Child Tax Credit Lifts Kids Out of Poverty, But Too Limited for Big Impact

Children are the single poorest age group in our country. More than one in five live in poverty, according to the Census Bureau’s latest report based on its official measure. The better measure still shows a 16.7% child poverty rate.

What these rates tell us, among other things, is that a great many parents don’t have enough money to pay for even their children’s basic needs. Nor their own, since the measures reflect household income.

We don’t have a good fix on how much they’d need. The U.S. Department of Agriculture does, however, provide rough estimates, based on a survey of what parents actually spend. Unfortunately, we get only a crude family income breakout — all families below $61,530 lumped together.

That said, USDA reports that the costs of raising a child from birth to age 18 totaled $164,160 three years ago for a single parent with one child in the lowest income bracket. Costs mount as children grow up — the total, of course, but also by their age.

Infants, on average, cost the least. But even they set low and moderate-income single parents back an estimated $10,436 in their first year. A single mother who worked full time, year round at the federal minimum wage would have only about $3,700 of her take-home pay left for all other expenses.

We do, of course, have publicly-funded programs to supplement what parents can afford to spend out of their own earnings, if any. Some are uniquely for children — the Children’s Health Insurance Program, for example, WIC and pre-college public education. Far more include both them and adults in the household.

Rolling the two kinds together, First Focus reports that this year’s federal children’s budget accounts for 7.83% of total spending — this after factoring out parents’ share of safety net benefits like SNAP (food stamps) and housing assistance.

So we’re investing relatively little in the well-being and future prospects of the next generation. No news here, though the fact that children’s share of spending has shrunk since 2010 may be. It wasn’t all that big a share then, however — just 8.45%.

What the First Focus analysis doesn’t capture is federal spending through the tax code, rather than annual budgets. The Urban Institute’s Kids Share analyses do.

The latest puts total federal spending on children at 10% of the 2014 total — roughly $463 billion. Two-fifths of that reflects tax deductions and credits for families with children.

Drilling down further, we find $53.6 billion in refunds from the Earned Income Tax Credit, i.e., money parents receive when the credit they’re entitled to, plus other gross income adjustments exceeds what they owe.

The refundable part of the Child Tax Credit was less than half that — $21.5 billion. And unlike the EITC, it was less than paid out in 2013.

The refundable tax credits together lifted roughly 10.6 million people, including 5.6 million children over the poverty threshold and made significantly more less poor than they would otherwise have been.

But clearly the EITC did most of the lifting, accounting for all but 1.7 million of the not-poor, but still low-income children. Several major reasons for this.

First off, not all parents with earned income can claim the refundable CTC. They have to have made at least $3,000 during the year, either together, if they file jointly, or alone if they’re single. The EITC, by contrast, kicks in at the first dollar of earned income.

Second, the tax credit for most working parents is capped at $1,000 per child. (No credit — and thus no potential refund — for very high-earners, who won’t concern us here.) Third, another cap limits per-child refunds to 15% of earned income above the threshold for claiming it.

These several constraints mean considerably lower tax benefits. A single parent with one child, for example, could receive $3,359 from the EITC this year. And the benefit is annually adjusted to keep pace with inflation, while the CTC isn’t.

Political leaders of various stripes have teed up proposals for boosting the CTC. Then-Presidential hopeful Marco Rubio, for example, included a $2,500 supplement to the current maximum in his tax plan.

That, said the Center for American Progress, among others, would have benefited higher-income families, while failing to protect low-income families from losing all or part of their benefits, as they would have if Congress hadn’t subsequently made the Recovery Act improvements permanent.

The House Republicans’ tax plan calls for increasing the CTC to $1,500 (presumably per child) and raising the maximum income eligibility for married couples.

The refundable part would still be capped at $1,000, however. And filers without Social Security numbers couldn’t claim it — a not-so-subtle attack on undocumented workers and their children that Republicans have repeatedly made.

Though the plan may seem more friendly to other parents with children, it actually isn’t because it would eliminate the exemption for children — $4,000 per child this year, except for very high-earners. So what the right hand giveth, the far-right hand taketh away.

Democrats have also seized on the CTC as an opportunity to strengthen support for working families. We’ve got several proposals languishing in Congress now. And we may see the issue develop in the last round of this seemingly endless Presidential campaign.

Too much for me to cover here. So I’ll reserve the more progressive approaches for a separate post. Will just note here that making child raising costs more affordable seems to have gained traction over the last several years.

Whether we’ll actually see tax credit changes will, like so many things, depend on what happens in November. Now, if poor and near-poor children could vote ….

 

 

2 Responses to Child Tax Credit Lifts Kids Out of Poverty, But Too Limited for Big Impact

  1. […] last post summarized the limits and a pair of Republican proposals for boosting the credit. Here, as […]

  2. […] Last and (to me) surprisingly least, the refundable Earned Income Tax Credit and Child Tax Credit lift an estimated 14,000 District residents out of poverty. The former almost surely has the greater impact, for reasons I’ve recently explained. […]

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