The key to reducing childhood poverty? Child tax credits distributed monthly

A woman carries a child wearing a mask as two other children wearing backpacks walk behind them.
AP Photo/Seth Wenig, File
Children and their caregivers arrive for school in New York, March 7, 2022.

With last month’s extraordinary inflation rate of 8.3 percent pushing downward on Americans, the rapidly increasing costs associated with food, fuel, housing and childcare are putting countless families in financial jeopardy. 

Knowing the nation would face continued economic strain from the pandemic, the U.S. government passed 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 about $19 billion per month in additional spending.

A key reason for the Child Tax Credit’s success? Checks hit parents’ bank accounts once every month. 

This idea isn’t new. Just look at the nation’s most effective anti-poverty program — Social Security — which distributes benefits to recipients 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 — America has chosen to not prioritize children in the same way. 

The fact that CTC payments were distributed monthly under the American Rescue Plan is instrumental to understanding why this direct-cash program worked so well, and why 3.7 million more children are living in poverty after Congress allowed the program to expire at the end of last year. 

New analysis from the Columbia University Center on Poverty and Social Policy proves this point directly, breaking down the anti-poverty benefits of the monthly CTC and demonstrating that monthly payments are more effective than an annual lump sum. 

When CTC payments are distributed once per year at tax time, child poverty significantly decreases by roughly eleven percentage points or from 22.4 percent to 11 percent. However, the anti-poverty benefits often taper off by May. Compare that to monthly payments — which keep nearly one-third more children out of poverty every month they are distributed, per Columbia’s findings.

According to this report, monthly Child Tax Credit payments could keep around one in 10 children from experiencing a spell of poverty at any point during the year, compared to annual payments, which often alleviate poverty for just one or two months during tax time. 

Monthly checks cut child poverty year-round by reducing income volatility — destabilizing swings in income from month to month that affect low-income families the most. Not only do monthly payments reduce the risk of children being persistently poor, but it also reduces the risk of children ever becoming poor throughout the year. 

The data from Columbia show what we actually saw in real life when the Child Tax Credit was in effect. 

When CTC checks started hitting bank accounts in July 2021, the life-changing impact of the credit was immediately clear. In six weeks, food insufficiency declined by about one-quarter. Improvements were significant among Black and Hispanic families, who experience the highest rates of food hardship.

As we navigate this “new normal,” we cannot forget this important lesson from the American Rescue Plan: monthly cash payments keep kids out of poverty. These payments also help families in other valuable ways. Bills come every month, and monthly CTC checks buy groceries, pay bills and make rent or mortgage payments on time. In one survey of low-income families, three-quarters of SNAP recipients used their CTC payments on bills, including to prevent utility shut-offs, evictions and foreclosures. Families across the country were able to get a breath of fresh air and reported feeling less financial stress because of the CTC.

Economists are still learning about the Child Tax Credit’s long-term impact on the financial health of American families. However, the preliminary data — as well as the real-world experiences of millions of families — show that not only did monthly CTC payments have no discernible negative effect on employment, they supported work and entrepreneurship among some parents. Moreover, monthly CTC payments helped parents decrease credit card debt and reduce reliance on payday loans, pawn shops and even selling blood plasma.

Monthly payments were a key component of the success of the CTC, and this model must be kept in place if — and when — Congress brings the program back to life. 

Christal Hamilton is a postdoctoral research scientist with the Center on Poverty and Social Policy at the Columbia University School of Social Work.

Natalie Foster is the president and co-founder of Economic Security Project, a network committed to advancing the conversation on cash benefits and basic income in the United States.

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