Child Tax Credit Redux

Tax Notes 1303 (Nov. 25, 2019)

6 Pages Posted: 3 Apr 2020

See all articles by Francine J. Lipman

Francine J. Lipman

University of Nevada, Las Vegas - William S. Boyd School of Law

James E. Williamson

San Diego State University - College of Business Administration

Date Written: November 25, 2019

Abstract

Every day in its annual spinning rotation around the sun, the Earth moves from darkness into light. During these 24 hours, more than 1,700 American babies are born into poverty. One newborn is delivered into poverty every single minute of every single day in America. About 900 of these beautiful new lives are born into extreme poverty, struggling to survive on less than $9 a day. In one of the richest countries on Earth, more than 12 million American children live in poverty, including 5 million kids who live in extreme poverty. Poverty statistics are even more deplorable for children of color. Nearly 33 percent of African American children and 25 percent of Latino children live in poverty. Our youngest children, those who are under five years old, whose brains and bodies are still developing, suffer the highest rate of poverty of any age group. While this annual data is profound, the problem is even deeper and broader across their lifetimes. Nearly 40 percent of all children in America spend at least a year in poverty, and more than 10 percent spend at least one-half their childhoods in poverty. Starting at birth, up to and through adulthood, childhood poverty plagues, impairs, limits, and destroys lives.

Poverty costs America almost $700 billion every year as it tears away at bodies, minds, hearts, souls, and communities. Poverty is associated with hunger, homelessness, health, educational hazards, toxic stress, crime, and violence. Food insecurity causes lower reading and math scores, physical and mental health problems, and higher incidence of emotional and behavioral problems. Limited access to healthy, nutritious food can threaten children’s birth weight and physical and mental development and increase the risks of obesity. Infants suffering from poverty demonstrate cognitive deficiencies as early as nine months that often worsen with age. These early disadvantages are hard to overcome even if the cycle of poverty is broken.

Children who experience housing and food insecurity are more likely to suffer chronic health problems and violence. Exposure to financial adversity over a prolonged period can trigger toxic stress that rewires children’s brains, disrupts their social development, and undermines their ability to learn and succeed. Research shows stress increases the likelihood of low educational achievement, unstable employment, adult poverty, and involvement in the criminal justice system. Ninety percent of children who have never experienced poverty graduate from high school, while only 62 percent of children who spend at least one-half their lives in poverty complete high school by age 20. This is not surprising given that these children are more likely to be suspended and expelled for myriad poverty-related issues, including absenteeism and habitual tardiness.

Given the devastating consequences of poverty, individuals who experienced poverty at any point during childhood are more than three times as likely to be poor at age 30 than those who were never poor as children. The longer a child suffers poverty, the greater her risk of becoming a poor adult. A 2017 Urban Institute report found that 80 percent of children who spend at least one-half their childhoods in poverty were neither in school nor consistently working in their 20s. Moreover, the more toxic childhood experiences a person suffers, the greater their likelihood of health problems in adulthood, including heart disease, hypertension, diabetes, substance abuse, and depression.

Fortunately, scholars, advocates, and researchers have demonstrated that we can meaningfully mitigate childhood poverty by investing presently available resources in vulnerable kids. Nobel Prize–winning economist Professor James Heckman from the University of Chicago has found that investing in comprehensive quality programs for economically disadvantaged children from birth to age five generates a notably high return on the investment of 13 percent. Programs that provide health care from pre-birth forward and quality early learning produce a significantly higher return on investment per child every year than investing in preschool alone. Heckman has established through decades of research and studies that these programs pay for themselves many times over. Investments in vulnerable children can produce permanent gains in health and well-being, social-emotional skills, and IQ. The increases in parental income of these children after only five years have paid for entire early childhood programs. Heckman, an award-winning expert in the economics of human development, warns that “[t]he cost of inaction is a tragic loss of human and economic potential that we cannot afford.”

Proposed remedies for poverty often include enhancing existing federal income tax credit provisions, such as the Earned Income Tax Credit (EITC), the Child and Dependent Care Credit, and the Child Tax Credit (CTC). In 2018, refundable tax credits (the EITC and refundable portion of the CTC) lifted almost 9 million Americans out of poverty, including 4.7 million children. Without these tax credits, child poverty would be almost 6.5 percent higher than its already too high rate. The Tax Cut and Jobs Act (TCJA) passed by Congress in December 2017 and rushed into law in 2018 purportedly doubled the CTC from $1,000 to $2,000. However, rather than follow the proven policies laid out by Heckman, Marian Wright Edelman, American Progress, Tax Policy Center, National Women’s Law Center, Center on Budget and Policy Priorities, and countless other experts and child advocates to target investments in vulnerable children, Congress did nothing to invest in our poorest kids, but rather created a windfall for income-rich households. This article describes the failure of the TCJA changes to the CTC.

Keywords: Child Tax Credit, antipoverty relief, tax, workfare, Tax Cut & Jobs Act, refundable tax credits, inequality, child welfare, children's health, safety, childhood poverty

JEL Classification: H2, H21, H24, I30, I31, I32, K34, P36, P46

Suggested Citation

Lipman, Francine J. and Williamson, James E., Child Tax Credit Redux (November 25, 2019). Tax Notes 1303 (Nov. 25, 2019), Available at SSRN: https://ssrn.com/abstract=3532618

Francine J. Lipman (Contact Author)

University of Nevada, Las Vegas - William S. Boyd School of Law ( email )

4505 South Maryland Parkway
Box 451003
Las Vegas, NV 89154
United States

James E. Williamson

San Diego State University - College of Business Administration ( email )

School of Accountancy
San Diego, CA 92182-8230
United States
619-594-6021 (Phone)

HOME PAGE: http://www.sdsu.edu

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