Keeping Up with Inflation: How policy indexation can enhance poverty reduction
As families across the United States contend with record-high inflation, the values of several government benefits and tax credits meant to provide relief are not keeping up. Policy indexation, an often overlooked aspect of policy design, would fix this. In this report published by The Century Foundation, we examine the antipoverty potential of one policy, the expanded Child Tax Credit, under different scenarios to shine a spotlight on the importance of inflation indexation for optimizing the antipoverty effects of government policies. Whether and how policies are indexed to inflation has major implications for their power to improve economic well-being and reduce poverty in the long run.
Key Takeaways
Anti-poverty policies that have higher benefit levels achieve a greater degree of poverty reduction.
Anti-poverty policy benefits that are not indexed to inflation will have their dollar value erode over time.
A Child Tax Credit not indexed to inflation, for example, would lose about a quarter of its value over ten years.
Policymakers should include inflation indexation in all anti-poverty program benefits to ensure their effectiveness.
Keeping Up with Inflation is published by The Century Foundation.