Jacob Goldin recently helped pull off an unlikely feat: As federal lawmakers battled over President Biden’s economic agenda, he worked to recruit more than 460 American economists in urging that a large, but temporary, cash benefit for children as part of an earlier $1.9 trillion stimulus package be made permanent.
In September, the economists, led by Hilary Hoynes and Diane Schanzenbach, sent a letter to Congress that proved propitious. Soon after, the cash benefit they were advocating for — the Child Tax Credit (CTC) — took center stage in negotiations over the future of Biden’s bid to expand the country’s social safety net. Not only are the potential costs of the CTC a point of contention, so, too, is the rekindled argument by opponents that motivated welfare reform a quarter century ago — the notion that giving a handout to the lowest-income families creates disincentives to work.
Goldin’s leading role in corralling support for the expanded CTC makes sense. An associate professor at Stanford Law School and faculty fellow at the Stanford Institute for Economic Policy Research (SIEPR), he is an expert on the taxation of low-income households and how human behavior shapes economic decision-making. He understands the CTC’s historical limitations as a poverty-reducing tool. He is also the co-author of a new working paper, Estimating the Net Fiscal Cost of a Child Tax Credit Expansion that gets to the heart of the current debate: What will broadening the credit ultimately cost the federal government, and are the benefits worth the price?
In recent weeks, Goldin has been tapped by National Public Radio, NBC News, Forbes and other national news outlets for his insights about the future of the CTC. Here, he talks about the credit, what changed in 2021, and how his research informs the current debate.
What is the CTC and why is it so contentious?
The Child Tax Credit was enacted in 1997 as financial assistance for lower- and middle-income families with kids. But because the credit was not designed to benefit the poorest households , my prior CTC research estimated that 6.7 million kids, or about 10 percent of all children in the United States, were excluded. I also found large racial disparities in that Black and Hispanic children were left out at far higher rates than white and Asian children.
When Democrats in Congress expanded the credit this year, they did three things. First, they included the poorest children who previously had been left out and who would most benefit from this extra assistance by making the credit fully refundable. Second, they made it more generous for everyone — $3,600 per child under the age of six and $3,000 per child through the age of 17. And third, they converted the credit from an annual payment that families received once per year as part of their tax refund to a series of monthly payments paid out throughout the year.
A lot of people think the 2021 expansion of the credit is just about the bigger payouts, or that is it paid monthly, which is new for the IRS. They don’t realize that it’s also fundamentally changing who’s included and who’s excluded.
Let’s talk briefly about the letter to Congress. What makes you and your peers so sure this is good policy?
It’s hard to get economists to agree on anything, but there is such a strong case for making this one-year CTC expansion permanent. The letter that over 450 economists signed is meant to get this consensus on the record — especially since many of the political objections to programs like this are framed in economic terms.
There is a lot of academic research credibly showing the long-run benefits to children and their families from safety net programs like the Supplemental Nutrition Assistance Program and the Earned Income Tax Credit. Kids are healthier. They are more likely to stay in school and graduate college. They are more likely to be employed as adults and to earn more. There’s just lots of good evidence of positive outcomes, which also suggests long-term cost savings through increased tax revenues and less dependence on other social welfare programs.
Since the IRS started making monthly payments of the credit in July, estimates suggest that 3-4 million kids have been lifted out of poverty as a result.
In your deep dive into the credit’s costs, what do you find?
Prior to this year's reform, the Joint Committee on Taxation estimated the total cost of the Child Tax Credit to be at about $118 billion. In our study, my co-authors — Elaine Maag at The Urban Institute and Katherine Michelmore at the University of Michigan — and I set out to estimate the net fiscal costs of three proposed expansions of the Child Tax Credit, including the 2021 reform. We measure direct costs and the effects on tax revenues from short-term labor supply changes. We also try to quantify longer term effects from changes in children’s future earnings, which is something most other papers haven’t done.
We estimate, for example, that if the credit remains fully refundable and the maximum amounts stay at 2021 levels, the credit’s overall fiscal cost would increase by about $85 billion annually. If the credit was made fully refundable for low- and middle-income taxpayers with children, but at the pre-2021 maximum amount of $2,000, we project an additional $21 billion a year in costs relative to the pre-2021 design. The third proposal — to make the credit available to everyone, including high-income families, at 2021 amounts — would cost around $95 billion a year.
These estimates include projections of higher future earnings by children who would benefit from an expanded credit. We think these long-term tax revenues would reduce credit costs by 15 to 20 percent.
What does your research say about the risks of an expanded CTC motivating people to leave the workforce?
These arguments about the credit discouraging work are really misguided. We estimate that between 285,000 and 580,000 adults — or approximately 1 percent or less of working parents — would choose to not work because of the additional cash from the credit. In other words, our results suggest that about 99 percent or more of working parents are going to choose to remain employed. Some of the larger estimates out there come from unrealistic assumptions about the degree to which parents would choose to drop out of the workforce simply because they can now receive several thousand additional dollars of child tax credits.
The United States really is an outlier among richer countries in not having a child allowance. Countries like the United Kingdom, Australia, Germany and Canada all have child benefits similar to the expanded Child Tax Credit. None of these countries have reported alarming declines in labor force participation — and all have seen large reductions in child poverty.
In addition to Goldin, 11 SIEPR affiliates signed the letter to Congress. They are Thomas Dee, Pascaline Dupas, Daniel Fetter, Victor Fuchs, Elisa Jácome, Neale Mahoney, Petra Persson, Luigi Pistaferri, Sean Reardon, Maya Rossin-Slater, and Shoshana Vasserman.