Monthly Cash Payments Reduce Spells of Poverty Across the Year
Annual poverty measures by definition obscure month-to-month fluctuations in families’ resources. Taking the expanded Child Tax Credit under the American Rescue Plan and the existing Earned Income Tax Credit as examples, this brief shows how monthly benefit delivery has the power to smooth within-year volatility in incomes and reduce child poverty year-round.
Key Findings
Many families experiencing poverty experience income fluctuations during the year. The Child Tax Credit and Earned Income Tax Credit, traditionally delivered once per year, are important anti-poverty policies, but many families spend these annual credits catching up on debt incurred in months when less cash was coming in.
Compared to one-time annual payments, monthly distribution of tax credits can meaningfully reduce child poverty and keep it low year-round. By reducing income volatility, monthly payments not only reduce the risk of children being persistently poor, but also reduce the risk of children ever becoming poor throughout the year.
With an annual lump sum Earned Income Tax Credit and lump sum expanded Child Tax Credit, the monthly child poverty rate falls from roughly 23% in February to 11% in March, and then rises back to 23% by May, staying above 22% for the remainder of the year.
Child poverty rates with monthly Child Tax Credit payments are consistently lower by 6.8 percentage points each month, on average, throughout the year than child poverty rates when the Child Tax Credit is delivered in one lump sum at tax time. Put another way, outside of tax filing season, a Child Tax Credit delivered monthly would cut child poverty by about one-third in each month.
Monthly Child Tax Credit payments could keep about 1 in 10 children in the United States from experiencing a spell of poverty at any point during the year, as opposed to payments delivered in a lump sum at tax time.
Read related opinion by Christal Hamilton and Natalie Foster of the Economic Security Project:
The key to reducing childhood poverty? Child tax credits distributed monthly | The Hill