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The expansion of the Child Tax Credit (CTC) in President Biden’s American Rescue Plan, projected to decrease child poverty by 40%, will have an outsized effect on rural areas, where poverty rates are higher.
This expansion is crucial for nonmetro counties, where child poverty rates are the highest at 22.6%—compared with an 18% national average. Major metropolitan counties, with a child poverty rate of 20%, will also disproportionately benefit from the expanded CTC. Major suburbs have the lowest child poverty rates at 12.8%.
Decades of research have shown that childhood poverty produces adverse outcomes long into adulthood. While child advocates applaud the stimulus bill’s measures to drastically reduce childhood poverty, experts have quickly turned to the question of their permanence.
In the past, the nation’s poorest families received the least from the CTC, said Kris Cox—deputy director of federal tax policy at the Center on Budget and Policy Priorities (CBPP).
“There were about 4.3 million children in rural areas whose families got less than the full credit, or no credit at all, because their parents earned too little, or lacked earnings,” said Cox.
The expansion to the CTC removes the credit’s income requirement, increases the maximum amount from $2000 to $3000 per child and $3600 per child under 6, and makes the entirety of the credit refundable.
In the past, while middle and upper income families received the full $2000 refund, a low-income single mother of two children had to make almost $30,000 in order to receive the full credit, Cox said.
Though the expansion will benefit all but the highest earners, it will have the greatest impact on low-income people. In one example touted by the CBPP, a single mother of a toddler who makes $10,000 a year will receive the full $3600. This is a full third of her income.
For comparison, a single mother who makes $65,000 per year will also receive $3600, but that’s only about five percent of her income.
According to the Institute on Taxation and Economic Policy, the change will provide an income boost of 37.4% to the poorest 20% of families with children.
In addition to expanding the CTC, the American Rescue Plan made the Earned Income Tax Credit (EITC) available to many more childless low-income people for the 2021 tax year. The change will raise the EITC from $530 to $1,500 for approximately 17 million low-paid adults.
These two provisions will level the playing field for rural Maine residents, said Melissa Hackett, policy associate at Maine Children’s Alliance.
In Maine, the southern, more densely populated areas experience higher median family income and lower rates of poverty compared to the northern, more rural parts of the state.
“These very rural areas tend to have less access to services, less access to jobs, to family sustaining work,” said Hackett. “And as a result, you tend to see higher rates of poverty in the more rural and remote areas of the state.”
According to Hackett, the tax credit expansions will make living in a rural, less robust economy more sustainable for many families.
Though the expanded CTC will dramatically reduce child poverty, it is set to expire in one year. Despite the provision’s benefits to long-suffering families, its genesis is largely due to the economic repercussions of Covid-19.
Democrats, said Bowman Cutter, senior fellow at the Roosevelt Institute and former economic policy advisor in the Clinton administration, felt they needed to put together a stimulus package much bigger than the one meant to stem the effects of the Great Recession.
According to Cutter, the specific provisions were less important than the overall size of the package.
“I think it was all Covid related,” he said. “For an awful lot of Democrats, I think a 1.9 trillion dollar program, aimed at helping people recover from the huge hit they took, was what they were for. They didn’t much care what the pieces were. I don’t think there was ever some big debate about the Child Tax Credit.”
Despite this, Cutter is optimistic that the expansion will be made permanent, due to the fact that everyone benefits and those who benefit most—poor children—are politically salient targets.
However, said Jason Bailey, Executive Director of the Kentucky Center for Economic Policy, most increased support for this measure has come from within the Democratic party.
In Kentucky, Republican lawmakers have shown support for certain welfare cuts throughout the pandemic.
“We’ve had to fend off attempts to cut safety net programs in the last couple of legislative sessions,” said Bailey. “The General Assembly just passed a bill that will take away SNAP benefits from about 6000 Kentucky kids who live with a parent who is in arrears on child support payments.” (The bill was vetoed by Governor Beshear on March 23rd, a move which was quickly overridden by both state chambers on March 30th.)
The political changes that allowed for a measure like the expanded CTC to pass, said Bailey, happened within the Democratic party, from the Clinton presidency to the Biden one. “And that is why this is happening with the child tax credit.”
But there does seem to be some bipartisan support brewing around a near-universal child allowance.
In February, Utah Senator Mitt Romney proposed the Family Security Act, which replaces the CTC, simplifies the EITC, and eliminates Temporary Assistance for Needy Families (TANF).
Under Romney’s plan, every child under 6 would receive $4,200 per year, while children 6-17 would be eligible for $3000 total. The payments would be administered monthly by the Social Security Administration.
Though experts are interested in the simpler child allowance, fellow Republicans have criticized it as ‘welfare.’
One problem with making a child allowance a tax credit is that not everyone files taxes. People appreciated the simplicity of stimulus checks, said Bailey, and their separation from the tax code made them more accessible to those who don’t file taxes.
“We want to make this change permanent,” said Bailey. “There’s a reason to think about changing the way it’s administered to make it clear and more understandable to people.”