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DO THE BENEFITS OF THE EXPANDED CHILD TAX CREDIT ACTUALLY FADE WITH
TIME?  
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Oshan Jarow
September 17, 2024
Vox
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_ A new study argues the long-run benefits outweigh the costs nearly
10 to 1. _

, (Stefani Reynolds for The New York Times)

 

In 2021, the US cut child poverty by as much as 40
[[link removed]] percent
using one of the most effective
[[link removed]] anti-poverty
tools the country had ever devised: the expanded child tax credit
(CTC).

By sending unconditional monthly checks of up to $300 per child to the
nation’s poorest families — including those with little to no
income who had typically been excluded
[[link removed]] from
such programs — the “child allowance” lifted 2.1 million
[[link removed]] children
out of poverty who would’ve otherwise been left behind.

Arguments against such programs that give unconditional cash usually
assert that it’ll drive low-income people to quit their jobs,
ultimately harming the economy. But research found little to no drop
[[link removed]] in employment rates as a result
of the expanded CTC. Yet despite a flurry of support
[[link removed]] from
prominent economists and recipients
[[link removed]] alike,
politicians failed to reach an agreement to make the temporary
expansion permanent, and Congress let it expire
[[link removed]] at
the end of 2021.

Some concerns that sank the program’s political chances, like Sen.
Joe Manchin’s worry
[[link removed]] that
recipients will spend the cash on drugs, don’t hold up to
the abundant
[[link removed]] evidence
[[link removed].].
But there are still some economists who remain skeptical, unmoved by
the steady stream of positive research on short-term programs —
which they concede
[[link removed]] looks
very good. Their concern, however, is with the distant future.

“My main problem with a permanent CTC,” said University of Chicago
economist Bruce Meyer
[[link removed]] via email,
“is that it would reverse the work-based welfare reforms of the
’90s that dramatically increased employment and were associated with
a decline in the share of kids growing up in single-parent
families.”

The thinking goes like this: As parents receive strings-free cash,
many of their incomes will indeed be pushed above the poverty line. At
first. But some will also choose to work less, others will divorce
more, and fraying the twin threads of marriage and work in low-income
communities will ultimately harm children’s prospects for upward
mobility. The initial anti-poverty benefits would, generations down
the line, be swallowed up by unintended consequences
[[link removed]].

By concentrating their concerns on the far future, they render much of
the growing base [[link removed]] of
short-term research [[link removed]] moot,
especially in terms of convincing holdout politicians, like Manchin,
whose insistence
[[link removed]] on adding
work requirements to any expanded CTC is what killed the child
allowance.

Enter a new working paper
[[link removed]] from Elizabeth Ananat
[[link removed]] and Irwin
Garfinkel [[link removed]], two
economists at Columbia University. Expanding on work they
first published in 2022
[[link removed]],
their research surveys long-run cash and quasi-cash transfer programs
(like food stamps) in the US in an effort to predict the overall
effects of a child allowance over the very long run. Instead of the
grim and jobless future forecast by expanded CTC critics, they find
that a future shaped by a permanent child allowance is well worth the
investment.

Ananat and Garfinkel found that the total long-run benefits to society
of making a child allowance permanent outweigh the costs by nearly 10
to 1. While the paper may not sway skeptical economists, the dramatic
returns could still help build political momentum to pass the policy.
And it at least shows that researchers are now taking the long-run
concerns raised by critics seriously.

WHAT A RETURN ON INVESTMENT OF 10 TO 1 FOR AN EXPANDED CTC ACTUALLY
MEANS

Ananat and Garfinkel’s original cost-benefit calculations did not
make for light reading. Although the paper was well-received by her
colleagues, the problem, Ananat said, is that no one else read it.

So they built a homepage
[[link removed]] for
their research on Columbia University’s Center on Poverty and Social
Policy’s website, and as new relevant studies on the subject come
out, they’ve been updating their findings. This most recent 2024
working paper reports on the updated results of their earlier work,
while trying to offer a more widely accessible version of their
research.

Their promise of a 10 to 1 return is, frankly, massive. For every $100
or so billion the child allowance would cost the government each year,
society would reap additional long-term benefits of about $929
billion. Those dollars represent benefits like improved child and
parent health and longevity, higher future earnings for children, and
reduced crime and health care costs. There would be an effect from the
small dip in employment that their calculations predict, and a
resulting decrease in tax revenue — but it would amount to just $2.4
billion. That’s a drop in a bucket overflowing with almost a
trillion dollars in benefits.

But the nuances of such long-term returns can be difficult to convey.
“A little bit shows up in the first few years in the form of reduced
[child abuse and neglect], reduced hospitalizations, and those sorts
of things,” said Ananat. “But most of it doesn’t show up until
the kids grow up. So that requires a very patient type of investor.”

Imagine Vice President Kamala Harris
[[link removed]] wins
the presidential election in November, and immediately upon taking
office implements a child allowance (as her recently unveiled economic
agenda intends
[[link removed]]).
That would cost roughly $97 billion for 2025 alone. But at the end of
the year, if you tallied up all the benefits, you wouldn’t see that
$929 billion that Ananat and Garfinkel calculated anywhere. It could
be decades before the full value of that nearly one trillion is
actually realized.

Notably, though, it’s not a one-time deal. According to Ananat and
Garfinkel, every year that the child allowance is in place will
reap _another_ $929 billion in long-term benefits. So if you take
the Tax Foundation’s estimate
[[link removed]] that
Harris’s child allowance would cost $1.6 trillion over 10 years,
Ananat and Garfinkel’s work suggests over that same time period, it
would accrue something like $9.3 trillion in long-term benefits.

“The CTC is worth so much money in the future, that even though some
of it only happens 50 years from now, it’s still worth $10 for every
dollar you spend today,” said Ananat.

The child allowance is fully refundable, meaning the full value goes
to the poorest families, without a work requirement. (The current CTC
is only partially refundable, which means that parents must first earn
income before qualifying for the benefit.) But Ananat and Garfinkel
also crunched a second set of cost-benefit calculations on a partially
refundable CTC, matching recent CTC compromises
[[link removed]] that
boost the payment amount while keeping a work requirement of some
sort.

They find that doing so would reduce the annual cost to $31 billion,
while also reducing the total annual social benefit to $131 billion.
That means that adding work requirements shrinks the program from a
nearly 10 to 1 return on investment, to just over a 4 to 1 return. And
those benefits would exclude children who are in the deepest poverty
— the very ones who need such help the most.

Now, converting a variety of outcomes into dollar valuations, and
assigning benefits that will come in the future a value for the
present, is tricky business. These estimates should be held lightly.
But if they’re even in the right ballpark, then every year we
don’t implement a child allowance is an absolutely massive missed
opportunity. We’d experience as much as a 40 percent
[[link removed]] drop
in child poverty immediately, and begin layering on trillions of
dollars in long-run benefits.

CRITICS AND THE ECONOMETRIC ALTERNATIVES

There are basically two ways to try and predict the effects of a child
allowance in the deep future. Either way, you’re dealing with
serious ambiguity.

Like Ananat and Garfinkel, you can scour the existing evidence from
similar long-run programs that have raised family incomes in the US,
tabulate a comprehensive list of all their documented benefits and
costs, calculate a per-$1,000 effect size for each cost and benefit,
and then apply those values to a hypothetical child allowance.

To do that, they looked at past long-run programs like
pension programs
[[link removed]] for
mothers from before the New Deal, the 1960s rollout of food stamps
[[link removed].],
a series of US guaranteed income experiments
[[link removed]] through
the ’70s, and expansions
[[link removed]] in
the 1990s to the earned income tax credit.

Notably, none of these programs are actually a CTC. And although each
policy was chosen because it does a similar thing — effectively
raises a family’s income — each took place in a different social
and economic context than whatever the 2030s and beyond will look
like.

The other way to try and predict hypothetical economic futures is to
use the economist’s version of a magic eight ball: the econometric
model
[[link removed]].
These are mathematically constructed versions of reality, where fuzzy
human behaviors have been translated into precise probabilities and
equations. In these computational worlds, you can plug in a variable
of interest, like a child allowance, and statistically churn out a
prediction of its impact.

Then, economists scrutinize the assumptions of the model, and debate
how much insight those results can offer about the actual meatspace
world that we all live in.

That’s how Bruce Meyer, Kevin Corinth
[[link removed]] from the American
Enterprise Institute (AEI), and their colleagues predicted
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which incentivized work, with the expanded CTC that provides
low-income families the benefit no matter whether they’re already
working or not, would ultimately “do more harm than good
[[link removed]].”
Specifically, that it would drive 1.5 million working parents to quit
their jobs altogether, and cap the anti-poverty impact at 22 percent,
rather than the 40 or so percent seen during the temporary expansion.

Those numbers all hinge, however, on controversial
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the model about how likely people — low-income single mothers in
particular — are to stop working if they get an extra few hundred
bucks per month from the CTC. Other models using different assumptions
find much lower reductions in work, including Corinth’s own
colleagues from the AEI, who predicted
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employment would be only a fifth as strong, with 296,000 parents
quitting their jobs rather than 1.5 million.

In each case, these models are reflections of their coded-in
assumptions. Like extrapolating from other policies in different
historical eras, “Taking a given change in the [child] tax
credit’s incentive to work and plugging in a labor supply elasticity
is a fraught enterprise,” Jain Family Institute research
associate Jack Landry
[[link removed]] told me last
year.

When I asked Meyer about the Ananat and Garfinkel study, he dismissed
it as “very selective” in its literature review. And Scott
Winship [[link removed]], who directs the
Center on Opportunity and Social Mobility at the AEI, said via email
that “you’re more likely to find that a policy is worthwhile if
you simply assume the largest potential costs don’t exist (in this
case, worsened child outcomes in the long run from reduced parental
work and increased single parenthood). That’s what they do.”

There is, of course, no perfect way to predict the future. Otherwise
I’d have cashed out of the stock market with millions by now. But
that’s where critics of a permanently expanded, fully refundable
child tax credit are now situating their case. Advocates can either
follow them into the future, arguing that long-run benefits will
outweigh long-run costs. Or, they could instead focus on building the
political momentum necessary to pass a policy that will always have
its detractors, while unambiguously helping millions of kids in the
present.

WILL A CHILD ALLOWANCE IN THE US EVER EXIST ANYWHERE OTHER THAN THE
FUTURE?

Vice President Kamala Harris has already announced
[[link removed]] that
bringing back the expanded CTC is part of her planned presidential
economic agenda.

Ananat emphasized that “this isn’t a politically motivated”
study, but that even if her research won’t convert skeptical
economists, it can still be helpful to those working on political
organizing. She said,“People can see this and feel inspired, like,
‘Oh, 10 to 1, that’s worth making more phone calls for.’”

I’m not optimistic that economists will ever strike a unanimous
agreement about the future of an expanded CTC (though it’s worth
emphasizing that to the degree consensus does exist, it certainly is
in support)
[[link removed]].
Even if they did, how much stock should we really place in specific
predictions that span decades? The world is unpredictable
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and seemingly more so every year.

The decision to implement a child allowance will always have to be
made under some degree of uncertainty. Trying to predict the impact of
a child allowance decades into the future is always going to be a
balancing act of ambiguity and speculation. Peering into the economic
models [[link removed]] that raise concerns about
how desirable a future shaped by a child allowance really is, you find
a latticework of tenuous assumptions
[[link removed]].
Similarly, critics say that when you look under the hood of the
10-to-1 return on investment claim, you find a selective literature
review.

But the flood of research on the temporary expansion washed away most
uncertainty about the short term. Canada’s had a child allowance for
years, and it doesn’t look
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hastening a grim and jobless future. A guaranteed huge drop in child
poverty in the short term, plus the potential accrual of trillions of
dollars in additional benefits, sounds like a worthwhile bet to me.
And even if slouching employment among recipients did start to cause
concern in a decade or two, and researchers came to suspect the child
allowance was to blame, the wonderfully certain thing about public
policy is that it can always be changed.

_Oshan Jarow [[link removed]] is a staff
writer with Vox’s Future Perfect, where he focuses on the frontiers
of political economy and consciousness studies. He covers topics
ranging from GUARANTEED INCOME
[[link removed]] and SHORTER
WORKWEEKS
[[link removed]] to MEDITATION
[[link removed]] and PSYCHEDELICS
[[link removed]]._

_Here at Vox, we believe in helping everyone understand our
complicated world, so that we can all help to shape it. Our mission is
to create clear, accessible journalism to empower understanding and
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_If you share our vision, please consider supporting our work by
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* Child Tax Credit
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* Child Poverty
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* social safety net
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