How Lifting Children Out of Poverty Today Will Help Them Tomorrow

by Diane Whitmore Schanzenbach, Hilary Hoynes, and Melissa S. Kearney

As part of the latest COVID-19 relief package, the federal government has expanded the child tax credit and made it available to all families with children except those with the highest incomes. Families will get US$3,000 per kid ages 6 to 17, and $3,600 for younger children. The Internal Revenue Service will deliver half of this money as monthly payments of either $250 or $300 during the second half of 2021 and the rest as a lump sum during the 2022 tax season.

If the government extends this benefit beyond the one year that’s currently funded, as many members of Congress and the Biden administration would like, this policy has the potential to dramatically cut child poverty by as much as 50%. This kind of arrangement is already the norm in many countries, such as Canada, Germany and the United Kingdom. As economists who have spent decades studying poverty, we believe it will have lasting benefits.

Long-term benefits

Many studies conducted in recent years show that lifting children from the burdens of poverty has the potential to improve their health and ability to get a good education.

For example, economist Chloe East found that when low-income families with young kids receive benefits from the Supplemental Nutrition Assistance Program, the children are less likely to miss school and more likely to be in good health as they get older.

A team of researchers who assessed the effects of reforms to cash welfare programs conducted in the 1990s similarly found that helping low-income families pay their bills leads to their kids doing better at school in the future.

Other studies have looked into what happened when low-income families with children wound up with more money through expansions in the earned income tax credit, or EITC – a benefit paid to workers with low levels of earnings that the government substantially expanded in the mid-1990s.

Researchers have found that this increased income was associated later on with students scoring higher on standardized tests and becoming more likely to graduate from high school and go to college, and in early adulthood they are more likely to have a job and earn higher wages.

Another study that one of us conducted with two other colleagues found that babies born to families benefiting from the EITC are healthier overall. Other research found that women who give birth while benefiting from the EITC have better physical and mental health.

And two of us conducted a study that detected better health in adulthood for people whose families benefited from the introduction of the food stamp program when they were children in the 1960s and early 1970s. Similarly, researchers have seen long-term improvements in terms of increased educational attainment among lowincome children whose families received a type of basic income paid to members of the Eastern Cherokee tribal government out of casino profits.

When families with young children get access to cash welfare, that support has even been linked to higher earnings in adulthood and longer lives.

An incomplete fix

This entire body of research suggests that the benefits of alleviating poverty are significant when children get more money, food, health care and other resources early on, especially between conception and the age of 5.

To be sure, providing all but the wealthiest families who have children under 18 with extra cash will not begin to do away with all of the inequalities facing children in America. Nor will these payments ensure that all children ultimately have the same shot at good health, a great education or, down the road, opportunities to make a good living.

But we do believe that this policy, especially if it takes hold for the long term, will meaningfully improve millions of children’s lives and give them a much better start in life.

Among other things, it reverses a troubling trend. Since 1990, increases in federal spending aimed at benefiting children, including changes to the earned income tax credit, have often failed to assist the poorest families in a country where 1 in 7 children were languishing in poverty before the COVID-19 pandemic began.

Diane Whitmore Schanzenbach is professor of education and social policy and director of the Institute for Policy Research at Northwestern University.

Hilary Hoynes is professor of public policy and economics at the University of California, Berkeley.

Melissa S. Kearney is professor of economics at the University of Maryland and director of its Aspen Economic Strategy Group.

SIDEBARS

“The expansion of the federal Child Tax Credit is a remarkable step that shows when we have the will, we can combat child poverty,” said Voices for Illinois Children Executive Director Tasha Green Cruzat.

“Before the pandemic, Illinois had more than 430,000 children living in poverty. Nearly one million Illinois children were below 200% of the Federal Poverty Level – an amount research shows is necessary to meet just basic household needs. With hundreds of thousands of Illinois residents having lost jobs or seen reduced work hours due to the pandemic, the need for help is that much greater. Combined with the expansion of the federal Earned Income Tax Credit, we will take a major leap forward in helping low and moderate-income Illinois families.”

"Yet, the changes in the two tax credits will last for only one year. The impact of poverty – from health to education – can last for years. Congress needs to make the changes to both tax credits permanent and send the message, that as we move out of the pandemic, all of us will move forward together to a better life.”

-Tasha Green Cruzat

Executive Director Voices for Illinois Children

More income, higher test scores

The largest of the Earned Income Tax Credits increased family income by up to 20 percent, or $2,100, between 1993 and 1997. According to Gordon B. Dahl and Lance Lochner in the American Economic Review, a $1,000 increase in income raised combined math and reading test scores by 6 percent.

More money, more likely to finish high school and college

Looking at four decades of the federal and state Earned Income Tax Credit, Jacob Bastian of the University of Michigan at Ann Arbor and Katherine Michelmore of Michigan/Ann Arbor and Syracuse University found that an additional $1,000 received when a child was 13 to 18 years old increased his or her likelihood of completing high school by 1.3 percent, of finishing college by 4.2 percent, of being employed as a young adult by 1 percent and of increased earnings by 2.2 percent. Bastian and Michelmore’s findings were published in American Economic Review and University of Chicago Press Journals.

Universal child benefits in Europe

Similar to the $3,000 child credit that is being enacted in the United States as part of a COVID relief package, universal child benefit plans go to families whether they work or not and whether or not they will spend the money on childcare, food or rent. Here are the annual universal benefits in 2012 for families with two children in 11 European nations, according to the University of Antwerp’s Minimum Income Protection Indicators (MIPI), quoted by Vox:

Luxembourg: $8,750

Belgium: $5,709

Austria: $5,704

Germany: $5,620

Ireland: $4,060

Sweden: $3,507

Finland: $2,883

Denmark: $2,794

Norway: $2,576

Netherlands: $2,404

France: $1,779

EITC expanded in the mid-’90s

The U.S. Earned Income Tax Credit began in 1975, when roughly five million tax filers received Internal Revenue Service credits of about $1,000 each to reduce the federal income tax they owed. By 1994, nearly 20 million people were receiving a credit of roughly $2,000 and since 2009, it has leveled out at about 27 million people receiving a $2,500 tax credit, according to A Brief Legislative History on EveryCRSReport.com.

Early welfare program showed results in schooling, adult income

The Mothers’ Pension program was the first government-sponsored welfare program in the United States, from 1911 to 1935. Male children of accepted applicants lived one year longer than those of mothers who were rejected. They obtained one-third more years of schooling, were less likely to be underweight and had higher income in adulthood. Anna Aizer, Shari Eli, Joseph Ferrie and Adriana Lleras-Muney matched recipients' administrative records to census, World War II and death records, and reported in American Economic Review.