Millions of kids are living in poverty. Tax credits can help get them out of it

The pandemic has made it clear: America is choosing to let its children live in poverty.

For six months last year, the government lifted millions of kids out of poverty through monthly Child Tax Credit checks, a measure that was part of the American Rescue Plan. Despite critics of the plan warning that people would spend the extra income frivolously, parents of young children spent the checks on basic family needs< like food, clothing and rent. For many children, it might have been the first time they experienced a pantry filled with food, shoes that fit, or even a new blanket.

But those basics ended abruptly when the Senate failed to pass an extension of the tax credit at the end of last year. Experts warned poverty levels would spike back up, and they did. Child poverty jumped by 41% as soon as the checks stopped coming, according to a recent analysis from Columbia University’s Center on Poverty and Social Policy.

It doesn’t have to be this way. Smart policy can reduce poverty and boost our economy, and California can lead the way.

Tax credits are one of the most effective ways of defeating poverty. According to research from the Center on Budget and Policy Priorities, they are a financial tool that can improve the health of infants and mothers, boost educational outcomes, raise children’s lifelong earnings, encourage workforce participation and boost local economies. In other words, they’re good for the people receiving them and for everyone else, too.

For example, last year in California, the Earned Income and Young Child tax credits delivered $1 billion to 4.3 million low-income people. That billion, in turn, got pumped back into local economies through purchases at local grocery stores, restaurants, car repair shops, hardware stores and so on. Moreover, researchers said, the benefits will accrue at virtually every stage of life — meaning the earlier the investment is made, the better.

A recent study funded in part by the National Institutes of Health found that cash stipends disbursed during the first year of a child’s life were associated with greater cognitive development.

“It’s proof that just giving the families more money, even a modest amount more, leads to better brain development,” said Martha J. Farah, a neuroscientist at the University of Pennsylvania who reviewed the study for the National Academy of Sciences. Given poor brain health costs the global economy an estimated $2.5 trillion in lost productivity every year — and that estimate was made before the start of the pandemic — cash transfers increasingly become a fiscally sound and responsible policy to enact.