Brief How a Permanent Expansion of the Child Tax Credit Could Affect Poverty
Gregory Acs, Kevin Werner
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Expanding the child tax credit (CTC) can be an effective way to reduce child poverty. The American Rescue Plan Act temporarily increased the value of the credit from $2,000 to $3,000 for children ages 6 to 16 and to $3,600 for younger children, expanded the number of children eligible for the credit by including 17-year-olds, and made it fully refundable so that all families with low incomes and qualifying children can claim its full value, thereby increasing resources to families with the lowest incomes. The Biden administration has proposed extending those changes through 2025. In this brief, we consider how an expanded CTC would affect poverty in a typical year—one not marked by massive unemployment and greatly enhanced federal support because of the COVID-19 pandemic.

Measuring poverty using the Supplemental Poverty Measure, we find the following:

  • Expanding the CTC would reduce child poverty by 5.9 percentage points, from 14.2 to 8.4 percent (rounded to the nearest tenth), using 2018 as a benchmark for a typical year. That means 4.3 million fewer children would be in poverty in a typical year, representing over a 40 percent decrease in child poverty.
  • Increasing the value of the credit alone, from $2,000 to $3,000 for children ages 6 to 16 and to $3,600 for younger children, would remove 166,000 children from poverty. Making the credit fully refundable so all families with low incomes and qualifying children can claim its full value but keeping the value of the credit at $2,000 per child (the level before the American Rescue Plan Act’s temporary boost) would lift 2.2 million children out of poverty. Combining these two policy changes—full refundability and the higher credits—4.1 million children are removed from poverty. Allowing families to claim the credit for 17-year-old children lifts an additional 200,000 children out of poverty.
  • Children from all racial and ethnic groups would benefit from the expansion of the CTC, and racial and ethnic disparities in poverty rates would narrow. Poverty among Black, non-Hispanic children would be cut in half, falling by 10.3 percentage points, and rates for white, non-Hispanic children would fall by 3.3 percentage points. Poverty among Hispanic children and Asian American and Pacific Islander children would fall by 7.2 and 3.6 percentage points, respectively.

This brief was corrected on August 5, 2021. On page 1, we corrected a typo: poverty among Hispanic children would fall by 9.2 percentage points (not 7.2 percentage points) under the expanded CTC. We also corrected a coding error that inadvertently assigned $600 of credit to a small number of children under age 6 who do not have a Social Security number. Correcting this error does not affect the main findings but causes slight changes in some results, including state-level results for Illinois, New Mexico, and Wisconsin. In addition, we corrected two minor typos on page 4 and 6. These changes are described in detail in the brief.

Research Areas Wealth and financial well-being Social safety net Race and equity Taxes and budgets Children and youth
Tags Individual taxes Inequality and mobility Kids in context From Safety Net to Solid Ground Racial barriers to accessing the safety net Family credit and debt
Policy Centers Income and Benefits Policy Center
Research Methods ATTIS Microsimulation Model