States pick up federal Child Tax Credit slack as child poverty makes a comeback

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Congress apparently is still trying to hash out a tax bill. Republican leaders have created a measure, but it's facing not only Democratic opposition, but also pushback from some of its own members.

The hangup within the GOP is the $10,000 limit on tax deductible state and local taxes. Democrats want any tax legislation to include an expansion of the Child Tax Credit, or CTC, that follows the increases allowed during the COVID-19 pandemic.

The CTC is one of the most popular federal tax breaks around. The family-friendly tax break has been in the Internal Revenue Code in some form since 1997. Parents like it because it's relatively easy to claim. It's also a tax credit, which means it will reduce your tax liability dollar-for-dollar.

The expiration of the CTC apparently has allowed child poverty to make an unwanted comeback nationally. Some states, however, are taking family tax relief into their own hands.

CTC expanded in 2021 only: The American Rescue Plan Act (ARPA), passed during the height of the pandemic in 2021, bumped up the CTC's tax savings. It went from $2,000 per qualifying child to $3,000 for older children and $3,600 for children younger than age 6.

As a side note, the current CTC will drop to $1,000 per child when the Tax Cuts and Jobs Act of 2017, which doubled it, expires at the end of 2025.

As for the COVID-expanded CTC, millions of families also got the added money as direct monthly payments, rather than having to wait until tax filing season and getting the credit as a lump sum.

The expanded child benefit was credited with helping 2.9 million children escape poverty in 2021.

The expiration of the larger CTC now is being blamed in part for a dramatic increase in child poverty.

Distressing family data: The U.S. Census Bureau's report on 2022 poverty, health, and income data released today, September 12, shows that the country's child poverty rate more than doubled, from 5.2 percent in 2021 to 12.4 percent in 2022.

The data, known officially as the Supplemental Poverty Measure (SPM), says that in human numbers, more than 5 million children were added to the 2022 poverty rolls, the largest increase in SPM poverty on record.

States picking up the slack: While the debate over the CTC and other tax measures continues on Capitol Hill, some states are acting.

In 2024, 14 states will provide their own child tax credits, according to the Institute on Taxation and Economic Policy (ITEP). That's up from 10 states with CTCs in 2022.

The states with CTCs next year are California, Colorado, Idaho, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oklahoma, Oregon, Utah, and Vermont.


"This year alone, lawmakers in three states — Minnesota, Oregon, and Utah — created new CTCs, while lawmakers in seven states expanded their existing CTCs," says ITEP, a liberal think tank that works on state and federal tax policy issues.

These new and expanded credits are all permanent except for Arizona's 2023 one-time nonrefundable child tax rebate. They also are larger than ever before, according to the Washington, D.C.-based nonprofit.

Monthly money more helpful: Three states — Minnesota, Oregon, and Vermont — are exploring the monthly payment option used by the Internal Revenue Service in 2021 to distribute the federal CTC amounts.

Monthly advance payments, say supporters of that payout system, help families with their normal bills and other expenses. That was the finding of researchers with the Center on Poverty and Social Policy at Columbia University.

"We find that the type of payment distribution matters: families were more likely to use the monthly benefits to purchase food, but the lump-sum benefits to catch up on rent payments," wrote the study's authors Zachary Parolin, Elizabeth Ananat, Sophie Collyer, Megan Curran, and Christopher Wimer.

Bottom line, monthly CTC payments reduced food insufficiency among families with children by at least 2.4 percentage points, or 20 percent, while the lump-sum payment reduced housing hardship, decreasing the likelihood that families with children were behind on housing payments by at least 1.2 percentage points, or 10 percent.

Will this and the Census data sway lawmakers and get them to reauthorize the COVID version of the CTC? It's still too soon to tell.

But it will at the very least be used in Congressional debates as any tax bill progresses.

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