Senior Tax Policy Analyst
The next COVID-19 relief legislation should make the Child Tax Credit fully available for tax year 2020 to families that now receive only a partial credit or none at all because their earnings are too low. That would reduce financial hardship and racial income disparities — benefiting 3.4 million Latinas and 2.0 million Black women, among many others — while stimulating the economy.
The Child Tax Credit is designed to support families with children, reflecting the notion that investing in children helps both them and society overall. Women of color and their children benefit significantly from the credit, which lessens racial income disparities stemming from historical discrimination and current barriers to opportunity. That’s especially true of the “refundable” part of the credit, which families can receive if the credit amount exceeds the amount of their federal income taxes. But due to limitations in the refundable credit, 27 million children in low- and moderate-income families do not qualify or receive only a partial credit of up to $1,400 per child (and in most cases less than that), well below the $2,000-per-child credit that higher-income families receive. These low- and moderate-income families disproportionately include women of color.
Extending the full $2,000 Child Tax Credit to low- and middle-income families would benefit roughly 6.1 million women of color, raising their credit by $2,300, on average. (See table.) Thirty-five percent of the women who would benefit are Latina and 21 percent are Black.
|Women Benefiting From a Fully Available Child Tax Credit of $2,000 per Child|
|Number Benefiting||Average Credit Increase Compared to Current Law||Share of Women in Racial/Ethnic Group Benefiting|
|Latina (of any race)||3,353,000||$2,100||18%|
|Not listed above or multiple races||351,000||$2,600||12%|
|Subtotal, women of color||6,091,000||$2,300||14%|
|Total, all women||9,713,000||$2,300||8%|
Note: Figures exclude dependents. “Not listed above” includes American Indian/Alaska Native (AI/AN), Native Hawaiian, and other Pacific Islander. Racial and ethnic categories shown are mutually exclusive; figures would be larger if they included women who identify with more than one racial or ethnic group. Figures for women who identify as AI/AN alone are not shown in the table because of concerns about sample size and data reliability and because limiting the figures to a single race and ethnicity has particularly strong implications for the estimated size of the AI/AN population. Among the roughly 2,354,000 women who identify as AI/AN alone or in combination, regardless of Latina ethnicity, 334,000 (14%) would benefit from making the Child Tax Credit fully available, receiving an average increase of $2,600. Following the mutually exclusive approach used in the table, about 955,000 women identify as AI/AN alone, not Latina, and 158,000 (17%) of them would benefit, receiving an average increase of $2,400. Average credit-increase figures are rounded to the nearest $100.
Source: CBPP estimates based on U.S. Census Bureau’s March 2019 Current Population Survey, using 2020 tax parameters and incomes adjusted to 2020 dollars.
Making the Child Tax Credit fully available to low- and moderate-income families for 2020 would yield both short- and long-term gains. First, it would provide effective economic stimulus, because it’s focused on lower-income families, who are likelier than higher-income families to spend rather than save any resources they receive. In fact, over 90 percent of the benefits of making the credit fully available would go to the lowest-income 40 percent of families, according to the Tax Policy Center. Moody’s chief economist Mark Zandi has estimated that a fully available Child Tax Credit would have a high “bang for the buck” as economic stimulus, generating more than a dollar in economic activity for every dollar of cost.
Second, making the credit fully available would help protect children whose parents lose their jobs or income during the current economic crisis, which has hit people of color the hardest. Parents’ job and income losses can have a “negative and persistent effect on children’s well-being,” research suggests, including poorer educational, health, and labor outcomes later in life, while programs that protect family income from falling too low can improve children’s educational and other outcomes years later.
Many low-income families with children are now struggling to meet basic needs. Consider, for example, a married couple with two children in which one parent typically earns $12,000 as a part-time dishwasher and the other cares for their children at home. If the former lost their job due to COVID-19 and, as a result, earned less than $2,500 this year, the family wouldn’t qualify for the Child Tax Credit, even though in a typical year they’d receive $1,425, or about $700 per child. Or consider a single parent with two children who works part time as a home health aide earning $9,000 and who kept working during COVID-19. Under current law, their Child Tax Credit would be worth just $975, or less than $500 per child — well below the $4,000 ($2,000 per child) that a higher-income family can get.
For tax year 2020, policymakers should provide the same $2,000-per-child credit to low- and moderate-income families as to more affluent ones (and ultimately should do so on a permanent basis). At a cost of $24 billion, that would be only a small part of the next economic relief package that policymakers will likely enact. But for millions of poor children, it would be one of the package’s most important and beneficial components.