How Cutting Back the Child Tax Credit Led to Another Year of Poverty

While the economy was a key topic of discussion for the two presidential candidates when they met on the debate stage for the first time on Tuesday, the duel ended without explicit consideration of those most vulnerable to the vicissitudes of inflation and high housing costs. As they outlined their ideas for assisting struggling Americans, neither Vice President Kamala Harris nor former President Donald Trump made mention of a sobering statistic that was released by the Census Bureau earlier in the day: Roughly 43 million Americans live in poverty, among them millions of children.

Although both presidential candidates have endorsed some form of an expanded child tax credit, that topic was barely broached during the debate. “We know that young families need support to raise their children, and I intend on extending a tax cut for those families of $6,000, which is the largest child tax credit that we have given in a long time,” Harris said early in the evening, referring to her plan to update the current child tax credit to levels reminiscent of a 2021 pandemic-era expansion.

This muted discussion came hours after the Census Bureau released new data showing that the child poverty rate ticked up in 2023 to 13.7 percent, an increase of 1.5 percent from 2022. Poverty policy experts say this number should not only be considered in the context of the previous year but also compared to 2021. That’s when pandemic-era relief programs—namely, the expanded child tax credit—contributed to a historically low child poverty rate of 5.2 percent.

The expanded child tax credit implemented by the American Rescue Plan Act in 2021 was only in place for the latter six months of that year, but lifted more than three million children out of poverty during that time. It increased the amount of the credit, distributed it in monthly disbursements, and expanded eligibility to include households too poor to pay income taxes.

The effect of the 2021 expanded child tax credit was demonstrated by its absence, namely, the largest one-year increase in child poverty on record. “It’s one thing to see the statistics, and another to think that this actually represents millions and millions of children that had been in much more economically stable situations in one year, and then much more economically vulnerable ones the next year,” said Megan Curran, the policy director for the Center on Poverty and Social Policy at Columbia University. “The absence of something like the policies that we knew worked in 2021 was still felt pretty glaringly for families.”

The census data found that the current iteration of the child tax credit, a partially refundable credit that provides up to $2,000 per child depending on household income, kept around two million children from poverty in 2023. In a new report, the Center on Poverty and Social Policy estimates that a more generous child tax credit proposed by congressional Democrats last year, similar to what was implemented in 2021, would have kept an additional 3.6 million children out of poverty in 2023.

For supporters of an expanded child tax credit, the child poverty numbers released this week represent a missed opportunity. Sharon Parrott, the president of the Center for Budget and Policy Priorities, noted in a statement that “some measures of poverty in 2023 reached or remained at all-time lows except for 2020 and 2021,” indicating a steady decline in poverty over time that could nonetheless be lower if certain policies were in effect. “Poverty stood far above the levels achieved in those pandemic years despite a stronger economy in 2023, providing clear evidence that more robust policies could dramatically reduce poverty,” Parrott said.

The census report offers two methods for looking at poverty and thus determining who qualifies as poor. The official poverty rate is calculated based on the pretax income of a household as compared to a national, inflation-adjusted threshold. The supplemental poverty measure accounts for posttax income, as well as tax credits, such as the child tax credit or earned income tax credit. The supplemental poverty measure is adjusted to consider noncash government assistance programs to the poor, and considers regional variations in housing costs.

The picture of poverty in the United States is complicated in no small part because it is dependent on how that need is being measured. The official poverty rate dropped slightly to 11.1 percent in 2023, even as the supplemental poverty measure increased; that uptick is partially due to an increase in the thresholds for poverty in the supplemental measure, which outpaced inflation. The supplemental measure takes into account expenditures on goods and services such as food, housing, and utilities—which are currently subject to a higher level of inflation than the regular rate of inflation.

“The reason the supplemental poverty [measure] went up was not because of a drop in income or resources, which is what happened between 2021 and 2022 because of all the Covid-era support that went away,” said Gregory Acs, the vice president for income and benefits policy at the Urban Institute. Instead, the thresholds for poverty increased—because rental costs were so expensive in 2023, for example, the supplemental poverty thresholds for renters increased by nearly 9 percent between 2022 and 2023. (Separate data from the Census released on Thursday found that the cost of rent and utilities grew faster than real median home values in 2023, for the first time in ten years.) The pandemic-related relief measures expired in a piecemeal fashion, so some of the change in the child poverty level could also be attributed to an expiration of additional food stamp benefits in dozens of states in 2023.

Indeed, in some ways, the census report could be interpreted as a return to a pre-pandemic economic normal. This could be seen in the data showing a 4 percent increase in median income in 2023 as compared to 2022, with increases in cash income for workers across income levels—the first statistically significant increase in income since 2019, before the first coronavirus cases were registered in the U.S.

But it’s also reflected in the relatively steady poverty levels between 2022 and 2023; pandemic-era relief programs such as the expanded child tax credit, rental assistance, and additional food stamp benefits have not only expired but seem unlikely to be reinstated to any meaningful degree in the immediate term. A bipartisan tax bill that included an expansion of the credit was approved in the House earlier this year but died in the Senate.

However, while the federal prospects for an expanded child tax credit appear grim, several states have implemented their own child tax credit in recent years. The Census Bureau records three-year averages for state poverty levels, and so the effects of new policies enacted in 2023 may not be seen until a future report. “I think federally, we’re in sort of that post-pandemic moment, but on the state level, I think that there’s more changes afoot that we just can’t see from this particular data report right now,” said Joshua McCabe, the director of social policy at the Niskanen Center.

Nevertheless, some experts fret that many areas of progress—or even of stasis—were undercut by continued inequalities. While household income increased for non-Hispanic white individuals, median incomes for Hispanic, Asian, and Black individuals in 2023 were not statistically different from 2022. The gender wage gap widened for the first time in two decades, with women earning nearly 83 percent of what men earned in 2023. The census data also showed racial disparities in poverty, with Black and Hispanic individuals more likely to live in poverty than white, non-Hispanic people; poverty among Black, Hispanic, and Asian children also increased in 2023, while it remained relatively static for non-Hispanic white children. In 2021, by comparison, child poverty for Black and Hispanic children was still higher than that of non-Hispanic white children but by a tighter margin than previously recorded.

“If we really want to make legitimate systems reform, it makes sense to focus on those who are experiencing the burden the most,” said Lauren Reliford, the public policy director at the Children’s Defense Fund, an advocacy organization that supports expanding the child tax credit. According to the Center on Budget and Policy Priorities, 47 percent of Black children and 37 percent of Hispanic children in 2022 did not receive the full child tax credit, or received no credit at all because their household income was too low.

Tax policy will be a major consideration for Congress next year, as several policies—including the current iteration of the child tax credit—are set to expire. Advocates like Reliford hope that one of the key elements of the 2021 expanded credit, making it fully refundable, would be under consideration in 2025 negotiations. (That is one of the more controversial provisions for Senate Republicans in particular, who believe recipients of the credit should be subject to work requirements; the bipartisan tax bill would have raised the limit on refundability and adjusted it for inflation.)

The major takeaway from the new census data, said Kristin Seefeldt, the acting faculty director of Poverty Solutions at the University of Michigan, is that “policies matter.”

“We do have policy mechanisms in place to really do something about the number of people experiencing poverty and [who are] low income,” said Seefeldt. “In some ways, we’re making choices about how important lowering poverty really is as a nation.”