Case Study 2 — The Expanded Child Tax Credit (2021): What $300/Month Did for Child Poverty

In July 2021, the first monthly Child Tax Credit (CTC) payments hit bank accounts: $300/month per child under 6, $250/month per child 6–17. The expanded CTC was part of the American Rescue Plan. It was universal (no work requirement), monthly (not annual at tax time), and fully refundable (even families with no income received it).

The results

Child poverty fell by roughly 30% during the months the expanded CTC was in effect (July–December 2021). About 3 million children were lifted above the poverty line. The monthly payments were used primarily for food, rent, clothing, and school supplies — not luxury goods.

The expiration

The expanded CTC expired in January 2022 (Congress failed to extend it). Child poverty immediately jumped back to near its pre-expansion level. The child poverty rate rose by about 41% in January 2022 alone.

The economics

The expanded CTC was a conditional cash transfer (Chapter 34's terminology) — though it was simpler than most (no conditions, universal eligibility). Its effects were consistent with the empirical literature on cash transfers: recipients spend the money on basic needs, child outcomes improve, and work incentives are not significantly reduced.

The cost: about $100–110 billion per year if made permanent. The benefit: a 30% reduction in child poverty (about 3 million children).

The debate: supporters argued the CTC was the most effective anti-poverty policy in U.S. history. Critics worried about the cost, the lack of work requirements, and the potential long-run effects on labor supply. The work-incentive concern is empirically small (the expanded CTC had no measurable effect on labor force participation during its six months of operation) but politically powerful.

Discussion questions

  1. The expanded CTC reduced child poverty by 30% at a cost of ~$100B/year. Is this a good use of public money?
  2. The CTC expired and child poverty jumped back up. What does this tell you about the permanence of anti-poverty gains?
  3. Should the CTC have a work requirement? Apply the behavioral and efficiency frameworks.