. But I really couldn’t speculate when that will be.”