Who Benefits From The Expanded Child Tax Credit?

An important part of the 2021 American Rescue Plan: the Child Tax Credit.

Bipartisan approval enabled the credit’s expansion, meaning that as of July 15 nearly 60 million children in 39 million households were receiving benefits of $3,000 per child per month, and up to $3,600 for young kids and infants. 

Why It Matters: The anticipated results of this large investment are significant. Child poverty is estimated to be cut by 39%, lifting 4.5 million children out of deprivation. Household consumption of goods and services will get a big boost, according to a new report by the Niskanen Center, a nonpartisan think tank.

Although still saving money from the cash injection, lower income earners will spend large percentages of the tax credit on goods and services, said Samuel Hammond, the report’s author and director of poverty and welfare policy at the Niskanen Center.

The policy is near universal, he added, allowing parents to still accrue benefits even as they move up the economic ladder.

“It signifies that raising children is a common aspect of life,” he said. “Common to the very poor and middle class and even upper-middle class.”

The relative benefit of the tax credit is particularly helpful for rural families, as, in aggregate, family income from the tax credit in places like Alaska, Mississippi, Louisiana and Indiana will be netting more than 1.5% of their state’s GDP.

That means, for example, that “for or every $100 of gross income in Idaho, $1.8 stems from the (Child Tax Credit),” reads the report. In total, it will mean over $14 billion in new purchasing power for households in rural areas.

Other economists are excited about the expanded credit’s effects.

The tax credit “should provide disproportionate assistance to middle-class households and those in the lower two quintile of income earners,” wrote RSM Economist Joe Brusuelas in an email.

What Else To Know: In total, the tax credit is set to boost consumer spending by $27.6 billion over the year, leading to $1.9 billion in state and local sales tax revenue. It is also projected to spur the creation of 510,833 full-time equivalent median wage jobs.

Photo: Unsplash photo by Kabita Darlami.