What States Can Do to Drastically Reduce Child Poverty
Building on the federal Child Tax Credit would yield dramatic results.
States have been called laboratories of democracy because they often launch some of the boldest policy ideas. Before the Affordable Care Act provided health insurance access for millions more Americans, for example, Massachusetts implemented a law that served as something of a template for the federal legislation.
Now, as national discourse focuses more acutely on income inequality and federal lawmakers float various policy ideas and legislation to improve the economic condition of low-income and middle-class families, states have another opportunity to lead the way. Further reducing child poverty is a good place to start.
The child poverty rate has declined substantially since the late 1960s, when more than one in four children lived in poor households. Today, the poverty rate is 15.6 percent (representing 11.5 million children), in large part because of policy interventions. But there is growing consensus that, as a rich nation, we can and should do more. Indeed, according to a study from the National Academies of Sciences, Engineering and Medicine, the United States has the means to cut child poverty in half in 10 years. The key is for states to build on a little-known lever in the federal tax code, the Child Tax Credit (CTC).
The Tax Cuts and Jobs Act of 2017 increased the CTC from $1,000 to $2,000, but income requirements and other provisions left many families out. More than 24 million children from the nation's lowest-income families received significantly less than the full $1,000 increase, and in many cases little additional benefit or none at all. Where the federal CTC falls short, states have an opportunity to step in.
In a joint project, we and our colleagues at the Institute on Taxation and Economic Policy and at the Center on Poverty and Social Policy at Columbia University modeled two state-level options. The first is a state-level version of the Child Tax Credit, which essentially would pick up where the federal CTC leaves off. It would provide a per-eligible-child credit that is fully refundable (that is, payable even to those who have no tax liability) for all low- and middle-income families not receiving the entire federal credit. So, for example, a family receiving a $1,400 federal credit for one child would also receive a $600 state credit. In this scenario, all states could reduce child poverty by more than 15 percent and close to a third of them could reduce it by 25 percent or more. Southern and Midwestern states would benefit the most.
A more ambitious second option, modeled after the proposed federal American Family Act, would increase the credit for qualifying children ages 6 and under to $3,600 and for older children to $3,000. The plan structure is similar to the first option in that it would work in tandem with the federal credit. Under this plan, all states could reduce child poverty by 25 percent, and half of them could reduce it by more than 45 percent. The large majority of states could reduce "deep poverty" for children -- those living in a household with a total cash income below 50 percent of the poverty threshold -- by more than 45 percent as well. There would be particularly steep reductions in child poverty in Idaho, Indiana, Nebraska and South Dakota and in child deep poverty in Arizona, Illinois, Louisiana and West Virginia.
State-level CTCs would also address racial inequities. The current federal CTC reduces poverty by 20 percent for white children but by just 13 percent for black children. Under both options in our report, the poverty-reducing effect would be much more equitably distributed across racial and ethnic groups. If all of the states were to enact their own CTCs under option one, the combined federal-state credit would reduce the child poverty rate nationally by more than 30 percent for all children; under option two, the reduction would be more than 50 percent.
The CTC is a powerful policy tool that both federal and state lawmakers have at their disposal to fight child poverty. But states don't have to wait for Washington to act. While our report describes two options, states -- acting once again as laboratories of democracy -- can consider numerous other policy approaches in creating state-level CTCs. Whatever approach they take, reducing child poverty would have immediate and long-term benefits for children, families and communities.