The historic American Rescue Plan includes a major proposal to fight child poverty and support well-being with an expansion of the Child Tax Credit. An estimated 137,000 North Carolina children will be lifted out of poverty by the Child Tax Credit expansion alone at a time when families across the state are in crucial need of help.
The power of this provision lies not only in combatting poverty and hardship, but also in its design to address historic exclusions and demonstrate how providing households monthly support will help them meet their families’ needs.
Prior to the changes in the American Rescue Plan, the Child Tax Credit disproportionately blocked Black and Latinx children from the benefits of these dollars proven to boost developmental, educational, and lifelong outcomes. In North Carolina, 540,000 Black and Latinx children will now be able to access the Child Tax Credit.
This is primarily because the tax credit will now be fully refundable, providing households whose earnings are too low to owe income taxes the full value of the credit. Through this design and its novel delivery — via advance payments in July through December — the expansion provides families with children the income to support their children’s well-being.
The Institute on Taxation and Economic Policy finds that more than half of the Child Tax Credit expansion will go to the poorest 40% of households whose incomes are below $35,000 a year.
Time and time again, research has pointed to the benefits from the Child Tax Credit, and by extending the policy’s reach we can expect broad benefits:
- From the Center for American Progress: “A $3,000 increase in annual family income for children under age 5 translates into an estimated 19 percent earnings increase in adulthood.23″
Providing families with additional income supports during a child’s early development has also been shown to have substantial benefits for future health and educational attainment.24”
- From the National Academies of Sciences, Engineering and Medicine: “Studies estimate that child poverty costs the nation roughly between $800 billion and $1.1 trillion annually in terms of lost adult productivity, the increased costs of crime, and increased health expenditures.”
The American Rescue Plan provides an important demonstration of how we can design policy that reduces child poverty. The Child Tax Credit expansion should be a permanent commitment. Investing in children’s well-being is worth it.
To find out about free tax preparation sites near you, visit this Internal Revenue Service listing of locations: https://irs.treasury.gov/freetaxprep/