The Family Security Act 2.0 Creates Winners and LosersPoverty & Family Economics Tax Policy
Our children are facing some of the most challenging times seen in our nation’s history. America’s historically high rate of child poverty and significant racial poverty gap are among the most pressing of these challenges and are the root cause of so many of the obstacles to success faced by too many of our nation’s children and grandchildren.
The American people understand this. Recent polling of likely voters by the Lake Research Partners found that by over a 6-1 margin, Americans think we are investing too little in addressing child poverty and are very concerned that children are the poorest group in our nation. By a 86% concerned (61% strongly) to 12% not concerned margin, voters are worried by the 2019 landmark National Academy of Sciences, Engineering, and Medicine (NASEM) study analysis that estimated “child poverty costs our society up to $1.1 trillion a year due to higher crime, poor health outcomes, and lower-income levels when children living in poverty grow up.”
The good news is that we know what works to reduce child poverty. That same NASEM study found that a child allowance, operating as an extension of the Child Tax Credit, is the most powerful tool we have to combat child poverty and narrow the racial poverty gap. Extensive research shows when households with children receive cash transfers, they spend it on resources that support their children’s healthy development, improving their physical and behavioral health and educational outcomes, and leading them to earn more as adults. Increased household income also relieves parental stress, giving parents more time and mental energy for their children.
Policies that improve the lives and well-being of children receive strong support from the American people. In the Lake Research Partners poll, voters favor the provisions in the improved Child Tax Credit by a 72-21% margin with parents favoring the policy 77-18%.
These improvements to the Child Tax Credit were included in the American Rescue Plan Act and cut child poverty by nearly 30% in December 2021 and would have grown to an estimated 40+% if it had been extended in 2022. Households used the monthly credit to meet their children’s basic needs, leading to significant reductions in household food insecurity and material hardship. We will see even greater poverty reduction and a narrowing of the racial poverty gap in annual poverty data for 2021, as additional eligible families receive the rest or all of their Child Tax Credit after filing taxes this year.
Unfortunately, these improvements have expired. Despite the hard work of many Congressional champions and anti-poverty advocates, they have yet to be extended, even as 37 Senators and 170 Members of the House have co-sponsored the American Family Act, and proposed legislation that aided in designing the ARP provisions. As negotiations continue, recently Senators Mitt Romney (R-UT), Steve Daines (R-MT), and Richard Burr (R-NC) released the Family Security Act 2.0, an alternate proposal to reform the Child Tax Credit. This is an updated version of a 2021 proposal from Senator Romney with the same name.
This latest version of the proposal, detailed here by the Niskanen Center, would result in many low-income households with children, especially those with more than one child, receiving a larger credit than under the current, pre-American Rescue Plan Act version of the Child Tax Credit through both an increased maximum credit amount and a modified per-child phase-in rate. Households with only $10,000 of annual income in the previous tax year would get the full credit for each child up to six children, and the new per-child phase-in rate would begin at the first dollar of earnings rather than at $2500 of earnings under current law. The updated proposal also eliminates the current credit cap that limits a household’s refund to $1500 rather than the full $2000 and includes 17-year-olds, who are left out of current law but were included in the American Rescue Plan Act improvements.
Yet for many children with the least resources, the proposal provides little or no benefit and even leaves some worse off than the current version of the Child Tax Credit. Gains for low-income families would be offset by cuts to the Earned Income Tax Credit and elimination of the option for head-of-household filing tax status. Children in households with no income would receive nothing under this proposal, and children in single-parent households stand to lose the most from the cuts to the EITC and loss of the head-of-household filing tax status, which are used to partially fund the proposal.
Citizen children with immigrant parents who both file taxes with an Individual Taxpayer Identification Number (ITIN) would now be deemed ineligible to receive the Child Tax Credit, as well as children being cared for by grandparents or other kinship caregivers who don’t have full legal custody and may opt not to claim custody for a variety of reasons.
Our colleagues at the Center on Budget and Policy Priorities found that 7 million families, including 10 million children, with annual incomes less than $50,000 would lose an average of more than $800 a year, with Black and Hispanic children being disproportionately harmed.
The families that stand to lose the most under the Family Security Act 2.0 are also families with the greatest barriers to work and economic stability and thereby most in need of the Child Tax Credit — which has been shown to help families maintain steady employment and afford childcare.
In contrast, high-income households with children with annual incomes up to $400,000 (for married couples) would receive the full amount of the credit per child. Romney, Daines, and Burr add higher-income pregnant households to the Child Tax Credit. They could now get part of the credit 4 months before their child is due, which is in sharp contrast to many poor children who would see little or no benefit under the proposal.
Finally, the proposal is paid for, in part, by eliminating the child portion of the Child and Dependent Care Tax Credit (CDCTC) and cutting the EITC, thereby pulling from existing credits that support households with children and going against the public sentiment that we already spend too little on our nation’s children. The Child Tax Credit would also now be administered through the Social Security Administration, leading to concerns that the money a family receives from the Child Tax Credit could reduce the benefits that a household is eligible for.
All of these changes result in the Family Security Act 2.0 having a much lesser impact on reducing child poverty than the American Rescue Plan Act or even Senator Romney’s previous version. In fact, the Niskanen Center estimates that the Family Security Act 1.0 would have cut child poverty by an estimated 33%, but the positive impact drops to just 13% under the Family Security Act 2.0 due to these changes.
Changes to the Child Tax Credit should prioritize improving the best interests and well-being of children, including reducing child poverty. Voters agree. An overwhelming majority – 82% -10% — agree that federal policy involving children should “always be governed” by a standard that makes the safety, protection, or well-being of children “the first priority.”
Unfortunately, the revisions made to the Family Security Act 2.0 no longer prioritize child poverty reduction. It is no longer even included in the listed benefits of the proposal text. This is a tragic mistake — morally, economically, and politically. The National Academy of Sciences confirms that reducing child poverty not only has direct implications for individual children’s healthy development and future success but also has a significant return on investment for our economy.
The public supports the Child Tax Credit improvements made in the American Rescue Plan Act that significantly reduced child poverty, so much so that voters are more likely to vote for a candidate who supports them (and conversely, less likely to support a candidate who opposes them) by a 5-to-1 margin.
While the Family Security Act 2.0 takes some steps in the right direction towards improving the Child Tax Credit, it creates winners and losers and significantly departs from the initial and critically important goal of reducing child poverty. We need a Child Tax Credit that helps children who need it most and helps ensure that every child in the U.S. has an equal chance of success, and we should look to the American Rescue Plan Act and the American Family Act introduced by our Congressional Champions as a starting place to do just that.