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Prices just keep rising. It’s time to revive the enhanced child tax credit

<i>Alex Wong/Getty Images</i><br/>Prices just keep rising. It's time to revive the enhanced child tax credit. Local residents
Getty Images
Alex Wong/Getty Images
Prices just keep rising. It's time to revive the enhanced child tax credit. Local residents

Opinion by Elaine Maag for CNN Business Perspectives

Over the past several months, consumer prices have risen across the board, especially for basic needs like food, gas and shelter. And low- and middle-income families are getting hit the hardest. Not only do they spend a larger share of their income meeting basic needs, they tend to have less savings to help cushion the blow of higher prices.

Reestablishing last year’s now-expired enhanced child tax credit (CTC) — including paying the credit as a monthly benefit and providing the full benefit to low-income families — could provide significant assistance to families struggling to make ends meet.

The American Rescue Plan temporarily increased the child tax credit from $2,000 per child under age 17 to $3,000 per child ages 6 to 17 and $3,600 per child under age 6. It also made advance payments of the credit available, so that from July to December, the families of about 61 million children received monthly payments of up to $250 per older child and $300 per younger child in advance of filing their tax return (and these families can now claim the second half of their CTC by filing a 2021 tax return). Most significant for low-income families, the credit was made fully refundable, which for the first time allowed even very low-income families to receive the full amount of the credit.

The Build Back Better Act called for extending the credit for at least one more year, but the legislation has been stalled. Prioritizing an extension in the coming weeks can equip families to withstand rising prices.

A key advantage of providing tax credits as opposed to other benefits, such as food stamps (or Supplemental Nutrition Assistance Program benefits), is that the payments are unrestricted — families can use them to best meet their own needs. Several studies show that providing cash to families can provide stability and improve overall health and well-being. And that’s exactly what the enhanced tax credits did. Shortly after the monthly payments began, food insecurity for families with children dropped by more than one quarter. Families reported using their monthly payments to purchase food, clothing and utilities — and over one-third of very low-income families used the payments for rent.

Families with children were also able to use the advance payments to improve their financial outlook. About half of families with incomes below $75,000 used the credits to pay off debt. Higher-income families were less likely to do the same, but over one-third of Black and Hispanic households with incomes over $75,000 also used the credit to pay down debt.

In some cases, recipients of the tax credit have also reported that the payments helped them to work by giving them the means to pay for child care. This can include care that supports nontraditional work schedules, which can be difficult to get using existing subsidy programs. In other cases, some parents with young children reported working less and providing more direct care because of the expanded CTC.

The temporary expansion of the child tax credit increased income support for millions of households with children, including those with very low incomes. But now that the payments have ended, child poverty has shot up by 41%. This effect is being exacerbated by the highest rate of inflation since the early 1980s, putting extra pressure on low-income households who just lost a key source of financial support. With the credit ending just as prices started rising, it is possible that some gains to family well-being in late 2021 will be lost to higher prices.

Thanks to data from last year, we know that bringing back the enhanced CTC would reduce child poverty and provide crucial cash support to low-income households, without much interruption to work as some fear. Add to that the potential for the credit to blunt the harm of high inflation, and reinstating last year’s child tax credit enhancements couldn’t come at a better time.

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