U of M study finds expanded child tax credit helped families, but many missed out

Researchers from the University of Michigan add to the evidence that expanding the Child Tax Credit in 2021 has helped improve the lives of low-income families.

Congress approved the expanded appropriation in response to the pandemic. He effectively doubled the credit for families and made the money available immediately, rather than having people wait for their tax returns. Families could receive up to half of their credit in monthly installments of up to $300 per month per child, for children under six.

The credit “made a huge difference to us every month we received it,” said Christie Donn, a parent who spoke to Michigan Radio about the tax credits last year.

“Now I have a little more room in my budget, so I can always make sure I save money and so on,” said Anita Cobb, another parent. “But that extra cushion allows us to enjoy life a bit.”

These statements from a year ago might seem to point to what is already obvious: giving people money helps.

But Katherine Michelmore, a professor at the U of M’s Ford School of Public Policy, said it’s not so obvious, actually.

To research of his colleagues on other cash benefit policies found little effect on the material well-being of families. Thus, determining whether and how the expanded child tax credit has affected families is an important research question.

“It takes a long time to determine whether a policy has done something right,” Michelmore said.

But just over a year after the expanded tax credit payments began reaching families, some of the research is ongoing.

This includes a new work document co-authored by Michelmore and colleagues at U of M, released Monday by the National Bureau of Economic Research.

The paper finds that the monthly payments have made it easier for families to pay their bills, buy food and avoid so-called “material hardship”. The paper, which is based on surveys of thousands of people, found that the payments reduced overall hardship by 17% and specifically reduced food insecurity by more than 32%.

“I think we’re showing in the short term that it certainly improves the material well-being of very low-income families in the United States,” Michelmore said.

Importantly, the study also found that the payments did not drive parents out of the workforce.

“So that’s what we see as kind of good news on both counts,” Michelmore said, “that it seems to be helping families improve their food security and it doesn’t seem to come at the expense of some sort of reduction in their labor supply, as many people had feared.

“In some ways it still wasn’t doing enough in that a third of the people in our sample didn’t seem to be getting it.”

Katherine Michelmore, professor at the Ford School of Public Policy at the University of Michigan.

The only major downside found in the study is that more than 30% of respondents in the U of M survey said they did not receive their monthly payment.

Michelmore said it could have been due to problems getting payments to the IRS. It could also be due to custody or child protection issues.

“I think this benefit was definitely doing a lot of good for those low-income families,” Michelmore said. “But in some ways it still wasn’t doing enough in that a third of the people in our sample didn’t seem to be getting it, and I think that’s a big concern.”

The IRS relied on previous tax returns to determine the number of eligible children in each household. If the children lived with another family member or in foster care in previous years, the parents may not have gotten the credit.

“This kind of situation is more common among low-income households,” Michelmore. “So we think there’s a lot going on.”

Addressing these issues will be essential if the federal government ever revives the program of sending partial tax credits to families in the form of monthly payments.

The US Congress has authorized the extended tax credits to expire at the end of 2021. Eligible caregivers are still eligible for credits of up to $2,000 per child. But some Democrats have pushed to return to the 2021 expansion, including President Joe Biden.

“The expanded child care tax credit is one of the most effective programs we have ever seen,” Biden said at a White House event last month, adding that he wanted that Congress restore extended credit, and this time make it permanent. .

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