Why We Need a Child Allowance: Lessons from the Child Tax Credit

The central goal of a child allowance is to promote the health and well-being of children and families. By providing consistent and adequate income support, it can help families pay for immediate essentials, reduce the stress associated with struggling to make ends meet, and create a foundation for families to pursue their goals and aspirations. A child allowance invests in families with children, setting them up to thrive while cultivating a stronger, more prosperous future for our nation.

After decades of policies that have excluded families who need them most and that have perpetuated  harm by directly or indirectly excluding Black, Latinx, Indigenous, immigrant, and other families of color, we finally have an income support policy that is starting to work for all families with children. The Child Tax Credit (CTC) that was expanded under the American Rescue Plan is providing consistent support for the families who need it most, without being conditioned on work requirements or other factors that have operated to exclude families in the past. As families struggle just to make ends meet, the current CTC is already helping families meet their needs and has enormous potential to promote families’ long term health and well-being and advance racial equity.

Over 35 million CTC payments covering over 60 million children have been sent to families each month since July. The payments are showing results consistent with decades of research on child poverty and income supports:

Families are using their monthly payments to keep a roof over their children’s heads and avoid utility shut offs, evictions, and foreclosures; pay for school supplies and clothing; keep the family car on the road; pay down debt and reduce their reliance on predatory loans; cover the costs of child care; save for a rainy day; and afford the time to relax and play with their children.

The expanded CTC could do even more if it is extended. Researchers at the Urban Institute predict that extending the expanded CTC through 2025 would reduce child poverty from 14.2 to 8.4 percent in a typical year. It would narrow racial and ethnic disparities, cutting poverty rates from 20.4 to 10.1 percent for Black children and from 24.2 to 15.0 percent for Hispanic children, compared to a decrease from 7.7 to 4.4 percent for White children. Extending the expanded CTC would give federal, state, and local governments and on-the-ground partners more opportunity to sign up underserved families and address any administrative and implementation issues holding back the policy from reaching its full potential. Continuing this popular and beneficial program would provide reason for families to trust in government, as the government demonstrates through visible and predictable monthly payments that it cares about peoples’ everyday needs. Crucially, an expanded CTC would be a great step toward a child allowance that will provide regular, meaningful, and easy-to-access support to all children in need, with the potential to improve children’s long-term outcomes in educational attainment, employment, and health.

Congress is currently considering legislation that would extend the CTC expansion and ensure that it reaches the families who need it most. The Build Back Better reconciliation package proposed in the U.S. House of Representatives extends the CTC that was expanded under the American Rescue Plan Act through 2025, keeping the increase in the amount of the credit from $2,000 to $3,600 for children under the age of 6 and $3,000 for children ages 6-17 and adjusting it for inflation over time. In addition to the increased amount and important changes to rules that allow the payments to follow the child and restore eligibility for immigrant children, the credit will continue to be paid out in advanced monthly installments, regularly putting resources into families’ pockets to help meet basic needs.

Unfortunately, some policymakers argue that the benefit be tied to earnings out of a theoretical and baseless concern about the CTC disincentivizing work in the labor market. Not only is there no evidence from the first few months of the CTC payments to back up this claim, but the claim itself is often rooted in racist and sexist assumptions about who deserves help and what is “work.” Meanwhile, research on Canada’s experience with a universal child benefit suggests that in some cases a child benefit may increase employment, particularly for unmarried mothers, likely by helping them pay for the fixed costs related to engaging in the labor market, such as transportation, child care, and clothing. Regardless, the goal of the CTC is not, nor should it be, to promote employment

It is crucial that policymakers not lose sight of the reason we need a child allowance: to promote the health and well-being of children and families. The expanded CTC matters because it helps support families with children so that all children have what they need to pursue their goals and achieve their full potential and all families can afford the essentials their children need to grow and thrive. “The American dream comes with a lot of bills,” one parent told the Center for the Study of Social Policy.1 But a generous, permanent child allowance could “give Americans an opportunity to be able to not have debt and to really catch up on some things… Go for the American dream.”

1 The Center for the Study of Social Policy is conducting ongoing research into what the expanded monthly CTC means for families with children. Our interviews so far have made very clear: families have more flexibility, freedom, and choice in how they provide what is best for their children (as we have seen in family spending); and children in poverty have hope that things will be better because they are experiencing the results first-hand.