Expanded Child Tax Credit could generate benefits worth eight times its cost

·Reporter
·3 min read

The benefits society will reap from the one-year expansion of the Child Tax Credit are worth eight times more than the program’s overall cost, a new study found. If the expansion becomes permanent, the long-term rewards would be even bigger.

The approximately $100 billion investment to increase the credit this year is estimated to generate about $794 billion in current and future benefits for society, according to the Center on Poverty and Social Policy at Columbia University, by increasing children’s safety and future earnings, improving health outcomes for both children and parents, and reducing health care costs and spending on child protection and criminal justice services.

The analysis estimates that taxpayers will recoup $84 billion of the initial investment, costing them only $16 billion for the expansion, the analysis found

“Even just one year is a big deal,” Irwin Garfinkel, leading social policy scholar and co-director of the Center on Poverty and Social Policy, told Yahoo Money. “We'll be able to see some of that right away, but we won't be able to see the long-term effects.”

‘More work and longer living’

The $1.9 trillion American Rescue Plan not only increased the CTC amount but also allowed half the credit to be distributed monthly in advance from July to December. The legislation also made the credit fully refundable, allowing more lower-income households to qualify for it.

The improved health and longevity of parents and children because of the expansion would provide the biggest boost to society, generating $642 billion in benefits, the analysis found. Living longer has monetary benefits. A healthy year is worth $128,000, based on estimates by the Congressional Budget Office.

“The biggest driver of the benefits to the parents and children is health,” Garfinkel said. “The healthier you are, that's more work and longer living.”

The expanded credit would also produce $76 billion in increased future earnings for the children. An increase of $1,000 in family income in childhood translates to additional future earnings of $1,060 for the child beneficiaries.

Edie Abrams-Pradt and Jen Abrams celebrate new monthly Child Tax Credit payments and urge Congress to make them permanent outside Senator Schumer's home on July 12, 2021, in Brooklyn, New York. (Photo by Bryan Bedder/Getty Images for ParentsTogether)
Edie Abrams-Pradt and Jen Abrams celebrate new monthly Child Tax Credit payments and urge Congress to make them permanent outside Senator Schumer's home on July 12, 2021, in Brooklyn, New York. (Photo by Bryan Bedder/Getty Images for ParentsTogether)

‘The ones who would benefit the most’

To generate the maximum benefits for society, all families eligible for the expanded credit must be reached. But the Internal Revenue Service, which distributes the payments, doesn’t have information on many of the lowest-earning families because they typically don’t file taxes.

Families of about 4 million children from predominantly low-income households won’t get those monthly payments automatically, according to estimates by the Center on Budget and Policy Priorities.

“Our analysis assumes that everybody that is eligible gets the benefit and right now, that's problematic,” Garfinkel said. The families that may be missed by the payments “are actually the ones who would benefit the most.”

Households that earn less than $50,000 would get around 60% of the $100 billion funding for the program, averaging out to $3,757, according to the analysis.

YF Plus
YF Plus

‘You've thrown away $800 billion of benefits’

As part of his American Families Plan, President Joe Biden proposed extending the expansion of the CTC through 2025, but the provision is not part of the current bipartisan infrastructure package moving through Congress. He previously said the administration wants to make the benefit permanent.

While just one year of the expansion would still generate major returns on the initial investment, continuing the program would be a bigger boon, according to Garfinkel.

“Even one year is a huge step,” he said. “But if this becomes permanent, this will be unprecedented for the United States.”

Yahoo Money sister site Cashay has a weekly newsletter.
Yahoo Money sister site Cashay has a weekly newsletter.

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, YouTube, and reddit

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting