By Ashley Burnside

This is the first in a series of commentaries from CLASP experts that explore dimensions of poverty ahead of the U.S. Census Bureau’s annual release of poverty and income statistics along with health insurance coverage from the previous year. On September 10, we’ll get a snapshot of the economic hardship children, youth and young adults, and families experienced in 2023. Ahead of the release, CLASP experts are offering key insights on the Medicaid unwinding, raising labor standards and enacting new regulations to protect workers, and a fully funded child care system’s role in ending poverty. And, in honor of the 60th anniversary of the War on Poverty, we’ll examine what has and has not changed in the past six decades. The complete series is available here. 

The annual poverty data released each September by the United States Census Bureau showed an amazing drop in child poverty from 2020 to 2021, followed by a heartbreaking return to previous levels in 2022. We’re not expecting major changes when the data for 2023 are released next month. But a potential 2025 tax package provides an opportunity for improvement.

The dramatic improvement in 2021 was driven by the temporary expansion of the Child Tax Credit (CTC) under the American Rescue Plan Act. The expanded CTC increased the credit available to families, especially for those with younger children; made the credit available to families with little to no earnings; and allowed families to get the payments monthly. CLASP worked with other organizations to survey families about their experiences with the expanded CTC in 2021. Parents reported spending the payments on bills, food, and other essentials, while also noting that the payments reduced their financial stress.

Federal lawmakers let the CTC expansions expire in 2022, meaning that the credit reverted to its $2,000 per child maximum; was no longer available monthly; and was not fully available to families with little to no earnings. CLASP’s survey found that families faced financial hardship once the expanded payments ended.

Without action from Congress in 2025, some provisions of the 2017 Tax Cuts and Jobs Act will expire. Congress will therefore likely pass a substantial tax package next year, which could include changes to the CTC. Congress should not simply extend the 2017 tax cuts because this would largely benefit wealthy taxpayers over people with low to moderate incomes and maintain the current unacceptably high rates of child poverty.

A prospective tax package creates opportunities to promote an equitable tax code that invests in workers, families, and communities. What’s included in the tax package could impact child poverty rates for years to come. Lawmakers have a choice: to promote tax policies that invest in workers and families with low and moderate incomes and raise revenue to invest in our communities, or to implement tax policies that favor wealthy people and rich corporations and that deplete revenue.

In addition to raising needed revenue for investments, the tax code can be a powerful anti-poverty tool through refundable tax credits. Here’s a list of improvements to the refundable credits that should be included in a 2025 tax package:

• The American Rescue Plan Act expansion proved that a fully refundable CTC is a highly effective anti-poverty tool. Lawmakers must prioritize making the CTC fully refundable and available to families with little to no earnings, which would allow an estimated 19 million kids to access the full CTC.
• Workers paid low wages without dependent children are the only group taxed into poverty. Congress should expand the Earned Income Tax Credit (EITC) available to workers without dependent children and for both younger and older workers. In 2021 these temporary expansions reached an estimated 17 million people, including 5.8 million workers taxed deeper into poverty due to the small size of the EITC they were eligible for.
• All families with low incomes should benefit from these important credits. Congress should expand access to credits—including the CTC and EITC—for tax filers and children with Individual Taxpayer Identification Numbers (ITINs). This policy would expand access to many children in mixed immigration status families and reduce child poverty further. For example, restoring CTC eligibility to children with ITINs would make up to 1 million kids eligible for the CTC who were cut out for the first time under the 2017 tax bill.
• The tax system significantly subsidizes higher-income taxpayers with home loans because the mortgage interest is deductible. Yet there are no federal tax benefits for renters, a quarter of whom spend more than half of their incomes on housing. Establishing a federal renters’ tax credit could help over 4 million people afford rent.

In addition, unless Congress acts, millions of people will face higher health insurance premiums due to the expiration of the enhanced Premium Tax Credit (PTC) for people who use the Affordable Care Act’s Marketplace. The PTC enhancements drastically reduced enrollees’ monthly premium payments, leading to a doubling of enrollment in the Marketplace in 2024 compared to 2021. Congress should ensure the continuation of affordable health insurance premiums in the Marketplace beyond 2025 by making the enhanced premium tax credits permanent. Without Congressional action, many people currently using the Marketplace for health insurance will likely not be able to afford to pay more toward their premium every month and will become uninsured.

Congress can make other changes to the tax code in a legislative package that could further reduce child poverty rates. Lawmakers should generate more revenue from our tax code that could be invested in critical community needs, like expanding access to child care, a national paid family and medical leave program, and expanded home and community-based services for people with disabilities. Congress should also make the tax code fairer by requiring the wealthiest individuals and wealthy corporations to pay their fair share in taxes.

The Census poverty data will likely keep reflecting about the same rates of child poverty unless lawmakers make bold investments such as permanently expanding the CTC. In 2025, our nation has a pivotal opportunity to make a substantive impact by implementing expansions to tax credits and making our tax code more equitable.