Report: Thousands of state kids would slide into poverty if federal tax break ends

More than 600,000 Connecticut children live in households that could lose millions of dollars in federal assistance next month if Congress remains gridlocked over President Biden’s latest pandemic recovery plan.

That’s according to a new analysis from the Center on Budget and Policy Priorities, a Washington, D.C.based fiscal policy thinktank. The analysis also warned that about 80,000 of those Connecticut youths are at risk of slipping below the federal poverty level — or sinking deeper into hardship.

And Congress’ failure to date to extend the expanded federal child tax credit program now has prompted advocates for low- and middle-income families to renew their push for a new state income tax break for these households.

“It will be a huge blow” if Congress doesn’t enact the president’s Build Back Better plan by Jan. 15, said Lisa Tepper Bates, president and CEO of the United Way of Connecticut

“If you’re a low-income household, this is a big chunk of your discretionary money,” said University of Connecticut economist Fred V. Carstensen, who added many families here already are reeling from losing enhanced federal unemployment benefits, which expired in early September. “It’s a doublewhammy. … Some households will be going back to buying ramen noodles.”

Enhanced federal credit sends thousands of dollars to Connecticut families

Bates and Carstensen are referencing a credit within the federal income tax that had provided working families with annual relief up to $2,000 per child.

Congress bolstered that credit 2021 in response to the economic chaos caused by the coronavirus. Income-eligible families could receive up to $3,600 for each child younger than 6 and up to $3,000 for kids ages 6 to 17.

Another key provision of this temporary expansion allowed families to tap the relief early.

Rather than having to wait until the spring or summer of 2022 for their federal income tax refund, eligible families could receive half of the 2021 credit this year through monthly installments that began in July.

“It’s paid for child care, health care, transportation and other essential services and supports that are too often viewed by those holding elected office as nice-tohave rather than need-tohave,” said Emily Byrne, executive director of Connecticut Voices for Children, a New Haven-based public policy research group. “It’s allowed middle class families to pay down credit cards, mortgages and student loans.”

Those advanced child tax credit refunds were particularly crucial for many unemployed households, Carstensen said. A different federal pandemic relief program, which added up to $300 to weekly unemployment benefits for much of 2021, expired on Sept. 4.

Losing both forms of enhanced aid within a few months of each other would leave thousands of households scrambling fast to adjust, Carstensen said.

It also would remove the fiscal Novocaine that’s been keeping Connecticut’s economy from feeling the full effects of the pandemic.

According to the state Department of Labor, Connecticut has recovered more than 212,500 or roughly 73 percent of the 292,000 jobs it lost since COVID-19 struck the state in March 2020.

Further complicating matters, Connecticut still hadn’t recovered all of the jobs lost in the recession of 2007-09 when the pandemic struck. Lagging the nation, Connecticut was down about 25,000 jobs entering the March 2020 downturn.

Federal metrics hide the depth of Connecticut’s pockets of poverty

Despite ranking as one of the wealthiest states in the nation, Connecticut also struggles with deep pockets of poverty, especially in its urban centers and its eastern rural communities.

The United Way estimates about 38 percent of Connecticut households don’t earn enough to meet basic survival needs, a scary projection masked — in part — by severely outdated federal poverty metrics.

The U.S. Census Bureau’s Federal Poverty Level for a family of four in Connecticut is $26,500. Only about 11 percent of state households fall below this threshold.

But the bureau’s metric focuses chiefly on a household’s pre-tax earnings and the adjusted cost of a minimum food diet — originally set in 1963.

Key elements like health and child care, transportation, utilities and other housing costs aren’t major factors under the FPL, but they are for the United Way’s ALICE methodology : an acronym for Asset Limited, Income Constrained, Employed households.

According to ALICE, that Connecticut family of four needs to earn $90,660 to cover basic survival needs.

Alison M. Weir, a policy advocate and staff attorney for Greater Hartford Legal Aid, agrees that the federal metric has little value.

“You have no idea how little the federal poverty level is,” she said.

Weir noted that the “Self-Sufficiency Standard” prepared for the state Office of Health Strategy is significantly higher than the federal poverty level.

Afa mily of four with two adults, one infant and one pre-schooler needs to earn nearly $89,000 annually, according to this standard, to cover basic needs