Child Tax Credit and Solutions to Global Poverty

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SEATTLE, Washington — On May 17, 2021, the Biden Administration announced that about 39 million American families will begin to receive child benefit payments under the COVID-19 relief bill. This new Child Tax Credit will work to help decrease child poverty and family financial struggles in the U.S.

Starting in July, eligible families will receive $3,600 for children less than six years old and $3,000 for older children. This money will be split into monthly payments for a year. This new Child Tax Credit is an increase from the previous one, which allowed only $2,000 per child.

According to Columbia University’s Center on Poverty and Social Policy, this expansion will cut U.S. child poverty in half. The recent implementation of this policy has sparked international discussions surrounding cash transfer solutions to global poverty. This follows the work of many other countries that have implemented similar cash transfer programs during the pandemic.

How the Plan Works

The revised credit plan includes a $100 billion expansion to the original program. It will issue monthly incremental payments of $250 to $300 per child. Additionally, couples who make up to $150,000 as a couple and single-parent families who make up to $112,500 are eligible for the program. These payments are sent out via checks, debit cards or direct deposits with fully refundable credit.

The Impact of Child Tax Credit in the United States

The 2021 Child Tax Credit is expected to cover 88% of children in the United States, lifting an estimated 4.1 million children out of povertyAccording to University of Notre Dame Professor James Sullivan, American families near the poverty line could see a 25% increase in their income during the second year of the program. Further, the revised program will also decrease the poverty rate gap between white children and Black and Latino children.

International Comparisons

The Brookings Institute called the revised Child Tax Credit system the largest child anti-poverty investment since Head Start in 1965. Similarly, the New York Times called it a policy revolution. Thus, the new monthly payments have sparked international analysis among those searching for solutions to poverty worldwide.

The United States, however, is not alone in recent policy changes surrounding cash transfer programs. Throughout the COVID-19 pandemic, cash transfers have increased globally. According to The World Bank, 215 countries and territories have spent a total of $800 billion in social protection throughout the COVID-19 pandemic as of January 2021. Cash transfer programs alone have almost doubled, as coverage has grown by 240% on average worldwide.

Cash Transfers as Global Anti-Poverty Solutions

With the increase of these programs, there has been debate about the effectiveness and long-term stability of cash transfer legislation. Recently, The World Bank and the U.N. have both initiated cash transfer programs. They have also provided analysis on the effectiveness of these programs.

The World Bank labels policies like monthly cash payments as Unconditional Cash Transfers (UCTs). The organization states that UCTs are especially effective during social protection responses like responses to the COVID-19 pandemic. However, they are used most effectively to bring individuals out of poverty in the long term when paired with condition-based cash transfers that reward educational or health-based investments.

In other words, The World Bank describes cash transfers during the pandemic as helpful in addressing financial issues related to crises but warns that UCTs must be paired with solutions that address structural gaps in societal protection.

U.N. Support of Cash Transfer Programs

The U.N. recently released a report on its Cash Transfer Programme for Poor and Vulnerable Households’ partnership with the Cambodian government. Through this program, eligible and registered families receive $20 to $30 a month. The maximum monthly amounts are distributed to families with children.

The U.N. recognizes cash transfer programs as appropriate and constructive tools in supporting those affected by disasters. The U.N. Refugee Agency also promotes the use of cash transfers, or cash-based interventions, as long as there is a safe way to provide them to refugees and a stable market in the country.

Overall, the U.S.’s revised Child Tax Credit is a recent example of the global surge of cash transfer programs during the pandemic. While the future of these unconditional cash payments is unknown globally, cash transfers have alleviated many impoverished families. Thus, it is increasingly necessary to analyze, discuss and assess their crucial benefits.

– Lillian Ellis
Photo: Wikimedia Commons

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