Tax credits can end child poverty
The pandemic has made it clear: America is choosing to let its children live in poverty.
For six months last year, the government lifted millions of kids out of poverty through monthly Child Tax Credit checks, a measure that was part of the American Rescue Plan. Despite critics of the plan warning that people would spend the extra income frivolously, parents of young children spent the checks on basic family needs like food, clothing and rent. For many children, it might have been the first time they experienced a pantry filled with food, shoes that fit, or even a new blanket.
But those basics ended abruptly when the Senate failed to pass an extension of the tax credit at the end of last year. Experts warned poverty levels would spike back up, and they did. Child poverty jumped by 41% as soon as the checks stopped coming, according to a recent analysis from Columbia University’s Center on Poverty and Social Policy.
It doesn’t have to be this way. Smart policy can reduce poverty and boost our economy, and California can lead the way.
Tax credits are one of the most effective ways of defeating poverty. According to research from the Center on Budget and Policy Priorities, they are a financial tool that can improve the health of infants and mothers, boost educational outcomes, raise children’s lifelong earnings, encourage workforce participation and boost local economies. In other words, they’re good for the people receiving them and for everyone else, too.
For example, last year in California, the Earned Income and Young Child tax credits delivered $1 billion to 4.3 million low-income people. That billion, in turn, got pumped back into local economies through purchases at local grocery stores, restaurants, car repair shops, hardware stores and so on. Moreover, researchers said, the benefits will accrue at virtually every stage of life — meaning the earlier the investment is made, the better.
A recent study funded in part by the National Institutes of Health found that cash stipends disbursed during the first year of a child’s life were associated with greater cognitive development.
“It’s proof that just giving the families more money, even a modest amount more, leads to better brain development,” said Martha J. Farah, a neuroscientist at the University of Pennsylvania who reviewed the study for the National Academy of Sciences. Given poor brain health costs the global economy an estimated $2.5 trillion in lost productivity every year — and that estimate was made before the start of the pandemic — cash transfers increasingly become a fiscally sound and responsible policy to enact.
In California, 25% of our children grow up in poverty. Without the Child Tax Credit payments, some 7.8 million of them are now worse off and nearly 2 million are in imminent danger of falling back into experiencing the hallmarks of poverty: hunger, housing insecurity and inadequate health care.
The effects of poverty are often on unseen kitchen tables or in unheard growling stomachs. And in California, and the Bay Area in particular, where the income gap between the rich and the poor is wider than just about anywhere, it can be easy for some to never see it. While some San Franciscans boast salaries in the high five figures or more and the median home prices top $1 million, one in three households in the Bay is struggling to get by, despite most having at least one working adult.
Though the federal Child Tax Credit payments ended late last year, there is still hope for California’s children and parents living in poverty.
First, every low-income family in the Bay Area, including those filing a tax return with an Individual Taxpayer Identification Number, or ITIN, needs to know that filing taxes in 2022 is more important than ever. Expansions to the Federal and California Earned Income Tax Credit and Child Tax Credit last year could still mean more money back to working families, especially those with children. Even individuals who do not work and do not normally file a tax return are eligible for prior-year stimulus payments and, in many cases, the Child Tax Credit. California residents who made less than $30,000 in 2021 may be eligible for more than $8,000 in state and federal tax credits, depending on income and family size. Bay Area residents can visit one of the 70 tax sites for free, in-person tax preparation services by IRS-certified volunteers.
And more hope is on the horizon. Assembly Bill 2589, introduced by Democratic Los Angeles Assembly Member Miguel Santiago, would backfill the federal Child Tax Credit with a one-time payment from the state. Families that earned less than $30,000 in 2021 would receive $2,000 for each qualifying child. This proposal will reach an estimated 2 million children in California, enough to cover the 1.7 million in danger of falling behind.
Poverty is a drag on our economy and more important, an impediment to children achieving their full potential. As Tax Day approaches, every low-income family in the region can take advantage of free tax help to ensure their hard work is rewarded with the greatest possible tax refund. And we can stand up as a state, recognizing that child poverty is a policy choice with a proven solution. California’s efforts won’t help all of America’s poorest children. Only the federal government can do that. But we can be the model toward an equitable future.