How expanded child tax credit aided these moms, changed economy

Over the summer, Danette Mahabeer had a problem familiar to most parents at one point or another: Her daughter, Soheila, was “sprouting,” Ms. Mahabeer says. “Growing out of everything she owned.”

Clothes that fit were suddenly tight. So was money. As for food, Sohelia was ravenous.

For Ms. Mahabeer, a single mother in Nashville, Tennessee, increased costs for food and clothing for a growing child posed real financial challenges. But from June to December, like clockwork, $300 appeared in her bank account. The Biden administration almost certainly hadn’t anticipated Soheila’s penchant for eating Cap’n Crunch multiple times a day – both as breakfast and an afternoon snack – but the checks were earmarked for those exact kinds of child-rearing expenses.

The money came from the expansion to the federal child tax credit – a signature Biden initiative that is now expiring despite what many policy experts see as promising results in easing financial strains on U.S. families. 

Since its 1997 inception, the child tax credit has aimed to give America’s families a boost through the tax code. But the expansion last year dramatically enlarged that goal, recasting the program as more of a child allowance than a tax refund – so it puts cash even in the hands of the poorest households that owe no federal income tax.  

As part of a pandemic relief bill, the revised credit also boosted the maximum amount of money each family could receive to as much as $3,600 per child, up from $2,000 per child before. And the payments began flowing out in monthly deposits or checks, rather than as an annual lump sum when taxes are filed.

Taken together, the changes were costly but also slashed poverty and pioneered the concept of widespread cash payments to working-age households as a potential centerpiece of federal social welfare policy – letting households choose where the money is most needed.

“It was reducing child poverty. It was reducing food insufficiency. It was increasing families’ ability to meet their basic needs,” says Megan Curran, policy director at Columbia University’s Center on Poverty and Social Policy. 

The payments helped reduce child poverty by 29.4%, keeping 3.8 million children from slipping into poverty in November alone, according to the center’s estimates. Those effects will now be running in reverse.

The expansion was only good for 2021. A renewal was included in President Joe Biden’s wide-ranging domestic spending bill, known as Build Back Better, which has failed to pass Congress. Payments that were arriving in the middle of every month from June to December have stopped materializing. Jan. 15 came and went like any other day.

Some higher-income families, whose more solid monthly earnings mean they didn’t qualify for the full benefit, probably won’t notice an odd $150 or so missing from their books each month. Those earning up to $150,000 could still qualify for the full credit. But for legions of others, the cash – up to $300 per child under age 6 and up to $250 for other children under 18 – was a lifeline, and family budgets are being redrawn.

“Working myself to the bone”

Javona Brownlee was receiving $850 a month until payments stopped – “a big difference,” says the Fairfax, Virginia, mother of three. The money went toward car payments, groceries, bills, and gas. “And sometimes I would use it for a night out with the kids – maybe a movie theater, a dinner, depending on if I had it to spare,” she says. “I needed it more for important things – bills – than fun.”

Without the money, Ms. Brownlee is already planning on how to cut back. She plans to hold onto her car for as long as she can, and then have it repossessed – voluntarily, she hopes, if she can stretch out her finances until tax time, when she hopes to downgrade to a used car she can buy outright.

“I’m back to working myself to the bone,” on top of caring for her three elementary school-aged children, says Ms. Brownlee, who runs a cleaning business. She’s hoping to supplement her income by finding a part-time job elsewhere, which, until last month, she had been doing with a job at a hotel. 

“When we were receiving [the payments] it provided security. I was looking forward to receiving that payment every 15th,” says Ms. Brownlee, who is living in a shelter after her condo developed a mold problem in November. “It wasn’t something that I had to go and pick up an 11-hour shift, or 12 hours. It was something that allowed me to spend time with my kids. ... I’m really, really sad, and I hate to see it go.”

A move toward a child allowance?

There have long been both liberal and conservative arguments for child allowances – sometimes as an alternative to universal child care – including recent legislation from Republican Sen. Mitt Romney. 

In a Morning Consult poll in December, 44% of registered voters who got the credit said it had a “major impact” on their finances. Another 41% said the credit had at least a “minor impact” for them.

Still, despite its theoretically bipartisan appeal, the child tax credit expansion failed to win clear majority support from the public over its short lifespan. In the December poll, 47% of respondents supported extending the program, while 42% were opposed. Some critics – like Democratic Sen. Joe Manchin of West Virginia, whose opposition to Build Back Better killed its chances of passing – questioned the cost of the program. Mr. Manchin also voiced skepticism around giving out unconditional money, especially without work requirements.

“I have been guilty of that [line of thought], to some extent,” says Sunnie Johnson-Lain, senior director of services at the Cincinnati branch of the Society of St. Vincent DePaul, a nonprofit. Yet Ms. Johnson-Lain points out that the organization saw a drop in requests for services when stimulus checks went out. A similar trend held with monthly child tax credit payments: Typically, half of the households coming to the charity’s food pantry didn’t have children, while half did. Over the period when monthly payments were going out, those numbers shifted to a 55-45, or even 60-40 split at times, which Ms. Johnson-Lain calls “significant.” Research from Columbia found that families spent the money “first and foremost” on food.

Other critics have worried about the economy, with some projections showing the payments could dissuade people from pursuing work – thus dampening, though not completely erasing, the tax credit’s overall effect on fighting poverty. But a number of researchers say effects on labor supply are modest to negligible, with the credit providing a cushion against instability rather than a disincentive to work.

“Once you get to real-world data,” argues Ms. Curran at Columbia, “basically there’s been no evidence that shows any sort of employment effects.”

“Back to the basics”

Maria Kraemer holds down two jobs, one as a home health aide and another working at a company that produces parts for fire safety equipment. Yet inconsistent hours mean the Cincinnati single mother’s aspirations are difficult to reach. Payments from the tax credit, however – to the tune of $250 a month – changed things for her and her son, Charlie.

Ms. Kraemer is caught up on her bills. She set aside money in a savings account for the 11-year-old, a first. The rest of the money typically went to food and his school tuition – and sometimes “extracurriculars,” like a trip to the movies, with popcorn.

“That money helped free up other money that I could [then] use, instead of paying directly for hospital bills or medicine,” Ms. Kraemer says. Neither she nor Charlie has health insurance.

The ending of the program won’t ruin her finances, she says, “but now it’s back to the basics.”

In Nashville, Ms. Mahabeer, who runs a photo studio and is a certified life coach, has turned to side jobs to make up for the $300 monthly payments – nannying, teaching Zumba lessons, driving for Uber and Lyft. 

“Spontaneous things to help to cushion those costs, because those costs are still here,” she says. She made things work before the monthly payments. But they gave her a leg up, and showed her new possibilities. “I’ve kind of gotten into that zone where that extra $300 was coming in.” 

Now, she’s doing “anything to bring that extra income in on top of what I already make, so that I can still comfortably provide for my child.”