Before Thanksgiving, the White House Council of Economic Advisers (CEA) released a blog post titled “The Anti-Poverty and Income Boosting Impacts of the Enhanced CTC.” That’s a reference to the temporary—and now expired—expansion in the child tax credit (CTC) enacted as part of Democrats’ March 2021 American Rescue Plan Act. In its FY 2024 budget proposal earlier this year, the Biden administration again called for the revival of the temporary 2021 expansion, paralleling failed but similar efforts in late 2021 and 2022. Recent news accounts suggest some legislators are attempting such a revival as part of end-of-year tax legislation.
Even with Democratic majorities in both the House and Senate, the 2021 CTC expansion lapsed due to opposition to the policy’s anti-work features and massive expense. The partial revival included in the president’s latest budget would cost taxpayers almost $430 billion, which ignores over $1 trillion in additional costs in just the first decade from continuing all of these policies. Despite the program’s title and expansion supporters’ rhetoric, the vast majority of those costs reflect greater benefit spending, not tax relief. Indeed, the only permanent policy in the president’s latest proposal consists entirely of greater benefit spending. That’s the “full refundability” policy that would pay full CTC checks to even non-working parents, repealing the program’s longstanding work requirement and work incentive.
Ignoring those flaws, the CEA blog post argues for reviving the expanded CTC. But in doing so it directly contradicts prior administration talking points. For example, a March 2023 White House “Fact Sheet” about this year’s budget proposal said: “The President is calling for the restoration of the full Child Tax Credit enacted in the American Rescue Plan, which cut child poverty in half in 2021” (emphasis added).
The CEA blog post confirms that child poverty wasn’t cut in half in 2021 when the expanded CTC was in effect. Applying the flawed supplemental poverty measure, Table 1 shows that child poverty fell from 9.7 percent in 2020 (that is, the year before the CTC expansion) to 5.2 percent in 2021. Some might suppose that rounding that 46 percent reduction up to 50 percent is close enough for government work. But the 46 percent figure is overstated in several ways, including by counting other temporary benefits that also reduced child poverty in 2021. As the CEA blog post notes, large stimulus checks paid to most families in 2020 and 2021 also played a significant role in reducing child poverty during the pandemic.
How large was the effect of those stimulus checks? CEA suggests in Table 1 that the child poverty rate in 2021 counting those stimulus checks and assuming no expanded CTC would have been 8.1 percent. Table 2 indicates that with no stimulus checks and no expanded CTC the child poverty rate would have been 12.4 percent. Thus the stimulus checks alone would have reduced the child poverty rate by 4.3 percentage points, or around 35 percent, in 2021.
Table 2 models the effect of eliminating the stimulus checks, showing that the expanded CTC alone would have reduced the child poverty rate to 8.3 percent in 2021, from 12.4 percent as described above. That suggests a reduction in child poverty from the expanded CTC alone of 4.1 percentage points or 33 percent—that is, slightly less than the reduction attributable to the stimulus checks alone. That confirms prior findings that stimulus checks reduced child poverty by more than the expanded CTC.
Further, as shown below, extrapolating from data in Tables 1 and 2 also confirms that, with or without counting stimulus checks, the expanded CTC alone didn’t come close to “cut[ting] child poverty in half in 2021” as the White House’s March 2023 “Fact Sheet” suggested. Indeed, in no year CEA modeled (stretching from 2018 through 2022) would that have been the case.
|Percentage Reduction in Poverty by the CTC Expansion Alone (With Stimulus Checks)
|Percentage Reduction in Poverty by the CTC Expansion Alone (Without Stimulus Checks)
The CEA blog post clearly rebuts the myth President Biden has peddled for years that the expanded CTC alone cut child poverty in half. It didn’t. Trillions of dollars spent on other temporary benefits for families during the pandemic also played an outsized role in reducing child poverty, which too often gets buried in talking points supporters deploy to argue for reviving the 2021 CTC expansion. The CEA deserves credit for helping set that record straight.