Child Tax Credit has helped lift 3 million kids out of poverty

The Internal Revenue Service began sending families direct advance payments on the 2021 Child Tax Credit in July. Families have now received two of the six installments and the additional income for households with children under 17 have already had a significant impact on the financial well-being of families across the US.

The Center on Poverty and Social Policy at Columbia University recently published their July 2021 report on childhood poverty which was able to take into account the first installment on the 2021 Child Tax Credit. Looking at the effect of the July payment, it was the driving force behind 3 million children staying out of poverty.

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Childhood poverty would have been 4.1 percent higher

The monthly poverty report in July estimates that the rate of child poverty fell in July to 11.9 percent from 15.8 in June, primarily due to the enhanced Child Tax Credit. This meant 3 million less children living in poverty, but the gains could have been higher. Looking at data from the US Treasury, the first payment reached 59.3 million children, but had it reached all likely-eligible children, the reduction could have been up to 40 percent from the Child Tax Credit payments alone.

The enhanced Child Tax Credit in conjunction with other covid-19 relief measures kept 6 million children in total above the poverty line according to the researchers' estimates. Qualifying parents who chose not to opt out of the advance payments could receive monthly up to $300 per child under 6 and $250 for each child from age 6 to 17.

The authors calculate around $2,300 of monthly household income for an average two-parent, two-child family as the poverty threshold. The Columbia University researchers base their monthly poverty analysis on the resources a family receives in a given month and their expenses taking into account family size and local housing costs. The authors note that other studies look at the annual impact of the enhanced Child Tax Credit for the 2021 fiscal year and the monthly focus may understate its poverty reduction effect as the two methods “are not directly comparable.”

US Census Bureau data supports study’s findings

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How has the 2021 Child Tax Credit helped US families?

The US Census Bureau began conducting a weekly survey in April last year to measure how the pandemic was impacting households across the country. Surveys conducted just before and just after the arrival of the first Child Tax Credit payments showed a quick drop in food insufficiency and trouble paying household expenses.

Household with children saw a three percent decrease in food insufficiency after the initial installment on the tax credit despite those households' higher likelihood to experience such conditions. Notably, households without children saw a slight uptick in difficulty covering monthly expenses in the same time period.