When Alina McKnight’s middle daughter was experiencing a lack of motivation and mental health issues during the pandemic, her mother spent a little extra money on a new outfit. In that outfit, she aced an interview for a tutoring gig. “Those two hours after school as a tutor, she’s able to put that on her resume. That is her first thing,” said McKnight. “And now she’s back in motivation mode.”
McKnight is a single mother to three girls living in Newark, N.J. For six months, she received an additional $500 a month from the federal government’s expanded child tax credit, without which she would not have been able to buy her daughter’s interview outfit, or glasses for her youngest, or transportation for the girls to get to school.
The McKnights are one of 39 million families now struggling to get by without the extra income, which expired in January. Now, McKnight and others are reverting to life without that additional income, a shift that has caused child poverty rates to rebound with rippling effects that will last for generations.
“When you talk about what the expiration will lead to, it simply will lead to yes, more poverty, but that translates into much more hunger among children,” said Stephen Roll, a researcher at the Social Policy Institute at Washington University in St. Louis. Moreover, Roll said, “the payments were actually potentially helping reduce a lot of economic mobility gaps over the long term.”
The child tax credit, expanded under the American Rescue plan, helped parents across the country cover expenses from clothes to food to after-school programs. Most parents with low incomes spent their payments on necessities like rent or utilities, a Center on Budget and Policy Priorities analysis found.
With monthly influxes of cash, parents invested in their kids’ wellbeing. Now facing historic inflation without that added safety net, parents and policymakers are considering the future of the child tax credit.
The Biden Administration sought to permanently expand the child tax credit with the Build Back Better Act, but that proposal was killed. With no federal help on the horizon, advocates in New Jersey, Connecticut and elsewhere are focusing on state action.
Peter Chen, a senior policy analyst at the think tank New Jersey Policy Perspective, is recommending a state-level child tax credit. The important part of any child tax credit, says Chen, is that it comes to families in the form of cash.
“The nice thing about cash is, families can adapt it to solve a problem,” said Chen. “Not all families are going to have the same problems.”
The broad effects of the payments were immediate. In six months, the expanded child tax credit led to reduced rates of child poverty. From a pandemic peak of 21.4% in August 2020, the rate of child poverty fell to 11.5% a year later. When the policy ended this January, that rate jumped back up to 17%, a Columbia University study found.
Income infusions like the child tax credit have long-term benefits for children living at or near poverty, says Leah Hamilton, a social welfare policy professor at Appalachian State University.
When parents can invest in after-school programs, for instance, children do better in school, leading to higher-paid employment and a greater contribution to the tax system, says Hamilton. “Those are really investments in children’s long-term life outcomes, and also investments in the long-term health of the economy,” she said.
But Hamilton admits it would be difficult to know the long-term impacts of the six months of payments. “What we do know is that there were promising things happening in those six months that will probably have to reverse course,” she said.
And the expiration of the credit could not have come at a worse time. Parents are losing that monthly income boost in a different economy than when the payments began – one where gas costs over $4 a gallon in New Jersey and food prices continue to rise.
“I feel backtracked,” said McKnight, who works as a substitute teacher in Newark and makes about $2,000 per month. “I still have the same job from when [the payments] first started, and it was only paying for the minimal.”
For now, McKnight is spending as little as she can. “I prepared just in case,” she said. “I prepared for it, meaning I did not use the last month of the child tax credit. I’m holding on to that. You never know.”
“It’s a fight and a struggle, when everyone else is not fighting and struggling,” McKnight said. “Little things help, and the child tax credit was that little thing that helped.”