Childhood deprivation is costly and is very likely to be transmitted across generations. In the US, intergenerational income mobility is relatively low, and high levels of inequality make it difficult for many hard-working and talented people to obtain the rewards they deserve. 

After the recent budget reconciliation bill passed the House, the Senate has important decisions to make that could change the lives of millions of low-income children. Unfortunately, extending tax cuts for the wealthy appears to be a more important priority for the “One Big Beautiful Bill” Act than enacting policies that would cut child poverty.

As people may recall, the 2021 enhanced Child Tax Credit (CTC) achieved historic child poverty reduction. After its expiration, however, the share of children living in poverty in 2022 spiked across nearly all states. Many states responded by introducing their own state-level versions of CTC to provide many lower-income families with extra support.

Recognizing the central role such a lifeline measure has for low-income children, nearly all these states make the benefit accessible to parents with irregular or minimal earnings, maximizing financial support for low-income families. However, the full refundability component – which extends benefits to those who do not earn enough to pay income taxes – is not part of the current tax bill making its way through Congress.

This has clear effects. As shown in Figure 1, states with new refundable benefits around 2022 and 2023 were able to stabilize their year-over-year poverty rate. In contrast, those that did not adopt a new CTC during that period saw their average child poverty rate rise by about 14 percent. Many of the newly adopted states have the full refundability component, a central part of poverty reduction. Places like New Jersey, Oregon, and New Mexico all had a relatively lower poverty rate in 2023 compared to 2022 figures. By contrast, nationwide the child poverty rate continued to rise in 2023, reaching 13.7 percent, an increase of 1.5 percentage points.

The year-to-year picture of young child poverty (under 6) mirrors the same pattern, with a larger magnitude. States without any new form of CTC during the period saw their poverty rate rise by roughly 23 percent from 2022 to 2023. On the other hand, newly enacted policies in the rest of the states led to a reduction in the share of young poor children.

Although other factors such as local market trends and other state policies may influence the poverty changes, the message is clear: A fully refundable provision is key to an inclusive and supportive measure for families with low incomes, who are disproportionately working volatile or reduced hours, single parents, and Latino and Black parents. 

Another element that policymakers should take seriously is the periodic payment schedule. Families’ needs change weekly, monthly, and quarterly — not to mention the precarious labor market experience and financial ups and downs that people face.  A program like the CTC with an advance payment system can deliver positive results for working parents in moments of need.

As the world’s wealthiest country, spending on families and children in the US is meager. In 2021, the US invested less than one-third of the OECD average on cash and in-kind services for families with kids (see Figure 2). An overwhelming number of the countries shown in the figure have some form of child benefit — including Australia, Belgium, Denmark, Germany, Iceland, Ireland, Luxembourg, and the Netherlands.

Usually, governmental policies aimed at reducing child deprivation take the form of either income-security support or employment support or both. As the labor market has become highly volatile, income support is of great importance. Restricting access to benefits that would compensate for adverse income shocks is likely to increase poverty and child maltreatment risk, a costly problem for society as a whole.

Given the budget constraints, any discussion surrounding CTC might boil down to whether policymakers want a more targeted program that delivers larger benefits for those in need, or a program that is good for a broader group of families — those moving up the income ladder, the working class, and the middle class. They could complement each other.

A more frequent, stable income payment like the monthly CTC would serve as a floor for families to cope with financial hardship resulting from unstable employment. The US government can act to reverse the pattern, becoming a place where every child can thrive