Improve Child Outcomes & Reduce Poverty by Expanding Tax Credits for Low-Income Families

by Pete Nabozny, Director of Policy, The Children’s Agenda

Tax policy is seen as dry and abstract to many people, but actually has an enormous impact on the lives of people in our community. A growing body of research shows that tax credits targeted to low-income families lead to better lifetime outcomes for poor children. Past expansions to the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) have been linked to improved infant and maternal health, better school outcomes, greater college enrollment, and even greater work and earnings.

For these reasons, The Children’s Agenda has long been supportive of both state and federal efforts to improve these types of tax credits. The Working Families Tax Relief Act (WFTRA) is proposed federal legislation that substantially expands both the EITC and the CTC. Across New York State, 6.5 million people would benefit from passage of the WFTRA, including 2.7 million children. Nationally, WFTRA would reduce child poverty by 28%, raise working-class incomes, and ultimately benefit 46 million Americans.

Consider the potential impact of WFTRA on one hypothetical family in Rochester.

Melissa Williams is a classroom assistant at a child care center in the City of Rochester. She’s been in her position for a little more than 2 years, having transitioned into her position from public assistance. She makes $12.50 per hour or $26,000 per year. This is the longest job she’s ever held, and she believes she’s found her calling working with young children. She would like to enroll in a Child Development Associates Credential program at Monroe Community College, and dreams of someday pursuing a bachelor’s degree in this field.

But despite her steady employment, it’s tough for her to make ends meet. At $26,000 per year, Melissa makes a bit too much to qualify for programs like SNAP, Medicaid, or housing assistance. Melissa has a 4 year old daughter named Sophie, whom she loves dearly. But while adorable, young children are also quite expensive, and the rent for their apartment already consumes up to 40% of her pay each month. Getting through each month is a difficult juggle financially, and Melissa’s accrued a bit of a credit card balance that she can’t manage to pay down. Melissa dreams of someday buying a home, but that seems like an unattainable goal given her current income and situation.

Each day, Sophie joins Melissa for a 30 minute bus-ride to work. Sophie is enrolled in a Universal Pre-Kindergarten program at Melissa’s child care center, and the arrangement works well enough right now. Melissa doesn’t mind the bus, and enjoys the commute with her daughter most mornings. Still, she would love to be able to afford a car when Sophie reaches school age. She’s not sure how she will manage school bus pick-up and getting to work on time each morning. Owning a car would cut her commute down to 10 minutes, allow her to be home when the school bus arrives in the morning, and would generally give her more flexibility to get to events at her daughter’s school and other appointments. She knows that parent involvement is important to her daughter’s education, and would love to get involved in the PTA once her daughter enters school.

What would WFTRA do for Melissa and Sophie?  To start, it would significantly boost the amount they receive from the Earned Income Tax Credit. Her EITC would rise by nearly $900 from approximately $2,412 to $3,293.

More significantly, Melissa and Sophie would benefit from WFTRA’s expansion in the federal Child Tax Credit. The 2017 tax law expanded the credit from $1,000 to $2,000 per child, but capped the “refundable” amount at $1,400. Only families who owe income taxes (the law ignores payroll tax contributions) are able to access the full $2,000 amount. WFTRA makes the child tax credit fully refundable, and phases in at $1 of earnings. This allows lower income families to benefit from the credit as much as higher earners.

WFTRA also recognizes the particularly harmful effect poverty has on young children. Children under 6 are the most likely group in the United States to experience poverty. In Monroe County, 24% of children under 6 are in poverty. In the City of Rochester, that figure rises to an unconscionably high 53%. Across New York State, nearly 23% of children under 6 experience poverty. Among many other negative consequences, children experiencing poverty are at a much higher risk of low academic achievement, school dropout, abuse and neglect, socioemotional and physical health problems, and development delays.

By contrast, expansions in the EITC and CTC produce lifelong benefits, especially for young children. As noted above, research shows that receipt of larger credits is linked to higher test scores, higher high-school graduation rates, and higher college attendance. These benefits beginning accruing while children are very young.

With this in mind, WFTRA wisely creates a new $3,000 child tax credit for children under 6 years old, therefore prioritizing spending on young children. As Sophie is 4 years old, the credit received by Melissa and Sophie under WFTRA would increase from $1,400 to $3,000.

In total, WFTRA would add approximately $2,500 to the Williams household, raising Melissa and Sophie’s income by almost 10%

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Those additional resources can be used for whatever needs the family has, whether it is paying down debt, saving for unexpected future expenses, helping purchase a used car, participating in a first time home-buyer program, or helping her pay for classes at a community college. The impact of addressing all of these needs and the reduction of family stress that comes from having more resources will benefit Sophie immensely throughout her childhood.

Melissa’s situation is not unique. Child care workers like Melissa would be among the largest beneficiaries from this legislation in our state. Over 50,000 child care workers statewide would see their incomes rise significantly if this bill were passed.

We can improve the lives of millions of children and families across the country by passing WFTRA. WFTRA is co-sponsored by Senators Gillibrand and Schumer, along with Rochester’s member of Congress, Representative Joe Morelle. The Children’s Agenda thanks all three for their sponsorship of this bill, and we urge all of New York State’s congressional delegation to sign-on in support.