Reducing the number of kids experiencing poverty

August 5, 2021

Dear Changemakers,

Nearly 50 million people will be kept out of poverty in 2021 thanks to the country’s existing safety net coupled with pandemic relief efforts—such as stimulus payments and the expanded child tax credit—provided through the American Rescue Plan Act and earlier legislation. The combined effect of these programs is also projected to slash child poverty by 81 percent relative to what it would have been without the programs, meaning nearly 18 million children will be shielded from poverty this year.

Those are just a handful of findings from a new Urban Institute analysis by my colleagues Laura Wheaton, Linda Giannarelli, and Ilham Dehry, which updates earlier Urban projections and includes estimates by state, race, and ethnicity. And now, as many families across the country start receiving direct, monthly enhanced child tax credit payments, Urban is also showing what it would mean for child poverty rates if the expanded tax credit were here to stay.

Using Urban’s proprietary ATTIS (Analysis of Transfers, Taxes, and Income Security) model—a microsimulation tool that forecasts the potential impacts of policy changes—experts Gregory Acs and Kevin Werner also examined how permanently expanding the child tax credit would affect poverty in a typical year without a pandemic-affected labor market and greatly enhanced government-sponsored financial assistance. They found that a permanent expansion would reduce child poverty by 5.9 percentage points, meaning 4.3 million fewer children would be in poverty in a typical year. That reflects more than a 40 percent decrease in child poverty overall.

Urban found that an expanded child tax credit would also achieve the following:

  • Narrow racial and ethnic disparities in poverty rates. Poverty among Black, non-Hispanic children would be cut in half, falling by 10.3 percentage points and lifting 1 million Black children out of poverty. Poverty among Hispanic children would fall by 9.2 percentage points, and poverty among white children and Asian American and Pacific Islander children would decrease by 3.3 and 3.6 percentage points, respectively. 
  • Benefit children in both metropolitan and nonmetropolitan areas. Child poverty rates would decline by 6 percentage points in metro areas and by 6.4 percentage points in nonmetro areas.
  • Benefit residents of all states. My colleagues found that the largest reductions in child poverty would occur in DC, Louisiana, Mississippi, and New Mexico.Child poverty would be cut by 50 percent or more in 11 states.

Research makes clear that positive life outcomes—such as economic success, educational attainment, job security and growth—diminish significantly for children who grow up experiencing poverty. So each year that struggling households with children can be helped up and out of their circumstances, we have an opportunity not only to alleviate the anxiety, instability, and trauma many kids experiencing poverty shoulder but also give them a chance at a better life in the long run.

Urban’s findings on the expanded child credit are just the latest in our decades-long delivery of research and tools on poverty alleviation strategies as well as evidence on how the child tax credit affects families and children. Since the end of “welfare as we know it,” Urban has studied, tracked, and quantified children experiencing poverty, explaining poverty’s damaging effects on their development as well as their health and well-being in adulthood. And since the founding of the Urban-Brookings Tax Policy Center, we have been a leading source of evidence on the impact of the tax credit, demonstrating that the original design provided benefits to families with middle and relatively high incomes, excluding, for the most part, families with low incomes. As my colleagues pointed out as early as 2005, this meant Black and Latinx families were much less likely to receive the full value of the credit than white families.

At every step of the tax credit’s evolution, Urban has produced credible data on how changes to the design could better assist families with low and middle incomes. For example, Urban’s experts elevated the need for families with young children to receive higher credits and estimated that 27 million children are left out of the full child tax credit because their families earn too little—a fact that helped encourage policymakers to include every low- and middle-income family with children in the full value of the credit. And as expiration threatened each bit of progress on the credit, Urban delivered clear evidence of the implications of such a move, which would reduce benefits for those most in need. Ultimately, the lower thresholds for refundability were extended.

Now, as the child tax credit and Americans’ overall well-being is debated again—this time in the context of an economy rebounding from and possibly threatened again by an unrelenting pandemic—I am immensely proud of the insights Urban is contributing to the national discourse. However the coming months unfold, you can count on our experts to continue to track and analyze how various policies not only affect the lives of families and children struggling to make ends meet, but the social and economic fabric of our country as a whole, too.

Warmly,
Sarah