New report: CTC payments helped lower reliance on risky financial services 


May 12, 2022

For some time now, we’ve known about many of the ways expanded, monthly Child Tax Credit (CTC) payments helped families most in need. For example, 3.7 million children were lifted out of poverty by the time the monthly payments ended in December 2021. And many more children and families finally had enough to eat. 

A new Brookings Institute report now informs us of other ways families with low incomes benefited. In short: they were less likely to pursue costly, alternative financial services such as payday loans, pawn shops, and even such measures as selling blood plasma in order to survive. 

The monthly CTC payments began in July 2021 and continued through December 2021. The payments provided up to $3,600 for every child under the age of six, and up $3,000 for every child between the ages of 6 and 17. Almost all middle- and low-income families with children were eligible for the CTC. Married parents making less than $150,000 and single parents making less than $112,500 per year were eligible to receive the full amount of the credit, which began to phase out slowly after those income cutoffs.  And unlike the earlier version of the Child Tax Credit, families with no or very low income were fully eligible for the CTC payments. 

The Brookings report compared CTC-eligible households with non-CTC-eligible households ( households with no children or none under age 18). It found that the average unpaid credit card balance of the CTC-eligible households decreased by $154 during the six months the CTC payments were distributed, while the outstanding credit card balance of the non-eligible households increased by $363. 

The CTC-eligible were 1.7 times more likely to stop taking out short-term payday loans than the non-eligible (5.3 percent vs. 3.3 percent). The CTC-eligible were 1.8 times more likely to stop using pawnshop loans than the non-eligible (5.9 percent vs. 3.5 percent). And they were almost twice as likely to stop selling blood plasma than the non-eligible (4.8 percent vs. 2.6 percent). 

Among the other findings in the report: 

  • Around 70 percent of CTC recipients who were negatively impacted by inflation said the CTC payments helped them manage higher prices. 
  • Almost two-thirds of CTC recipients said the monthly CTC payments have made it easier for them to budget than waiting for a single lump-sum payment at tax filing. 
  • The monthly CTC payments significantly lowered the rate of evictions. 

“Overall, we find that families used the CTC to cover routine expenses without reducing their employment,” the report’s authors write. “Eligible families experienced improved nutrition, decreased reliance on credit cards and other high-risk financial services, and also made long-term educational investments for both parents and children. We find that these changes were especially promising for Black, Hispanic, and other minority families, along with low- and moderate-income families, suggesting that the expanded CTC may be an important tool for addressing both racial financial inequality and a widening income gap in the United States.” 

Thus far, the Senate has failed to act to extend the expanded CTC, which expired at the end of 2021. But corporations are pushing Congress to extend another form of tax break – they want a continuation of a research and development (R&D) tax break that allows businesses to immediately deduct expenses, which helps with cash flow. 

In an alert to its online activists, the Coalition on Human Needs is urging them to contact Congress. CHN’s message: Put the needs of working families before wealthy businesses. Don’t pass the R&D corporate tax break without first renewing the expanded, monthly Child Tax Credit for 61 million children.