Washington, D.C. — A new Center for American Progress analysis underscores that the economic cost of child poverty in the United States is $672 billion per year, or nearly 4 percent of U.S. gross domestic product. This is due to higher health costs, lower educational outcomes, and increased spending on criminal justice. Additionally, flat or declining wages and rising costs are straining families’ ability to afford a middle-class lifestyle, with child-related costs accounting for nearly 70 percent of the middle-class squeeze for the typical two-parent, two-child family.
In its report, CAP introduces a new proposal to strengthen the Child Tax Credit, or CTC, to ease the financial strain of raising a child, cut child poverty, and reverse the upside-down tax code that favors the wealthy over low- and middle-income families.
“The average age to start a family comes decades before a worker’s peak earning years. As a result, young parents are often juggling student loans, spells of unemployment, and other financial shocks at the exact moment they are facing the new expenses and time constraints that a baby brings,” said Melissa Boteach, Vice President of the Poverty to Prosperity Program at CAP and a co-author of the report. “We know from an abundance of research that family income strongly affects children’s long-term success, including academic achievement, employment, earnings, and health. Our proposal both addresses families’ and children’s immediate needs and promotes families’ long-term strength and economic mobility.”
Enhancing the CTC
As a first step, Congress must make permanent key improvements to the CTC and Earned Income Tax Credit, or EITC, slated to expire at the end of 2017. Failure to act would push nearly 8 million children into or more deeply into poverty, according to the Center on Budget and Policy Priorities. CAP’s report outlines additional steps to strengthen the CTC by leveraging the credit as a tool to better invest in the next generation by:
- Making the full CTC available to all low- and moderate-income families
- Indexing the value of the CTC, which has lost $340 in value since 2001, to inflation
- Introducing a new CTC supplement, called the Young Child Tax Credit, for families with children under 3 years old—$1,500 per child
- Allowing families to receive the Young Child Tax Credit in monthly installments, rather than only at tax time, to address the urgent costs of new children
CAP’s analysis demonstrates that these new CTC policies can have a profound effect on reducing child poverty:
- Lifting nearly two-and-a-half times as many children under 3 out of poverty as the current CTC
- Nearly doubling the share of children under 17 lifted out of poverty by the CTC
- Closing the poverty gap by one-quarter for kids younger than 3 who remain below the federal poverty line
- Reducing racial and ethnic disparities in child poverty
Click here to explore an interactive on how these enhancements would reduce the child poverty gap—the amount by which children’s family income falls short of the federal poverty line—in each state and the District of Columbia. Many states would experience a large reduction in the depth of poverty for children under 17, including:
- Hawaii: 25.4 percent
- Vermont: 23.7 percent
- New Hampshire: 23.4 percent
- Mississippi: 22.9 percent
- Montana: 22.8 percent
- Iowa: 22.6 percent
- New Jersey: 20.4 percent
- North Dakota: 20.2 percent
- West Virginia: 20.2 percent
Impact on communities of color
Given that African American and Hispanic families face higher rates of poverty and unemployment than white Americans, there are significant racial and ethnic disparities in who is excluded from the current CTC due to low income. Just more than one-fifth of all children under age 17 lived in families who earned too little to receive the full CTC in 2011, yet nearly 30 percent of Hispanic children and 38 percent of African American children lived in families that did not receive the full credit.
CAP’s proposed CTC enhancements would decrease poverty for children across the board and reduce the number of children younger than 3 who live in poverty by:
- 7.2 percent among white children
- 14.5 percent among black children
- 11.7 percent among Hispanic children
Read the full report, “Harnessing the Child Tax Credit as a Tool to Invest in the Next Generation,” online here, and the accompanying interactive, “Enhancing the Child Tax Credit Would Substantially Lessen the Depth of Child Poverty Across States,” online here.
Related resources:
For more information on this topic or to speak with an expert, contact Liz Bartolomeo at [email protected] or 202.481.8151.