California’s poverty rate, already the highest in the nation before the pandemic, is likely to have increased in 2021, impacting children statewide. However, according to the Urban Institute, reviving one strategy alone could reduce child poverty by 50 percent or more in 11 states and to under 10 percent in all but three states.
The American Rescue Plan Act expanded the child tax credit (CTC) to include 17-year-olds, increased the benefit from $2,000 to $3,600 for children under age 6 and to $3,000 for children between ages 6 and 17, and made the credit fully refundable so even “very low-income” families could claim the full value. The monthly expansion of the existing child tax credit expired in December after Congress failed to extend it.
In a recent report, Expanding the Child Tax Credit Could Lift Millions of Children out of Poverty, researchers said that the Biden Administration’s original plan to extend the credit to 2025 would decrease child poverty — as measured by the Supplemental Poverty Measure — more than 40 percent in a typical year, meaning 4.3 million fewer children would be in poverty.
“By making these expansions permanent, policymakers can not only lift 4.3 million children out of poverty but also transform the CTC into one of the most effective tools for reducing child poverty in the US,” researchers concluded.
In California, doing so would cut child poverty by about 33 percent, lifting approximately 613,000 children out of poverty, according to Urban Institute estimates.
The state’s 2019 budget established the Young Child Tax Credit (YCTC) to help lift children out of poverty. In most cases, the credit provides $1,000 to every household that otherwise qualifies for the Earned Income Tax Credit and has a child aged 5 or younger.
In his 2022–23 budget proposal, Gov. Gavin Newsom noted that in the 2020 tax year, 420,000 taxpayers claimed this credit and received credits totaling $390 million. The Governor’s latest proposal builds upon the YCTC by adjusting for inflation starting in the 2022 tax year and expanding it to include households with zero earned income.
Other budget proposals aimed at reducing childhood poverty
The Newsom Administration projects a 7.1-percent increase to CalWORKs Maximum Aid Payment levels, with an estimated cost of $200.7 million in 2022–23. These increased costs to the CalWORKs program, which provides cash grants and services to eligible low-income families with at least one child in the home, is to be funded entirely by the Child Poverty and Family Supplemental Support Subaccount of the 1991 Local Revenue Fund.
Under current law, families that have received state assistance such as CalWORKs do not receive the full “pass-through” of child support payments collected by the state. Instead, the collections are split between the federal government, state General Fund and county general funds based on the notion that people who rely on public assistance have an obligation to repay the government. When custodial parents apply for government aid such as CalWorks, they must sign away their rights to child support they are already receiving to the government in repayment. Few states actually pass-through 100 percent of monthly child support payments to families.
The 2022–23 budget proposal would make statutory changes to fully pass-through assigned arrears collections — simply known as debt collections — to families formerly assisted by CalWORKs. “Providing these funds directly to families may help low-income families reduce the burden of high-cost debt and stabilize their financial position,” according to the proposal.