With last month’s extraordinary rate of inflation With 8.3 percent pushing Americans down, rapidly rising costs associated with food, fuel, housing and childcare are putting countless families in financial jeopardy.
Knowing that the nation would face continued economic pressure due to the pandemic, the US government approved and implemented an ambitious policy agenda last year, which included the expanded Child Tax Credit (CTC) program. In just six months, this historic initiative significantly reduced child poverty and infused local economies with roughly $19 billion per month in additional expenses.
A key reason for the success of the Child Tax Credit? Checks arrive in parents’ bank accounts once a month.
This idea is not new. Just look at the nation more effective anti-poverty program —Social Security— that distributes benefits to beneficiaries throughout the year. We know that Social Security keeps older Americans out of poverty, but as columnist Bryce Covert recently pointed out in the New York Times — The United States has chosen not to prioritize children in the same way.
The fact that CTC payments were distributed monthly under the American Rescue Plan is critical to understanding why this direct cash program worked so well and why 3.7 million more children live in poverty after the Congress allowed the program to expire at the end of last year.
new analysis from Columbia University’s Center for Poverty and Social Policy demonstrates this point directly, breaking down the anti-poverty benefits of the monthly CTC and showing that monthly payments are more effective than an annual lump sum.
When CTC payments are distributed once a year at tax time, child poverty is significantly reduced by about eleven percentage points or from 22.4 percent to 11 percent. However, anti-poverty benefits often decline in May. Compare that to monthly payments, which keep nearly a third more children out of poverty each month they are doled out, according to the Columbia findings..
According to this report, monthly payments of the Child Tax Credit could prevent one in 10 children from experiencing a period of poverty at any time of the year, compared to annual payments, which often alleviate poverty for one or two months during the tax season.
Monthly checks reduce child poverty throughout the year by reducing income volatility, which unsettles changes in income from month to month that affect low-income families the most. Monthly payments not only reduce the risk of children being persistently poor, but also reduce the risk of children becoming poor throughout the year.
The Columbia data shows what we actually saw in real life when the Child Tax Credit was in effect.
When CTC checks began arriving in bank accounts in July 2021, the life-changing impact of credit was immediately clear. In six weeks, dietary insufficiency was reduced by about quarter. The improvements were significant among black and Hispanic families, who experience the highest rates of eating difficulties.
As we navigate this “new normal,” we can’t forget this important lesson from the American Bailout: Monthly cash payments keep kids out of poverty. These payments also help families in other valuable ways. Bills come in every month, and CTC’s monthly checks buy groceries, pay bills, and make rent or mortgage payments on time. In a survey of low-income families, three quarters of SNAP recipients used their CTC payments on bills, including to avoid utility shutoffs, evictions and foreclosures. Families across the country were able to get a a breath of fresh air and recounted the feeling less financial stress due to CTC.
Economists are still learning about the long-term impact of the Child Tax Credit on the financial health of American families. However, preliminary data, as well as the real-world experiences of millions of families, show that not only monthly CTC payments have no perceptible negative effect on employmentthey supported work and entrepreneurship among some parents. In addition, the monthly CTC payments helped parents reduce credit card debt and reduce reliance on payday loans, pawn shops, and even the sale of blood plasma.
Monthly payments were a key component of the CTC’s success, and this model must be maintained if and when Congress revives the program.
Christian Hamilton is a postdoctoral research scientist at the Center for Poverty and Social Policy at the Columbia University School of Social Work.
Natalie Foster is president and co-founder of the Economic Security Project, a network committed to advancing the conversation about cash benefits and basic income in the United States.