We both served as secretary of the Treasury, and we have been associated with economic policies that are both fiscally responsible and invest in our future. It is our strong view that Congress should act this year to ease the financial strain on low-income families raising children, and that these policies should be paid for in a package that reduces the deficit. This is not just morally right, but a critical investment in our nation’s economic future.
As the White House and Congress negotiate economic legislation, they should prioritize making the child tax Credit available to families with low or no earnings through a provision known as refundability, and expanding support for child care.
Critics fear that such measures could increase inflation. But those fears are misplaced. The plan the White House and the Senate are discussing will both reduce the deficit and make the important investments for a stronger future. While the families who will benefit spend more of their marginal income — which would increase demand in the economy somewhat — than the wealthy who will be taxed to finance this policy, the total reduction in the federal deficit will lower demand by a greater amount. The proposed legislation would, on net, tamp down inflationary pressure.
Policymakers expanded the child tax credit for 2021 in last year’s American Rescue Plan and, crucially, made the full credit available to families with low or no taxable earnings, known as full refundability. By making these credits fully accessible to families with the greatest need, the number of children living in poverty fell dramatically. The law also temporarily raised the maximum credit. Research shows that children who are lifted out of poverty do better in school and gain the skills needed in the workplace.
Before last year’s changes to the child tax credit, the parents of 23 million children received either a partial credit or none at all, because their earnings were too low to qualify for the full credit. This left out or shortchanged about half of Black and Latino children, half of children in rural areas, and almost one in four white children. The families who needed the credit the most received the least.
Changes to the credit kept an estimated 3.7 million children out of poverty at the end of last year, and its expiration in January caused child poverty to rise 41 percent, according to research by Columbia University’s Center on Poverty and Social Policy. Low-income families used the expanded credit to pay for rent and utilities, buy food, and support their children’s education.
In permanent legislation that includes deficit reduction, it will most likely be too costly to include a full Rescue Plan expansion of the credit. But even a partial increase would help. The most critical step, where benefits to families and society far exceed the comparatively low costs, is permanently making the entire credit available to the lowest income children. For example, just making the current $2,000 credit refundable would reduce child poverty by roughly 20 percent. Refundability is the most consequential way to reduce child poverty, and we urge lawmakers to make it permanent.
The loss of refundability from the expiration of the Rescue Plan comes at a particularly tough time: With prices for food, gas, and other necessities rising, families with low incomes are feeling pressure. Taking action now to restore a fully refundable monthly credit would make a big difference.
The American Rescue Plan also provided new, temporary funds to help shore up the nation’s child care system. Many child care providers, largely small businesses, suffered serious losses during the pandemic and had to shut down. Strengthening child care and helping families afford its high cost are critical to family budgets and our economy. The temporary help is working, but we need a longer-term investment to lower child care costs and make sure children are well cared for while their parents work.
In a package that reduces the deficit, it may be necessary to scale back the size of the child care expansion from earlier proposals, but maintaining some increased funding remains important. We have long underfunded child care, and only a small fraction of families that need help paying for it are getting any kind of subsidy to make it affordable.
In an increasingly competitive global economy, we need all of our children to reach their full potential so they are prepared for the jobs of tomorrow. Research shows that when children grow up experiencing poverty, they tend to grow up less healthy, complete less formal schooling, and earn less as adults. But when we help families make ends meet, children’s outcomes improve and their futures brighten. That’s not just good for kids, it’s imperative for our overall economy.
We also need parents to be able to work, so they can support their families and grow our economy. Making child care more affordable is a win-win — enabling parents to work and ensuring that children get the care they need.
We understand lawmakers’ concerns about inflation. We share them. But the plan the White House and the Senate are discussing will not add to inflation. Here’s what it will do: reduce child poverty, narrow racial disparities, make child care affordable, reduce the deficit and strengthen our economy for the future.
Robert E. Rubin was secretary of the Treasury from 1995 to 1999. Jacob J. Lew was Treasury secretary from 2013 to 2017.
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