The 2021 American Rescue Plan temporarily increased the child tax credit (CTC) by increasing the per child credit from up to $2,000 per child under age 17 to up to $3,600 per child under age 6 and to up to $3,000 for children ages 6 to 17. The credit was also made fully refundable—even the lowest-income families received the full value of the credit. After the credit expired, some members of Congress aimed to extend the expanded CTC, while others provided an alternative expansion to child benefits, the Family Security Act 2.0 (FSA 2.0). FSA 2.0 would provide a maximum benefit of up to $4,200 for children under age 6 and a benefit of up to 3,600 for children ages 6 to 17. Only families with earnings could receive the new child benefit, and families earning under $10,000 would receive a prorated credit. To offset the cost of this, FSA 2.0 proposed to alter other elements of the tax system.
Using the supplemental poverty measure, we assess how each plan would reduce child poverty if it had been in place in 2018. We find that FSA 2.0 would reduce child poverty by just under 12 percent, while the expanded CTC would reduce poverty by over 41 percent. We find that the poverty rate for Hispanic children would fall by just 7 percent under FSA 2.0 compared with 38 percent under the expanded CTC. These differences are largely the result of new Social Security number requirements and offsets in FSA 2.0 that include restructuring the earned income tax credit (also known as the EITC).
We also find that the net effect of the policies in FSA 2.0 would make a small number of families worse off. Although 80 percent of white children would be in families that see an increase in resources under FSA 2.0, that is true for only about two-thirds of Black, Hispanic, and Asian and Pacific Islander children. Over one-quarter of Hispanic and Asian and Pacific Islander children would live in families that would see a decrease in resources under FSA 2.0 compared to about 19 percent of children overall.
As lawmakers consider a possible path forward to a more robust child benefit system, it is important to consider the strengths and weaknesses of different approaches.
