This article appears in the May/June 2021 issue of The American Prospect magazine. Subscribe here.
Cheri Honkala has been a welfare rights activist since the 1980s. It’s been decades of frustratingly slow work, ensuring that poor mothers like herself could access the benefits they needed to survive. These days, the bulk of her time is spent occupying empty houses for people with no alternative shelter. Combined with the pandemic, there is a housing crisis in Philadelphia, where Honkala lives.
JOHN P. DESSEREAU
The life of a welfare rights activist has been one of constant disappointment. In the 1960s, welfare agencies surveilled single-mother recipients to ensure men didn’t live in their homes; some states regularly found ways to exclude Black women from benefits. As the years went on, and welfare became increasingly racialized as Black women gained access to benefits, groups like Honkala’s worked to resist the linking of welfare to low-wage work. In 1996, President Clinton signed the law that would “end welfare as we know it,” which enforced lifetime limits on benefit receipt, allowed states to design their own programs with the new Temporary Assistance for Needy Families (TANF) block grant, and, as the centerpiece, required work in exchange for benefits.
The welfare rolls plummeted, sometimes because people got jobs, but also because they were simply pushed off assistance. States often used block grant funds to patch up state budget holes, rather than on needy families. Nationally, just 23 of every 100 families living below the poverty line received cash assistance in 2019, compared with 68 out of 100 before welfare reform. In some Southern and Western states, the number can be as little as four out of 100.
“In the 30 years that I’ve been doing this, I never thought things would be this horrible,” Honkala says. She surprisingly looks back at the dawn of welfare reform as “the good old days.” Back then, she’d host a sit-in and win a negotiation with the human services department. Now, she and her fellow activists get hit with misdemeanors and felonies. And deprivation remains widespread. Even middle-income professionals come to her for help after falling on hard times.
But in March, President Biden signed the American Rescue Plan, a massive relief bill that expanded benefits for millions of people who slid out of economic security during the pandemic, and millions more who were never stable to begin with. Besides $1,400 stimulus checks, the plan expanded the Earned Income Tax Credit (EITC), extended unemployment insurance benefits, increased housing assistance, delivered more TANF funds to the states for the first time since the Great Recession, and increased benefits for the Supplemental Nutrition Assistance Program (SNAP, commonly called food stamps).
Most notably, the legislation included an expanded Child Tax Credit (CTC). The expansion didn’t merely increase the benefit to as much as $3,600 per child; it also expanded eligibility to families with little or even no earnings.
Passage of a universal child allowance finally reversed a 25-year trajectory of welfare reform. “The expanded Child Tax Credit is an admission that child poverty is a policy choice and not an individual failing,” says Heather McGhee, author of The Sum of Us: What Racism Costs Everyone and How We Can Prosper Together, a book about how zero-sum thinking on racism destroyed public policies and programs that benefited everyone. The expansion itself, she says, “is a repudiation of racist thinking [and] racist politics and policymaking.”
For so long, it was taboo to consider welfare without work. An economic crisis coupled with stimulus payments helped to disrupt that thinking and gave us a new CTC. But it only gave it to us for the 2021 tax year. And as the debate sharpens over extending it, serious questions remain about how to design cash benefits to maximize participation and impact. Where that debate ends could create an opening to fix many of the problems with the current social safety net.
“I think it’s a great opportunity,” says Honkala. “If people actually get it.”
LIKE MOST OF THE current welfare system, the original incarnation of the CTC is based on earnings. It features what observers often call a “trapezoid” shape. You have to earn at least $2,500 to receive anything from the traditional CTC; more than one-third of children are ineligible for the full benefit, not because their parents make too much, but because they make too little. The credit then phases in at 15 percent of earnings, to a maximum of $2,000 per child. (This was doubled from $1,000 in the 2017 tax reform; barring any changes, the CTC will revert back to $1,000 in 2025.) Because many poor families pay no federal tax, the first $1,400 of the old CTC was refundable, meaning that families receive it regardless of their tax burden.
The traditional credit phases out for incomes above $400,000 for households ($200,000 for single parents) and reduces to nothing at $480,000 for households ($280,000 for single parents). The phase-in and phaseout, plotted on a graph, make the benefit levels look like a trapezoid.
With the adoption of the American Rescue Plan, families will receive $3,600 for each child under the age of six and $3,000 for kids 17 and under (17-year-olds are newly eligible). The credit will be delivered in advance through “periodic payments,” mimicking a regularized cash benefit. It is meant to be paid monthly, but that couldn’t be confirmed by the time the bill’s language was finalized, though the government announced in May that monthly payments will begin to arrive in bank accounts on July 15. The remaining credit will then be paid out in 2022. The credit phases out starting at household incomes of $75,000 for single parents and $150,000 for married ones.
This has the potential to be transformative for lower-income families. Picture a single mom working in retail, making $10,000 a year. She has three kids: a toddler, an eight-year-old, and a 17-year-old. Under the traditional CTC, this hypothetical but likely very real family receives about $1,125 in payments—$562.50 each for the toddler and eight-year-old, while the 17-year-old is ineligible. Under the new law for this year, the toddler will receive $3,600 and the eight-year-old and 17-year-old will each receive $3,000. That’s $9,600 in one year, paid out monthly—an $8,475 boost from the traditional credit. The change would nearly double this family’s income.
“That’s potentially life-changing for those children,” says Chuck Marr, senior director of federal tax policy at the Center on Budget and Policy Priorities (CBPP). He adds that the traditional CTC and the EITC together push 5.5 million children across the federal poverty line; just the CTC alone will lift an additional 4.1 million children out of poverty, cutting child poverty by about half. Black, Latino, and Native American children will disproportionately benefit because they’re disproportionately impoverished, showcasing the racial-equity power of this almost-universal program.
The credit will also help middle-income families, through its design as a monthly benefit. A monthly cash payment will pad the budgets of these families and reduce the likelihood that an emergency will bankrupt them. In a typical year, nearly half of all children live in households that experience at least one income shock.
To H. Luke Shaefer, a professor (my former professor, in fact) at the University of Michigan and co-author of $2.00 a Day: Living on Almost Nothing in America, finally expanding benefits to families without earnings feels like “waking up from a bad dream,” reversing a welfare reform that needlessly divided Americans and did not lead to widespread prosperity for low-income families, as promised. He notes that the pandemic-era stimulus payments sent more money than the entire annual TANF budget, straight to poor families.
With three stimulus checks sent out in 12 months—which nearly 80 percent of Americans approve of—the conversation around cash assistance may be changing, and quickly. “Maybe it’s not that Americans hate giving money to poor families,” Shaefer says. “Maybe it’s mostly that they want it too.”
The expanded Child Tax Credit will lift 4.1 million out of poverty, cutting child poverty by about half.
But the thrill of America finally overcoming the welfare stigma and moving to universal cash benefits must be leavened by its temporary nature. As I write, the expanded CTC has not been made permanent. President Biden, in his American Families Plan, proposed making the credit fully refundable but only expanding it until 2025. Remember, after 2025, the credit reverts back to $1,000. The White House did say that making the expansion permanent was the president’s “ultimate goal,” perhaps signaling a gamble to expand it for just four years now to make the budget look leaner, and assuming that the credit’s popularity will make it untouchable.
It does seem politically difficult to cut poverty by so much and then allow it to increase all over again. And not all conservatives are against it. Sen. Mitt Romney (R-UT) proposed his own version of a child allowance, a plan which impressed many progressives. And the libertarian Niskanen Institute was an important ally that helped drive the bipartisan appeal of the CTC. But you can expect plenty of Republican resistance, using old tropes that demonize welfare as an undeserved benefit for parents who don’t work.
The credit is more likely to become permanent if the rollout goes smoothly, if everyone eligible to receive it actually gets it, and if the benefits become visible and clear. But there’s some work to do to ensure that.
AS MUCH AS ONE CAN call the credit “historic” and “unprecedented,” it is also true that it will only be as effective as it is accessible. For a family to access the expanded CTC, they have to file taxes—it is, after all, a tax credit. But the poorest people in the U.S. generally don’t have to file taxes, and some never have. While they pay payroll taxes and excise taxes, most owe nothing in federal income tax.
“Filing taxes is complicated, and for many people scary,” says Jen Burdick, an attorney at Community Legal Services of Philadelphia (CLS). Some of her clients don’t just think they don’t have to file taxes—they think they can’t, or worse, that they’re not supposed to and could get in trouble if they did.
It’s not merely anecdote that suggests this to be the case. About 1 in 5 workers who are eligible for the EITC don’t claim it. And we already know how difficult it was getting people connected to the tax system in order to receive stimulus payments. While many people received checks automatically through direct deposit, poverty made stimulus check receipt much more difficult.
For example, the IRS set up a simplified filing portal for people who weren’t required to file taxes to get their checks. You needed a computer to access it, and it’s hard to find public computers during a pandemic. Many low-income people use their phones to access the internet, but the portal didn’t work on mobile devices. Then, you needed an email address to fill out your information. To create an email address, you may need to have a cellphone to get a confirmation text sent to you. What was your AGI in the previous year? You have to know it—and you have to know what an AGI is (adjusted gross income). Finally, you may need documents to confirm your identity, which you may not have if you move a lot or are homeless. Acquiring those documents will then cost money. And if you don’t speak English? That’s another layer of difficulty.
And that was all with a simplified filing portal, which the IRS has not yet created for those filing to get the expanded CTC. (Last year’s simplified filing tool was closed in November 2020.)
In January, the IRS estimated that about eight million eligible households had not received their CARES Act stimulus payment. Some people may have accidentally thrown out their checks or IRS-issued debit cards, but most probably did not fill out the IRS portal. This is the same population—unaware of IRS rules, unfamiliar with stimulus payments, unsure how to get their checks, earning so little (less than $12,400 in 2020) that they don’t have to file taxes—that would most benefit from the expanded credit.
Many advocates are pushing for a similar portal to the one that the IRS implemented for the stimulus payments to help families without tax obligations file taxes, so they can get the expanded CTC. It could also help families update changes in family structure or add new bank account information. Such online portals could be designed to be friendlier toward the poorest tax filers. Emma Mehrabi, director of poverty policy at the Children’s Defense Fund, envisions these tools as ones “families could use regularly and easily that don’t require the clunkiness and the confusion of filing a full tax return [and are] easily available online, on smartphones.” But for now, households have to file traditionally.
About 1 in 5 workers who are eligible for the Earned Income Tax Credit don’t claim it.
Burdick’s CLS has implemented a communications campaign to get the word out, creating flyers and graphics, doing radio interviews, and “thinking strategically” about where their clients get their information. Honkala wants legal aid services to set up public tents with information about filing taxes to ensure people receive the credit. But with the IRS planning to start delivery of expanded CTC payments in July, slowly building new systems is unlikely to be effective when people need to be put into the tax system now.
The Affordable Care Act implemented community navigators to help people sign up for health care, and something similar could be implemented for the expanded CTC. A human touch could be beneficial. For instance, the IRS’s “virtual tax assistant” questionnaire to help people determine if they need to file taxes is at least 33 questions long and features bureaucratic language, like referring to stimulus payments only by the official name of “Recovery Rebate Credit,” which could be confusing for people who are used to calling these payments nothing but “stimulus checks.”
Volunteer Income Tax Assistance (VITA), a national grant program that assists people in filing their taxes for free, is another avenue. Inaccuracy rates from paid tax preparers are actually higher than those from the free tax preparers who volunteer through VITA. However, VITA generally serves low-income people who are used to paying taxes—not the underserved population who may have never filed. And additionally, unless Congress approves emergency funding, VITA is not funded after May 17, the updated 2021 tax-filing deadline. Some VITA programs, as they’re all-volunteer, closed even before the extended tax deadline. The IRS may consider partnering with other community organizations on the ground to get the word out and help people file.
People who don’t file taxes can still file a zero-dollar return after May 17 in order to secure eligibility for the expanded CTC; the filing deadline, after all, is for people who owe. But while one could file in 2022 to claim the 2021 benefit, will there be a way for people to get the advanced credit if they wait months after the tax deadline? And unlike most public benefits, where due-process protections apply and beneficiaries are given notice and can appeal if they’re denied benefits, the IRS provides no such protections for tax credits.
An additional obstacle is that not all children live with the same caretakers over the course of the entire year, and some are raised by people other than those who will claim them on their tax returns. While child allowances in other countries generally give the credit to the primary caretaker, the CTC can only be claimed by a legal relative—the child in question must be a son, daughter, grandchild, stepchild, foster child, sibling, niece, or nephew of the claimant—and they also must have lived with the claimant for more than half the year. Low-income kids are more likely to frequently move and live in complex family structures; about two million children fail to get the traditional CTC each year because they don’t meet the relationship test.
The law does include a “safe harbor” provision to protect filers to some extent. But if caretakers get it wrong and claim a child they aren’t eligible for (think two divorced parents each claiming the same child), overpayments received might need to be paid back, which would not only hurt those parents but diminish confidence in the program.
THE ONE-YEAR EXPANSION provides an opportunity to rework the program, to ensure that it can reach everyone who’s eligible. But if we do make the expanded CTC permanent, what should that look like? What agency should be tasked with its delivery? Should it be fully universal? Should it be submerged as a tax credit or established as an automatic benefit?
Primarily, it needs to be as effective and stable as possible. “You want it to be a third rail almost, where nobody would dream of putting some sort of complicated work test on this benefit, because that would hurt the divorced mom who is going to school,” says Shawn Fremstad, senior policy fellow at the Center for Economic and Policy Research (CEPR). What’s the best third-rail design?
Because of the very real possibility that millions of people who are eligible will fall through the cracks, robust debate has focused on whether the IRS should be the agency handling cash payments. The most popular alternative suggestion is the Social Security Administration (SSA). Unlike the IRS, the SSA already handles monthly benefit delivery on a regular basis, sending out 69.8 million checks for those receiving Social Security, Social Security Disability Insurance (SSDI), and Supplemental Security Income (SSI). Indeed, Sen. Romney’s CTC proposal delivers its cash benefits through the SSA.
Full universalization may not only make the Child Tax Credit more popular, but also easier for everyone to get.
Matt Bruenig, founder of the People’s Policy Project, points out that whenever a person has a child, they sign up with the SSA, so there’s “a very natural way to integrate that process with signing up for your check.” And ideally, it could be somewhat automatic. Imagine you’re at the hospital after childbirth. “That’s where you fill out the paperwork, [you could also indicate] where to send the check,” says Bruenig.
There’s political value to making the IRS the authorizing agency; everything in Washington goes down easier if it looks like a tax cut. And the IRS could certainly over time become better suited to delivering a monthly child benefit—it says it is working already to reach low-income people who didn’t receive stimulus payments. But on a simple communications level, another agency might be preferable. The IRS, as the tax authority, does not seem like your friend. Plus, there are only a few hundred IRS offices around the country, compared to 1,230 SSA field offices, further positioning the SSA as more client-friendly and accessible.
Tim Smeeding, professor at the University of Wisconsin-Madison, believes that we need to use both the IRS website for simpler tax cases as well as the neighborhood SSA offices for more complex ones. Families could go in person to SSA offices in order to get help with figuring out who will actually receive the credit. (Ideally, the law would allow the credit to follow the child.)
Better data matching between programs would be crucial. The SSA and IRS already share data, but states and the federal government can utilize the data they already have—from taxes as well as programs like SNAP, Medicaid, and SSI—to find people eligible for the CTC, instead of placing the filing burden on families themselves. It’s not that easy to coordinate data between state and federal agencies and across programs; it would require investment in improving administrative systems across the government. But legislation could require it and fund it. Mehrabi says that because the IRS is risk-averse, the agency “would more easily [implement data sharing] if Congress told them to do it.”
JOHN NACION/SIPA USA VIA AP
The Social Security Administration has 1,230 field offices nationwide, making it more accessible if it handled Child Tax Credit payments.
There is also the question of whether the credit should be universal. It’s already virtually universal, leaving out just the very wealthiest children. But full universalization may not only make the credit more politically popular, but also easier for everyone to get, not just rich families. The agency delivering the credit wouldn’t need income information, or to calculate the amount of the credit based on income phaseouts. People wouldn’t need to report income at all. And Congress could just tax wealthier families on the back end to make up for providing them the child benefit.
Fremstad has proposed what he calls a Unified Child Benefit, which would merge and simplify the CTC and the EITC for parents, while keeping a “simplified worker credit” for workers who don’t have children at home, and adding supplemental benefits to single parents and children with disabilities. It would, Fremstad writes, be “politically feasible in the near-term” while also combining the essential dynamics of a broad and successful child benefit: “universality, adequacy on an annual and monthly basis, simplicity, and visibility.”
While the CTC was expanded to families with little to no income, the EITC—which mostly goes to children with families—still phases in based on earnings, leaving out the very poorest households. This means that some children are still punished because their parents don’t make enough money. A Unified Child Benefit would be designed to correct this.
Having two tax credits with different names but the same function of supporting families with children, but letting one treat poor children differently, doesn’t make much sense. “How can you see the injustice of saying you’re too poor to receive the CTC, but then you can’t see the injustice of saying you’re too poor to receive the EITC?” asks Bruenig. In January, before the expanded CTC passed, Bruenig published his own plan for a child allowance, which brings together the CTC and EITC for families with children and replaces them with a universal child benefit. (It’s similar to the CEPR proposal, and indeed Bruenig provided comments on the CEPR plan while it was in development.)
We can also look to other countries’ child allowances. Sweden, for example, provides an automatic payment to every child living in the country—Swedish parents don’t need to do anything to sign up. And in 2016, Canada introduced a new child benefit that phases out at higher income levels, much like the expanded CTC in the U.S.
When I asked Marr, of CBPP, if he thought the expanded credit could be improved, he was caught on one word. “I don’t know I’d say ‘improved’ … Most important is it needs to be made permanent,” he said, while noting in passing the importance of making sure everyone eligible receives it.
Marr’s reaction is understandable—an incredible policy was passed that will cut child poverty in half, and I wanted to talk about how to make it better. It raises questions of what should take priority at this juncture: permanence or better program design. But the two things go hand in hand. An ongoing program in theory that doesn’t deliver in practice would shortchange the poor, defeating its purpose. And a program that struggles to meet its goals will become vulnerable to Republican anti-government attacks. Progressive governance is impossible without government working well.
IN JACKSON, MISSISSIPPI, Aisha Nyandoro was a bearer of great news when she called the mothers she works with to tell them about the expanded CTC. Nyandoro is CEO of Springboard to Opportunities, which runs the Magnolia Mother’s Trust, a project that gives a guaranteed income of $1,000 a month to more than 100 low-income Black single mothers. It’s one of a number of small guaranteed-income pilots that have recently sprung up across the country.
Though the Magnolia Mother’s Trust gives more money per month than most people will receive from the CTC, the effects on participating mothers offer a glimpse as to how the expanded CTC will affect poor families nationwide. The mothers have been able to afford school uniforms and pay off debt. On average, they spent more money on food, and even were more likely to have health insurance coverage. Cash can also allow parents to raise their kids in environments absent the stress of poverty, which deleteriously impacts the entire family. Nyandoro says there is healing power when parents can let go of “always hav[ing] to say ‘no’ to their kids.” She puts it bluntly: “Cash without restriction works. It’s really that simple.”
The research suggests Nyandoro is correct. In 2019, the National Academies of Sciences, Engineering, and Medicine (NAS) published a much-lauded study on how to combat child poverty in the United States. Because income poverty in childhood is associated with poorer mental and physical health, worse education outcomes, hardship later in life, and even negative neurological effects, the cornerstone of the NAS report was an expanded CTC, at an amount similar to what landed on Biden’s desk.
Hilary Hoynes, a professor at the University of California, Berkeley, who sat on the NAS panel, describes the expanded CTC as “an investment in society as opposed to a handout.”
FRANK WIESE/AP PHOTO
People protested President Clinton's approval of the welfare reform bill, at a rally outside the Federal Building in downtown Los Angeles, August 4, 1996.
This summer marks 25 years since welfare reform was passed—a quarter-century of mainstream defense of welfare-to-work and erosion of the cash safety net. Even the EITC, for all its anti-poverty power, is another example of welfare-to-work mentality, since “earned income” is part of the name. The American Rescue Plan did increase the EITC for adults who are not raising children and also expands the age range of eligible recipients. But the safety net still tends to do the least for adults without children in their homes.
The expansion of the CTC, and the evidence of the power of cash benefits, provides a moment to consider other changes to the social safety net. The expanded CTC is transformational, but $3,600 a year is not enough to support a family or a child. If the expanded CTC can be established, what else can be done to shift how we treat public-assistance programs?
Outside of families with children, we can think about all adults, even those who don’t have kids living with them. It may be harder to get support for programs for adults versus children, because we don’t have the same data around long-term, adverse effects of poverty on adults. And obviously, child benefits are also more politically attractive; children evoke sympathy in a way that poor adults do not.
But children grow up into adults—and poor children generally grow into poor adults.
The U.S. has a long history of dividing the “deserving” and “undeserving” poor, two categories that are generally premised on whether an adult is working hard enough to take care of their family. “What [the expanded CTC] could do is really break that model and move us away from this view that people who are in circumstances of disadvantage have somehow made bad decisions to get there,” says Hoynes.
A system that moves away from a view of deservingness would be easier to access, with less administrative burden, less conditionality tied to benefits, less shame and less stigma. “It’s a little bit aspirational,” Hoynes says, but “if we build this thing and see its successes in a quick way, could it sort of lessen the burdens that we’ve been imposing on disadvantaged Americans for so many decades?”
Cash isn’t everything, of course. The economy still features yawning inequality, stagnating wages, and structural racism. Honkala, the welfare rights activist, notes that the expanded CTC can’t pay for rent if a landlord won’t lease a place to a family unless they have a good credit score. The day we spoke, Honkala had spent the morning trying to convince three different landlords to not evict people.
That said, cash assistance has demonstrable benefits for the poorest members of society. So will America cut child poverty in half for a year, before reverting back to staining all public-assistance programs with the word “welfare” and demanding proof of work for benefits? Or, if designed with the realities of poverty in mind, could it be a lever to something different? If done right, the expanded CTC won’t only cut poverty and reduce income instability, but could be a catalyst toward more universal programs, toward rethinking why people in the U.S. are struggling, toward a new welfare state that values individuals, families, and children, and refuses to let them suffer when we have the resources to prevent it.
UPDATE: Since we went to press, the IRS has indicated that it will develop a simplified filing tool for families who don’t typically file taxes. If such a tool is easy to understand and access, it could ensure that more low-income families receive the expanded Child Tax Credit.
