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A woman walks toward a school holding hands with two children wearing backpacks.
Government benefits can reduce child poverty. DBenitostock/Moment via Getty Images, CC BY-NC-ND

Child poverty fell to a record-low 5.2% in 2021 – here’s how it could have been even lower

The U.S. government’s most accurate measure of child poverty fell to 5.2% in 2021, the lowest level on record and a decline of 4.5 percentage points from a year earlier. This sharp reduction was due, in large part, to generous government benefits. Our research suggests that although policies reduced child poverty by nearly half in 2021, the decline would have been even larger had the government made it easier for families to receive those benefits.

One way the federal government responded to the economic upheaval that accompanied the COVID-19 pandemic was to boost the money Americans got as benefits - and to distribute those benefits to people who didn’t previously get them.

Starting in the spring of 2020, for example, most Americans received a series of economic relief payments. Those funds had already helped reduce child poverty to 9.7% in 2020 from 12.6% in 2019, according to what’s known as the “supplemental poverty measure.”

The government data, released on Sept. 13, 2022, confirms expectations that we and other economists had based on previous research regarding the share of American children living in poverty in 2021. One key policy change brought about this decline: The government temporarily expanded the child tax credit, boosting the incomes of nearly all families with children.

We have determined, however, that child poverty would have plunged much more had the government done a better job ensuring that all who qualified got the credit.

Child tax credit

Unlike the official poverty rate, the supplemental poverty measure accounts for government benefits, such as the Supplemental Nutritional Assistance Program, or SNAP.

The supplemental poverty measure has been consistently lower for children than the official poverty rate since its launch in 2011.

One reason for this is the child tax credit. It began in 1998, with a maximum possible credit of $400 per child. The amount families could get was limited by the income taxes they owed. Since low-income families either don’t pay any income taxes or owe very little, this did them little good. Subsequent reform measures increased both the amount of the credit and made some of this benefit available to families that paid no income tax.

A large federal spending package enacted in 2021 increased the credit further and made it available to all but the wealthiest families with children. Between July 2021 and June 2022, most received up to $3,600 for each child under 6 and as much as $3,000 for kids between the ages of 6 and 17. The Internal Revenue Service distributed half this money in monthly payments between July and December 2021, and the rest at tax time in 2022.

3 million fewer children in poverty

Many economists predicted that this benefit would help millions of children escape poverty.

And, according to the Census, 2.9 million fewer U.S. children were living in poverty because of the child tax credit, including its temporary expansion. This policy reduced child poverty by 4 percentage points.

But we estimate that the child poverty rate could have fallen even further had the government ensured that more eligible families received the expanded child tax credit last year.

As we explained in the Journal of Post Keynesian Economics, an academic publication, we reviewed detailed 2019 data to estimate what would have happened to child poverty that year had all eligible families received the 2021 tax credit expansion.

We estimated a supplemental child poverty rate of around 5.2%, in line with what actually happened. But our modeling was based on a few assumptions, such as that the expansion would last for a full year and that there would be no other pandemic-related benefits. These two factors came close to balancing each other out, leading to an estimate of child poverty that was close to what was reported.

Based on our calculations, we believe that the supplemental child poverty rate could have declined 2.2 percentage points more in 2021 than what the Census found had every eligible family gotten the child tax credit. This would have lifted another 1.6 million children from poverty.

Many low-income families didn’t file a tax return in 2019 or 2020, because they didn’t owe federal income taxes. To get monthly child tax credits from the IRS, these families needed to file a return.

Alternatively, families could log in to the IRS website and apply for the child tax credit. That was hard to do for many low-income people who lacked internet access.

Lack of awareness

Surveys by a research team at Washington University in St. Louis support our theory. It found that 29% of low- and moderate-income Americans knew little or nothing about the child tax credit expansion – or even that they were eligible to receive it.

Specifically, 78% of those surveyed who did not file a 2020 tax return didn’t know much about the credit. Furthermore, some journalists found that the IRS website people must use to apply for benefits when they didn’t file a tax return was not user-friendly, and no Spanish version was available.

These findings, together with the official child poverty statistics for 2021, show that expanding the child tax credit can greatly reduce child poverty. They also point to the need for increased outreach efforts to ensure that all low-income Americans can obtain the benefits for which they are eligible.

And now that the Census Bureau has released its 2021 poverty statistics, we expect that calls for this benefit to be restored on a permanent basis will spread.

This article was updated on Sept. 13, 2022, to reflect that the official Census Bureau’s child poverty data for 2021 had been released.

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