Expanded Tax Credit Likely to Reduce Child Poverty in Colorado by 40 Percent - For Now

In March 2021, Congress took a noteworthy step to offer support and reduce financial hardship for families with children: It expanded the Child Tax Credit as part of the American Rescue Plan Act.

CHI analyzed data from the American Community Survey and found that this expanded credit is likely to reduce Colorado’s child poverty rate by more than 40% during the year that it is in effect.

Last month, many families with children began receiving direct payments as a result of the expanded Child Tax Credit. Parents meeting certain income criteria are set to receive $3,000 for each child ages 6-17 and $3,600 for each child under 6 years old over the course of the year. For example, a family of four with two children, one younger than 6 years and one older than 6 years, would receive a total of $6,600. In general, families will get half of the credit in monthly direct payments through December and the rest of the credit when they file their taxes next year.

After a year when many struggled to navigate the shutdowns, economic crisis, and health concerns caused by COVID-19, these immediate cash payments and credits will help thousands of families meet their children’s needs.

The Child Tax Credit is not new, but the American Rescue Plan Act substantially increased its benefits. Prior to 2021, the Child Tax Credit only offered up to $2,000 for children up to age 16. And the Child Tax Credit was not fully refundable, meaning that many low-income families were left out of the benefits if they did not make enough to owe federal taxes. Now, the Child Tax Credit provides more financial support for children in more households across the country.

What does this mean for children in Colorado? Will it make a significant difference in their lives? 

The short answer is yes.

Using data from the 2019 American Community Survey (the most recent year for which data is available), my colleagues at CHI and I found that approximately 67,300 children in Colorado are likely to be lifted out of poverty as a result of the expanded Child Tax Credit. This represents a 41.4% reduction in childhood poverty across the state. (The federal poverty level, or FPL, was $25,750 for a family of four in 2019, the year of data used in this analysis).

Although the Child Tax Credit will make the biggest difference for families closer to the poverty line, reducing the share of families in Colorado with incomes at or below FPL from 13.1% to 7.7%, it will help children and families across income levels and increase the share of families with higher incomes.

Poverty disproportionately affects families and children of color due to a range of policies and practices that have created barriers to economic advancement. Approximately 6.7% of white children were part of families with poverty-level incomes in Colorado in 2019, compared with 35.2% of Black children and 21.9% of Hispanic/Latinx children. (Not enough data were available to analyze changes among other racial groups, including Asian/Pacific Islander and American Indian/Alaska Native children in Colorado.) That means the expanded Child Tax Credit would have an outsized impact on Black and Hispanic/Latinx children and their families. The Child Tax Credit would reduce the percentage of children in families with incomes below 100% FPL to 3.6% for white children, to 22.8% for Black children, and 13.0% for Hispanic/Latinx children.

An added benefit: Because the Child Tax Credit does not count toward income for tax purposes, it does not affect a family’s eligibility for Medicaid, or Child Health Plan Plus (CHP+), or premium assistance programs but could still help the family afford health care and other needs. In the 2019 Colorado Health Access Survey, 89.6% of respondents who were uninsured cited the high cost of insurance as the reason they did not have coverage. Additionally, nearly 3 out of 10 uninsured people pointed to loss of eligibility for Medicaid or CHP+. The Child Tax Credit could help some ensure that some families will not lose out on their eligibility for Medicaid or CHP+ even as they have more dollars to spend, and it could help some families afford private insurance.

Why does this matter for health?

Reducing childhood poverty is a key part of addressing the social determinants of health and improving health outcomes. Children who are no longer living in households with poverty-level incomes may be more likely to experience better health outcomes throughout both childhood and adulthood. In fact, according to a 2019 report by the National Academies of Science, Engineering and Medicine, reducing childhood poverty promotes development by allowing families to afford goods and services to meet children’s needs and create a less stressful environment. The report concluded that more generous tax credit programs are associated with healthier birth weights, better childhood nutrition, and higher academic achievement.

However, the Child Tax Credit has only been expanded for this year. While this expansion will provide immediate relief for millions of families still grappling with the effects of the COVID-19 pandemic, this one-year limit will make it difficult for the credit to lead to a significant, long-term reduction in childhood poverty.

For federal and state legislators wishing to support the health of Colorado’s children, the Child Tax Credit serves as an example of how investing in families’ economic security is also a powerful way to improve children’s health and access to health care.

CHI Policy Analyst Lindsey Whittington contributed to this post. 

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