MYTHBUSTER: No, the Child Tax Credit Doesn’t Reduce Poverty by Half and it Discourages Work

October 15, 2021 — Blog    — Facts Are Stubborn Things    — Press Releases    — Worker and Family Support   

MYTH: Democrats have misleadingly claimed that expansion of the child tax credit will reduce child poverty by half on the basis of flawed studies. For example, during the debt ceiling floor debate, one Democrat argued that providing “69 million American children with monthly payments has resulted in lifting almost half of poor children out of poverty. And it is widely popular by the American public. This is not reckless.”

 

Democrats are using a flawed study by the Poverty Center at Columbia University:

“Using our innovative approach to tracking monthly poverty rates, we project that ongoing COVID relief efforts continue to have a sizable effect on reducing child poverty keeping 6 million children from poverty in July 2021 alone (a reduction of more than 40 per cent).” If all eligible children are enrolled in the program, the CC has the “potential to reduce monthly child poverty by up to 40 percent on its own.” When combined with other COVID-19 relief measures, the CTC could contribute to a 52% reduction in child poverty.

 

THE FACTS: 

 

The Columbia study is highly speculative.

Even the University acknowledged its estimates are subject to “a fair range of uncertainty.” 

 

The study assumes all eligible children are enrolled in the program–but they’re not. 

One left-leaning organization noted in July that only 720,000 of the approximately 7 million kids that are eligible but not already registered with the IRS were successfully receiving new child tax credit—and that 90 percent or more of the kids the IRS needed to reach have not been reached

 

Another study finds that the CTC expansion discourages work, which would ultimately harm those in poverty. 

Last week, University of Chicago published a full research paper that found the CTC expansion would lead 1.5 million workers to exit the labor force. The study found the consequent decline in employment and earnings loss would offset the reduction in child poverty:

 

“By replacing the [Tax Cuts and Jobs Act or TCJA] CTC (which contained substantial work incentives akin to the EITC) with a universal basic income-type benefit, the CTC expansion reduces the return to working at all by at least $2,000 per child for most workers with children. Relying on elasticity estimates consistent with mainstream simulation models and the academic literature, we estimate that this change in policy would lead 1.5 million workers (constituting 2.6 percent of all working parents) to exit the labor force. The decline in employment and the consequent earnings loss would mean that child poverty would only fall by 22 percent and deep child poverty would not fall at all with the CTC expansion.”

 

Democrats are pushing for the largest expansion of the welfare state in our lifetime, and undoing the successes of Republican tax reform. As a reminder:

 

As a result of TCJA, the lowest earners saw the greatest gains in living standards—and the wealthy saw the least gains. 

  • According to economist Joseph Lavorgna, TCJA led to  “…record gains in living standards at the lower- and middle-income levels.
  • Income and wealth inequality fell after TCJA, as real wages for the bottom 10 percent grew nearly twice as fast as the top 10 percent.
  • Real wealth of the bottom 50 percent of households rose three times faster than that of the top 1 percent.

 

As a result of TCJA, the number of Americans in poverty dropped to historic lows. 

  • Poverty in 2019 fell by 4.2 million to a total of 34 million, according to Current Population Survey Annual Social and Economic Supplement,
  • Median household income rose by 6.8 percent from 2018 to $68,703 in 2019. 
  • The number of Americans working full time in 2019 increased by 1.2 million. 
  • More than 6 million people were lifted out of poverty in the years following TCJA, dropping the poverty rate to 10.5 percent, the lowest level in U.S. history.