District Child Tax Credit Bill is a Tool for Tackling Child Poverty and Should be Strengthened

Testimony of Erica Williams, Public Hearing on B25-0190 “District Child Tax Credit Amendment Act of 2023”

Chairperson McDuffie and members of the Committee, thank you for the opportunity to submit written testimony on B25-0190, “District Child Tax Credit Amendment Act of 2023.” My name is Erica Williams, and I am the executive director at the DC Fiscal Policy Institute (DCFPI). DCFPI is a nonprofit organization that shapes racially-just tax, budget, and policy decisions to advance an antiracist, equitable future.

DCFPI applauds Councilmember Parker for introducing the District Child Tax Credit Amendment Act of 2023 and leading the charge to pursue this tool for tackling child poverty. DCFPI fully supports adoption of a District Child Tax Credit (CTC) for the following reasons:

  • Child poverty in the District is higher than it is for the nation as a whole, and 36 percent of Black children in the District live below the poverty line. Black and brown children are also the majority of children in low- and middle-income families.
  • Child poverty can have myriad negative effects on children in their adulthood.
  • Conversely, poverty-reducing boosts to income can change children’s life trajectories in terms of education, employment, and health.
  • A CTC will complement the District’s baby bonds program by shoring up the ability of DC’s most disadvantaged families to meet their children’s basic needs and better prepare them to leverage their savings in adulthood. It also would fill gaps left by the expiration of the federal CTC expansion.

The Committee and Council can strengthen the proposed legislation to maximize its impact by:

  • Providing a larger credit for the lowest income families to ensure a greater reduction in poverty;
  • Extending its reach to children age 17 to ensure children nearing adulthood are also given the opportunity to expand their potential;
  • Eliminating the cap on number of qualifying children to ensure the District moves away from paternalistic policy choices like those enshrined in programs with racist underpinnings, like Temporary Assistance for Needy Families (TANF); and,
  • Prioritizing the credit for families with the most need if reaching middle- and upper-middle-income families makes the cost overly prohibitive.

Snapshot of DC’s Child Poverty Shows Stark Differences in Childhood Well-Being for Black and White Children

A history of racist policy and practice and its ongoing effects has resulted in tens of thousands of Black and brown children growing up in families experiencing economic hardship. The District can build on its efforts to push back against these forces and increase basic incomes through the DC Earned Income Tax Credit (EITC) and guaranteed income pilots, while also complementing DC’s baby bonds program with a targeted District level CTC.

Child poverty is higher in DC than nationally and disparities between the well-being of Black children compared with white children are extreme.

  • More than one-third (36 percent) of Black children live in families with incomes below the poverty line, around $30,000 for a two-parent family of four. In stark contrast, virtually all (99 percent) non-Hispanic, white children live above the poverty line (Table 1).
  • Many children who are not technically poor also live in families that struggle economically in the District. Overall, about 38 percent of children live in families with low incomes, defined as incomes below 200 percent of the poverty line, or $59,000 for a two-parent family of four. About 58 percent of Black children and 30 percent of Latinx and Asian children, compared with 2 percent of white children, live on low incomes.
  • Black and brown children also are more likely to live in moderate- to lower-middle-income families. Seventy-one percent of Black children, 45 percent of Latinx children, and 35 percent of Asian children, compared with just 5 percent of white children, live below 300 percent of the poverty line, or about $89,000 for a two-parent family of four. Another way to look at this is that fewer than one in three Black children live in families above this mid-level income while 95 percent of white children do.
A close-up of a graph
Table 1

Research on Child Poverty Shows the Undeniable Benefits of Boosting Income

Poverty and economic hardship have deep, long lasting effects on children and their lives, especially if it begins in their early years and persists over a long period of their childhood.[1] Parents with low incomes may struggle to provide nutritious meals or enriching learning environments in the home, or they may lack the means to access high quality child care. Parents with little income also carry enormous stress of how to pay the rent, buy food and other necessities, and for some, of living in less healthy or safe neighborhoods.

Nationally, nearly 40 percent of children experience at least one year of poverty before they turn 18, with nearly 11 percent experiencing persistent poverty, according to longitudinal research by the Urban Institute.[2] Stark differences by race mean that three out of four Black children experience at least one year of poverty, more than half of them persistently, compared with three in ten white children and far fewer (4 percent) persistently. The same study finds that children who live in poverty for longer do less well than those who live in poverty for just one year. They are less likely to graduate from high school, attend college, or complete college; less likely to have consistent employment as adults; and more likely to have teen births. That Black children are more likely to be poor and persistently poor than children overall, and white children in particular, means that Black people experience wider spread intergenerational barriers to success. It also suggests that shortening the length of child poverty matters to disrupting cycles of poverty.

Income Changes Life Trajectories

Getting cash to families that have poverty-level and low incomes can make a long-lasting difference in children’s lives and how they fare as adults. For example, a longitudinal study of federal EITC increases on child outcomes found that a $1,000 increase in family income from the credit raised math and reading test scores for children and resulted in higher earnings in their adulthood.[3] Another study showed that for families with young children with incomes below $25,000, an income boost of just $3,000 would result in a 17 percent increase in adult earnings for those children.[4] Boosts to income also can make it likelier that older children access higher education by making college or the costs of attendance more affordable.[5] And, boosts to cash income may improve health by way of increased educational attainment.[6] Increased income for families living in poverty also has been shown to improve health more directly as well through healthier behaviors, access to healthier foods, and reduced stress.[7]

Poverty Reduction Boosts the Economy

Increasing incomes to reduce poverty also would benefit the economy more broadly. One study looking at disparities in innovation—an important economic driver—by race, gender, and income, finds that if children in the bottom 80 percent of the income distribution in DC were to grow up to invent at the same rate as children from the top 20 percent, the District would have five times as many children growing up to be inventors.[8] In other words, if income inequality were eliminated, we’d have more people driving the future of our economy and, moreover, these people would come from more diverse backgrounds that bring new perspective to new innovations. Another study found that even in the short-run, economic supports can help people with entrepreneurial ideas take risks and pursue those ideas.[9] One study estimates that the costs of child poverty to the national economy at over $1 trillion per year, or 5.4 percent of gross domestic product (a measure of our economic output) because it depresses economic productivity and increases costs of crime, health care, child homelessness, and child welfare.[10] That means the economy could be strengthened substantially if policies greatly reduced or eliminated poverty.

A Local CTC Would Complement Baby Bonds Program and Fill Gaps Left by Expiration of Pandemic CTC Expansion

In 2021 and 2022, Chairman McDuffie laudably championed the Child Wealth Building Act of 2021, which established a DC baby bonds program to reduce the substantial racial wealth gap in the District. As the result of a long and well-documented history of deliberately racist policies, exploitative and extractive systems, and white racial violence against Black residents, the District has one of the largest racial wealth gaps in the country. In the DC area, white households have 81 times the wealth of Black households.[11]

Like child poverty, the racial wealth gap causes intergenerational harm. Wealthy families can pay for an elite education for their children, start a business, buy a home in a safe and amenity-rich neighborhood, weather a job loss or illness, and provide their children and grandchildren an inheritance to build on. Families with little or no wealth are denied these opportunities as well as the freedom and security wealth provides. In the words of baby bonds scholar and advocate Darrick Hamilton, “the reality is that wealth is the paramount indicator of economic prosperity and well-being. When it comes to economic security, wealth is both the beginning and the end.”[12]

Baby bonds are a promising tool for building Black wealth over the longer term and a CTC that helps families meet children’s needs in the short and medium term would substantially strengthen the benefits of baby bonds. That’s because children in families below the poverty line that get the cash boost from the CTC may improve their educational outcomes and leave them better positioned to successfully leverage their savings upon reaching adulthood. And the receipt of benefits occurs at different times in each program: residents turning 18 will be able to access the wealth support that baby bonds offers just as they are aging out of eligibility for the CTC.

Moreover, a local CTC can help to make up for the limited reach of the federal credit. Congress let expire the temporary expansion to the federal CTC, which allowed it to reach children in the District whose families have no income for the first time ever and provided a much more robust credit to families with very little income. That included 32,000 Black children and 6,000 Latinx children who are once again either no longer eligible or only eligible for a partial credit. A District CTC would ensure that the families being shortchanged at the federal level are not left out of this vital cash program.

Modified Design Would Strengthen the Credit and Yield Greater Poverty Reduction

DCFPI fully supports Councilmember Parker’s proposed legislation to adopt a District CTC. The credit would reach the large majority of DC’s children with an important boost to income. DCFPI recommends that the Committee and Council consider strengthening the proposed legislation in the following ways:

  • Provide a larger credit for the lowest income families to ensure a greater reduction in poverty. Analysis of DCFPI’s proposal that would have provided $1,500 per child to all families up to 200 percent of the official federal poverty line before phasing down the credit value finds that it would reduce poverty by 18 percent under the supplemental poverty measure.[13] DCFPI’s proposal would ease hardship for tens of thousands more children. For moderate- and lower-middle-income families, the credit would also lower the taxes they pay as a share of their income, making the District’s tax code more progressive and helping these families invest in their children’s futures. More broadly, raising incomes through tax credits could support more children in the District growing up to innovate for the economy of the future.
  • Make the credit available to all children aged 17 and younger. At the federal level and in many states, CTCs offer a larger credit or boost for younger children because of the importance of children’s first years in life to their life outcomes and because there are relatively few investments in this country’s youngest children. However, research also speaks to the importance of addressing poverty for older children and for shortening the length of time that children experience poverty. DCFPI chose not to include a boost for younger children given that child poverty in DC is higher among older children than younger children, which is different than the national picture or what is typical among other states. About 24 percent of children over age six in DC are poor, compared to 20 percent of those age six or younger.[14] In addition, DC makes large investments in its youngest children relative to other jurisdictions. However, policymakers may want to consider a future expansion that offers a boost for younger children.
  • Eliminate the cap on the number of eligible children per family. The District should move away from paternalistic and racist policies and practices that aim to judge and penalize larger family sizes among those with low incomes. These kinds of policies and practices are rooted in a racist and sexist history of control over Black women’s bodies, in particular, as evidenced through provisions enshrined in the TANF program.[15] The aim of a CTC is to reduce child poverty and boost the incomes of families to mitigate the high cost of raising children. DC should focus on those aims rather than unwarranted limits rooted in a racist past.
  • Prioritize the credit for families with the most need. If reaching middle- and upper-middle-income-families makes the cost of a robust CTC overly prohibitive, Council should consider better targeting the credit to families and children most in need. For example, DCFPI’s proposal (whether set at $500, $1,000, or $1,500 per child) would target children below 300 percent of the federal poverty line, reaching 80,000 children, the vast majority of the Black, Asian, and Latinx child population, with nearly 90 percent of the benefits flowing to families below $55,000. Another 12 percent of the benefits would flow to families with incomes between $55,000 and $104,000.

Addendum: Side-by-side Comparison of Three Child Tax Credit Proposals for the District

[1] For a thorough review of the literature, see: National Academies of Sciences, Engineering, and Medicine, “Chapter 3: Consequences of Child Poverty.” A Roadmap to Reducing Child Poverty. Washington, DC: The National Academies Press, 2019.

[2] Caroline Ratcliffe, “Child Poverty and Adult Success,” Urban Institute, 2015.

[3] Gordon Dahl and Lance Lochner, “Correction and Addendum to ‘The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit,” March 1, 2016.

[4] Greg J. Duncan and Katherine Magnuson, “The Long Reach of Early Childhood Poverty,” Pathways, Winter 2011.

[5] Dayanand S. Manoli and Nicholas Turner, “Cash-on-hand and College Enrollment: Evidence From Population Tax Data and Policy Nonlinearities,” National Bureau of Economic Research Working Paper No. 19836, revised April 2016.

[6] For a thorough review of the literature on the health benefits of income support, see Arloc Sherman, Samantha Waxman, and Kris Cox, “Income Support Associated With Improved Health Outcomes for Children, Many Studies Show,” Center on Budget and Policy Priorities, 2021.

[7] Hilary W. Hoynes, Douglas L. Miller, and David Simon, “The EITC: Linking Income to Real Health Outcomes,” University of California Davis Center for Poverty Research, Policy Brief, 2013 and Kelli A. Komro et al., “Effects of State-Level Earned Income Tax Credit Laws on Birth Outcomes by Race and Ethnicity,” Health Equity, March 13, 2019.

[8] Wesley Tharpe, Michael Leachman, and Matt Saenz., “Tapping More People’s Capacity to Innovate Can Help States Thrive,” Center on Budget and Policy Priorities, December 9, 2020.

[9] Gareth Olds, “Food Stamp Entrepreneurs.,” Harvard Business School Working Paper No. 16-143, June 2016. This study finds that one of the things that holds back entrepreneurship is the risk of leaving wage employment to pursue ideas, and having income supports (or economic supports that mimic income like food assistance) help lessen that risk.

[10] See summary starting on page 89 in National Academies of Sciences, Engineering, and Medicine, “Chapter 3: Consequences of Child Poverty.” A Roadmap to Reducing Child Poverty. Washington, DC: The National Academies Press, 2019; McLaughlin, M., and Rank, M.R., “Estimating the economic cost of childhood poverty in the United States,” Social Work Research, 42(2), 73–83, 2018.

[11] Kilolo Kijakazi, Rachel Marie Brooks Atkins, Mark Paul, Anne Price, Darrick Hamilton, and William A. Darity Jr., “The Color of Wealth in the Nation’s Capital,” Urban Institute, November 2016.

[12] Hamilton, Derrick, et al. A Birthright to Capital: Equitably Designing Baby Bonds to Promote Economic and Racial Justice. Kirwin Institute, Prosperity Now, Feb. 2020.

[13] Erica Williams, “A Child Tax Credit Would Reduce Child Poverty, Strengthen Basic Income, and Advance Racial Justice in DC,” DC Fiscal Policy Institute, March 6, 2023.

[14] DCFPI’s analysis of the American Community Survey’s 2017-2021 5-Year Estimates.

[15] Ife Floyd et al., “TANF Policies Reflect Racist Legacy of Cash Assistance,” Center on Budget and Policy Priorities, August 4, 2021.