Child poverty rate fell by nearly half in 2021 as the strengthened child tax credit sent billions of dollars to families

About 5.2% of children were in poverty last year, down from 9.7% the year before, based on a broader alternative measure developed by the Census Bureau. The supplementary poverty measure, which began in 2009, takes into account some non-cash government aid, tax credits and necessary expenses, addressing a major flaw in the official poverty rate, economists say.

The additional poverty rate for children was the lowest on record since the start of the measure. Without the enhanced child tax credit, the rate would only have fallen to 9.2%. About 5.3 million people have been lifted out of poverty by credit.

Overall, the additional poverty rate was 7.8% for 2021, down from 9.2% the previous year.

Poverty reduction, however, is likely to be short-lived as enhanced credit was only in place for 2021.

The additional rate compares with the official poverty rate, which was 11.6% overall in 2021, not statistically different from a year earlier. The official poverty rate for children was 15.3%, the widest gap between this rate and the supplementary measure since the latter began in 2009.

However, poverty among the elderly rose to 10.7%, from 9.5%, according to the supplementary measure. This is likely due to the fact that a larger share is on fixed incomes that are not keeping up with inflation, according to the Census Bureau. However, social security has kept 26.3 million people out of poverty, most of them elderly.

Furthermore, the median household income in 2021 was $ 70,800, not statistically different from a year earlier, even though inflation started to rise last year. This follows a 2.9% decline in median income in 2020, the first year of the Covid-19 pandemic and the first statistically significant decline since 2011.

While the overall number of workers has not changed, the number of full-time workers all year has increased by 11.1 million. However, those workers’ inflation-adjusted median earnings declined by 4.1%, as higher prices outpaced the nominal earnings of earnings, the Census Bureau said.

And households with the lowest income level – the bottom tenth of the scale – saw their incomes drop by 4.4%, even as more lower-wage workers returned to the labor market each year. last and have generally experienced faster average wage growth.

Federal relief efforts also helped reduce the uninsured rate to 8.3% in 2021, down 0.4 percentage points from the previous year and among the lowest on record. About 27.2 million Americans did not have health insurance at any point last year, a reduction of 1.1 million in 2020.

Federal pandemic relief measures

The supplementary poverty measure has gained in importance in recent years, particularly during the Covid-19 pandemic, when Congress approved multiple relief efforts to help Americans weather the economic storm unleashed by the virus.

Under the $ 1.9 trillion American Rescue Plan Act passed in March 2021, Congress increased the child tax credit for one year, increasing payments to $ 3,600 for each child up to age 6. and $ 3,000 for everyone between the ages of 6 and 17, for minors – and middle-income families. For the first time, half of the credit was paid in monthly installments from July to December, while parents were able to claim the other half when they filed 2021 taxes this year.

As part of the credit improvement, more low-income parents became eligible for the full amount because lawmakers made it fully repayable.

Payments were sent to around 35 million to more than 36 million families, depending on the month. A total of over $ 93 billion was distributed, according to the Internal Revenue Service.

The tax credit for children, in particular, has had a significant impact on reducing hardship among families with children, according to studies.

“We know how to fight poverty and it’s not very complicated,” said Elizabeth Lower-Basch, director of income and work aid at the left-wing Center for Law and Social Policy known as CLASP. “It’s about giving people the resources they need to meet their needs and those of their families.”

Critics of the increased tax credit for children, as well as other stimulus measures the Democrats approved early last year, argue that they helped spur skyrocketing inflation. This is the main reason West Virginia Senator Joe Manchin, a moderate Democrat, prevented his party from extending the increased credit beyond last year.
In addition to strengthening the child tax credit, lawmakers approved a third round of stimulus payments last year, worth up to $ 1,400 per person. The IRS has issued over 175 million third-round payments totaling over $ 400 billion through December 31. According to the Census Bureau, some 8.9 million people have avoided poverty due to stimulus payments.
Additionally, lawmakers extended a $ 300 federal boost to weekly unemployment payments and two other key unemployment benefit programs for the pandemic through early September 2021. Most Republican-led and one-governed states from a Democrat, however, they shut down at least one of the programs earlier this year.
Additionally, as part of a 2020 Covid-19 relief measure, states are not withdrawing low-income Americans from Medicaid in exchange for receiving additional federal matching funds during the public health emergency. Nearly 80 million people were enrolled in Medicaid in December 2021, up from just under 73 million a year earlier, according to the Centers for Medicare and Medicaid Services.

The share of people covered by Medicaid increased by 0.9 percentage points, the Census Bureau found.

The American Rescue Plan Act has also made federal subsidies from the Affordable Care Act more generous and available to more people, especially those in the middle class. This expanded assistance helped push another 2.8 million people to sign up for coverage under a special signup period last year, although it did not result in a statistically significant change in market coverage.

Earnings may not last

Progress in poverty reduction, however, is not expected to last this year as lawmakers have not extended the strengthened child tax credit beyond 2021 and are not expected to approve further stimulus controls or other increases in social safety nets.

According to Columbia University’s Center on Poverty & Social Policy, the lack of monthly tax credit payments for children in January led to an estimated 3.7 million more children in poverty that month. Child poverty rates rose to an estimated 17% in January, up from 12.1% in December, when the last monthly installment was delivered.

Although the job market has remained solid so far in 2022, high inflation has put many Americans to the test. For most people, wages are not keeping up with the rising cost of living.

“Although there were more jobs in 2022, households were certainly more crushed by rising prices”, said Elise Gould, a senior economist at the left-wing Economic Policy Institute. “And so the disappearance of this child tax credit would have done more harm.”

This story has been updated with more information.

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