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The Child Tax Credit: How American Individualism Destroyed Welfare

There’s a Joseph Campbell quote you’ve probably seen on one of those fake deep Instagram accounts you get recommended on your Explore page that has 30 followers but follows like 8000 people. It reads, “You can tell what’s informing a society by what the tallest building is.” A corollary could be that you can tell what a government values by its tax system.

This is decidedly less exciting than the original quote, but equally if not more pertinent to our society’s values. How much money is spent and on what reveals a government’s priorities and fundamental values. A government that devotes significant funds to universal healthcare likely believes strongly in the necessity of a healthy population; a government that heavily invests money in the military cares more about foreign intervention or defense. The failure of the federal government to renew the Child Tax Credit program represents how American individualism blocked economic progress.

First of all, what is a Child Tax Credit and why was it so important? To fully understand its significance, we need to examine the history of American welfare and the gradual change in priorities in poverty reduction programs. From 1935 to 1997, the main welfare program for families was Aid to Families with Dependent Children (AFDC). It was a means-tested program that gave a fixed amount of money to families without steady income. While by no means perfect, it resembled similar welfare programs in other developed countries and was central to the American social safety net for decades.

In 1996, the Republican-controlled Congress and the neoliberal Clinton administration passed the Personal Responsibility and Work Opportunity Act. The massive reform package pushed welfare agencies to prioritize “workfare,” the idea that one must work to receive benefits. This bipartisan ideological consensus on workfare—as well as the perceived failures of the AFDC—resulted in its replacement by TANF, Temporary Assistance for Needy Families

TANF represented a shift away from traditional welfare. The recipients were no longer the most needy members of society, but rather all those who could meet the minimum work requirements. The program was also time restricted;it could only be utilized for a maximum of five years. The program has several other work search requirements, especially for single parents. Unsurprisingly, these strict criteria and the social stigma associated with the program, drastically decreased take-up rates, even among those who are eligible.

The  increasingly popular Earned Income Tax Credit also contributed to the decline of TANF. Unlike AFDC or TANF, which carry the “welfare” taboo, the EITC was seen as just a tax credit, not something only meant for the truly desperate. It was simple: families below a certain income threshold and with a certain number of kids could receive cash. However, there was a catch. Influenced by the workfare ideology of the time, the EITC required a certain amount of income to start receiving benefits and had a phase-in period. 

Below is a graph depicting EITC benefits:

I do not argue that the Earned Income Tax Credit is a net negative for the nation. It has high take-up rates and provides significant benefits to low income earners, forming the backbone of our current poverty reduction toolkit. But it has very different priorities and benefits than the AFDC and other traditional welfare programs, prioritizing increasing employment rather than decreasing poverty. Until the COVID-19 pandemic, the EITC was the status quo of U.S welfare policy for decades. Over several decades, the United States transitioned from a welfare system meant to help the disadvantaged to one that prioritized individuals who could already work. 

During recessions, governments will often experiment and implement new benefits and fiscal policies to incentivize consumer spending. 2021 was no exception. The Biden administration expanded the Child Tax Credit (CTC) to create a substantial impact on families. The CTC was started in 1997 to incentivize low-income mothers to work while also providing tax credits, following a similar phase-in, plateau, and phase-out structure as the EITC. However, the expanded 2021 CTC diverged from the EITC as it had no phase-in period and included those with no or little income in its maximum benefits. 

Below is a graph depicting the Child Tax Credit over time:

The Child Tax Credit single-handedly decreased child poverty from 9.7% to 5.2%. It raised 5.3 million individuals—including 2.9 million children—out of poverty between 2020 and 2021, with particularly significant benefits for racial minorities. Black child poverty fell by 8.8 percentage points and Hispanic child poverty declined by 6.3 percentage points. This is not negligible. To decrease child poverty by 46% alone is an incredible feat; to do so during the biggest recession since 2008 is an even greater accomplishment. 

These are the real societal gains that our elected officials apparently feel were insufficient to warrant the program’s renewal. The federal government did not continue this expanded Child Tax Credit after 2021, reverting back to the previous version of the program that had half the benefits and a phase-in period similar to the EITC. Essentially, the CTC lost what made it so beneficial and reverted back to a workfare program rather than a welfare one. 

The effects were unfortunately predictable. Child poverty, as quickly as it declined in 2021, jumped to 12% in 2022. Further, after 2025, the Child Tax Credit will shrink even more, phasing out at an income of $110,000, down from the current threshold of $400,000 for married households. 

How can it be that we experimented with tax policy, found incredible success, and then discontinued it? The answer circles back to the issue of government priorities. 

While there were legitimate fears of inflation, corporate tax codes did not face the same scrutiny as the CTC. The vote to renew fell mostly on partisan lines, with Senator Joe Manchin (D-WV) breaking from his party to vote against it. He criticized its lack of work requirements and that it benefited families with over $60,000 in annual income. Politicians prioritizing individuals working over raising the living standards of the people at large is not unique to the Child Tax Credit. It is the mainstream train of thought among our elected officials, even though the economic consensus is split. 

In fact, it was this focus  on work that made the EITC so well-regarded by politicians on both sides of the aisle. One significant impact of the tax credit was increased rates of working mothers. This figure remains high relative to other developed nations even though the US government gives comparatively less aid for parents and childcare. While high employment rates are often used as evidence of a healthy economy, this does not take into account economic well-being. Did the work those mothers do lead to long-term financial gains for their families, or did it merely mean t long hours for low wages while raising the future of this nation?

This is where our country’s obsession with individualism and “work ethic” becomes cancerous. Americans celebrate  that we are a country where people can work their way to the top, the illusive American Dream. We worship the success stories of people like Elon Musk and Bill Gates, regaling legends for “making it” on their own even though they often received help either through government subsidies or funds from friends and family. At the same time, we demonize low income earners for being lazy or overly reliant on government programs.

This cultural issue will not balance out on its own. Despite our globalized modern world, mainstream political discourse in the U.S has not moved in the direction of other developed nations. This keeps us, despite our free press and free speech, in a bubble of individualistic tropes. From school to work to media to friends, this ideology is continually reinforced, a positive feedback loop like a blood clot in our body politic. Just the failure to renew the Child Tax Credit has had dire consequences. Millions of children were forced back into poverty, unstable housing, food insecurity, and constant anxieties to meet basic needs. These millions of children will be forever impacted and shaped by these experiences, hurting their likelihood of career success, emotional and physical health, and increasing their chance of ending up in prison.

From an economic perspective, this permanently weakens our labor force, hampering economic output. From a purely human perspective, childhood poverty is a social ill that any empathetic individual feels an obligation to help solve. We are the richest nation on earth and have shown that we can alleviate these problems. But because of cultural barriers, we have decided that these gains should be erased because they were not seen to have been individually earned. 

As the United States continues to breed a culture of moral disgust at giving benefits to the poorest Americans who happen to not be working, temporary programs like the Child Tax Credit will never create permanent change, inhibiting progress. 

Featured image source: New York Times

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