In a NY Times opinion piece in early May, as inflation was heating up, two former Secretaries of the Treasury, Robert Rubin and Jacob Lew published a plea to Congress to resurrect what they consider the most important piece of President Biden’s Build Back Better bill: “It is our strong view that Congress should act this year to ease the financial strain on low-income families raising children and that these policies should be paid for in a package that reduces the deficit. This is not just morally right but is also a critical investment in our nation’s economic future. As the White House and Congress negotiate economic legislation, they should prioritize making the child tax credit available to families with low or no earnings through a provision known as refundability and expanding support for child care.”
Rubin and Lew assure us all that, while “critics fear that such measures could increase inflation… those fears are misplaced. The plan the White House and the Senate are discussing will both reduce the deficit and make the important investments for a stronger future. While the families who will benefit spend more of their marginal income… than the wealthy who will be taxed to finance this policy, the total reduction in the federal deficit will lower demand by a greater amount. The proposed legislation would, on net, tamp down inflationary pressure.”
Now with inflation the hottest political issue of the summer, it is unlikely that the fully refundable Child Tax Credit, whose six month, COVID-driven expansion under the American Rescue Plan expired at the end of December 2021, will be restored this year. What is the opportunity that—largely as a result of Joe Manchin’s opposition—we have lost?
Rubin and Lew explain: “Policymakers expanded the child tax credit for 2021 in last year’s American Rescue Plan and, crucially, made the full credit available to families with low or no taxable earnings, known as full refundability. By making these credits fully accessible to families with the greatest need, the number of children living in poverty fell dramatically. The law also temporarily raised the maximum credit… Before last year’s changes to the child tax credit, the parents of 23 million children received either a partial credit or none at all, because their earnings were too low to qualify for the full credit. This left out or shortchanged about half of Black and Latino children, half of children in rural areas and almost one in four white children. The families who needed the credit the most received the least. Changes to the credit kept an estimated 3.7 million children out of poverty at the end of last year, and its expiration in January caused child poverty to rise 41 percent….”
To learn why this year’s squandered opportunity is such a catastrophic loss, I urge you to read Lisa Gennetian and Katherine Magnuson’s short, lucid, and impeccably documented report: Three Reasons Why Providing Cash to Families with Children is a Sound Policy Investment. Gennetian is a professor of early learning policy studies at the Sanford School of Public Policy at Duke University. Katherine Magnuson is the Director of the Institute for Research on Poverty at the University of Wisconson-Madison School of Social Work. This brief report explores what is known about the impact of family poverty on early learning:
“Studies demonstrate, over and over again, that poverty harms children’s development and that providing families with low incomes with financial resources can improve children’s development, including through increased birth weight, improved school achievement, reductions in juvenile crime and psychiatric disorders, and increased earnings and lower risk of heart attacks and strokes in adulthood… The fact that children flourish when their material needs are met and they have nurturing and stimulating relationships with consistent caregivers has fueled public investments in early education, public schools, and parenting programs to ensure children experience quality caregiving. It has also been a rationale for policies that help families with low incomes meet material needs (such as food, health insurance, and housing). While beneficial, these policies and programs to fill specific needs arising from poverty are companions, not substitutes, for cash income.”
There is wide agreement across social and economic research, that expanding the Child Tax Credit and making it fully refundable is the most effective and efficient policy to support America’s poorest children. Gennetian and Magnuson explain three reasons why:
“Cash enables parents to provide the material goods and caregiving that support children’s healthy development, especially during their earliest years of development… Children need many things to be healthy, including a safe home environment and play spaces that are free from pollution and toxins, as well as regular medical care, good nutrition, and predictable routines. Perhaps most important, children thrive when surrounded by caregivers who are attuned to and responsive to their needs. In the U.S., parents are largely on their own to provide these things. For low-income families, piecing together the needed resources is an ongoing, often exhausting challenge that takes a toll on family well-being… Interactions between children and their caregivers and early environments are strong predictors of many aspects of children’s early skills, including language, emotion regulation, executive function skills, and early academic skills… Providing for children’s care and needs is extremely challenging when employment does not pay enough… (W)ork alone is not enough in the U.S. to eradicate poverty among families with children, even in the context of full-time employment.”
“Cash can protect families with children from unexpected expenditures or income losses… Even before the COVID-19 pandemic, income instability was becoming more common among the lowest-income households with children. Fluctuations in income month to month have always been more widespread among low-income households with children compared to those with higher incomes. Some of this instability reflects the types of jobs and labor practices in the low-wage labor market, especially just-in-time scheduling… Income instability alone can be problematic, but it is exacerbated by unexpected expenses and low levels of assets and savings. Families with low incomes regularly face a variety of unplanned costs such as car repairs and medical bills… The combination of very low income and economic instability makes it particularly difficult for children to thrive, not only because their needs may go unmet, but also because of the impact of low income and income instability on their parents. Large or frequent fluctuations in income increase family stress… redirect parent time and attention away from parenting and toward the demands of juggling day-to-day basic needs and disrupt family routines.”
“Cash enables parents to act and spend in their children’s best interest. Cash avoids the paternalistic nature of some public benefit programs by empowering parents to invest in their children as they see fit. Cash builds on parents’ existing strengths, resilience, and capacities to meet their and their children’s needs… By empowering parents to invest in their children and their environment as they see fit—and thus showing trust in their parenting and related investment decisions—cash can be a mechanism to improve family life… In dozens of qualitative studies, parents with low incomes have articulated the care they put into how they spend their money. Concerns from some scholars and policymakers that families might misspend cash are not borne out by the evidence.”
The 1996 welfare reform, the “Personal Responsibility and Work Opportunity Reconciliation Act,” which made cash assistance temporary and incentivized parents to get out of the house and work at any job they could find was framed around the idea that poor parents are not responsible. The policies Gennetian and Magnuson describe certainly do not disincentivize work. Instead they consider the needs of the children in families where parents’ work schedules may be irregular and income inadequate and sporadic.
Last week, when the Washington Post‘s Editorial Board spoke to the cash needs of poor parents, the newspaper confronted Joe Manchin’s premise that the parents would very likely waste the money: “There’s no evidence to back this up. In fact there’s more and more data showing that households with kids, especially lower-and moderate-income ones, spent the bulk of the money on the basics: food, housing, and items for schools. The Federal Reserve recently released one of the most definitive reports on how families spent their CTC payments. It shows, yet again, that the money largely went toward meeting basic needs. This was especially true of families earning between $25,000 and $49,999 a year. A third of these families used the money mainly on housing costs (rent, mortgage, and utilities), and 22 percent used it mainly on expenses for kids such as clothing, school supplies, medicines, and maybe a toy. The most common uses for the money for these families were food, savings, and paying off debt.”
Even in these politically difficult times, the Washington Post Editorial Board presses for action: “We know how to help struggling families with kids. Why isn’t Congress acting?”