Article: Economics professor serves as industry expert on child tax credit
Note: This article originally appeared in the Monroe News Star on July 14, 2021.
Written by Sabrina LaBoeuf
Advance child tax payments begin Thursday: Here’s what you need to know
The Biden administration’s advance child tax credit program begins rolling out Thursday, giving qualifying families a bit of extra cash prior to tax season.
This economic relief program is the “largest child tax credit ever,” according to the White House. Through the American Rescue Plan, the child tax credit has increased to $3,000 per child above age 6 and $3,600 per child under age 6. Families will receive half of their qualifying amount in monthly payments beginning July 15. They will get the other half with their tax return.
For example, a family with two children, one over the age of six and the other younger, would receive $550 per month.
Most families will receive the advances without taking any further action. Families can check their eligibility for the advance child tax credit at irs.gov. For qualifying families who do not usually file tax returns, they can check out the IRS’ new Child Tax Credit Non-Filer Sign-up tool to get their payments.
Families who receive IRS refunds via direct deposit should expect their payments on the 15th of each month from July through December. Those who do not use direct deposit will receive payments in the mail “around the same time,” according to the White House.
To qualify for the full advance child tax credit amount, taxable income on their 2020 tax return (or 2019 if you didn’t file in 2020) must be no more than $150,000 for a couple or $112,500 for single heads of household. Monthly payments translate to $250 for kids 6-17 years old and $300 for kids under age 6.
The advance tax credit, which is only approved for the tax year 2021, is a step up from the previous $2,000 refund per child. This year’s adjustments also raised the top qualifying age of children from 16 to 17.
How the advance child tax credit could impact families, children
The advance child tax credit payments could help families make a dent in their bill payments, especially when looking at average costs of living across Louisiana.
The average amount of household expenses per month is $1,223 in Monroe, making it third-highest in average bill costs among Louisiana cities, according to a regional bill comparison by Doxo. The city’s average cost of monthly bills is $200 more than the national average, and it’s the only Northeast Louisiana city in the top-ten list.
Doxo is an online bill-paying service that also tracks and studies consumer behavior.
A family in Monroe with just one child could offset this difference with the advance child tax credit monthly payment. Families with two kids could receive enough to pay their monthly car payment, for example.
Ruston, ranked 17th for average monthly expenses in Louisiana, with households paying about $997 per month. Utilities average $224, so a family with one child would get enough to pay the monthly utility bill with money to spare.
According to PayScale, an organization that tracks cost of living and compensation, a family with two kids above age 6 in the City of West Monroe could use their advance payments to cover their electricity bill and phone bill for the month with money leftover to help pay for gas, groceries and other expenses.
The child tax credit has been expanded and will help to increase income for low-wage earners and families with young children.
Patrick Scott, Louisiana Tech University assistant professor of economics, said families should keep in mind that because they are receiving half of their usual tax return amount now, they should plan ahead for what their tax return may look like in the spring.
“I don’t think a lot of people think that far ahead,” Scott said. “The vast majority of individual households are trying to get through month to month. We have a very dynamic and fluid economy right now, especially with regards to the pandemic, and that matters.”
How the advance child tax credit could impact the economy
Whether the advance child tax credit provides a simulative effect on the economy depends on how families use their payments, Scott said.
Those who decide to take their payments and save them or pay off debt will not provide as much stimulus to the economy as those who spend their advance payments.
“The hope from the policy is that there’s a shift in expectations,” Scott said. “The hope is that individual households will take these smaller payments and actually spend them and not save them or apply them to debt or things like that. So as a result, the hope is that this has more of a simulative bump.”
How folks spend their payments will also affect what economies get a boost. The national economy will reap the benefits of any spending, but spending these payments won’t do much in terms of aggregate demand, Scott said. Because Louisiana produces more intermediate goods than finished goods, the state might have a harder time keeping advance payment dollars in state and local economic circulation.
“If you take that (payment) and spend it at Walmart, it’s largely going to leak out of the state economy really, really quickly,” Scott said. “Spend it at a farmers market or spend it at a local retail establishment, then that dollar circulates a bit more, and Louisiana gets a little bit more of a bump in the local economy.”
The advance payments also have the potential to add to an increasing inflation rate. The Consumer Price Index, a key measure of inflation, rose 5.4% from June 2020-June 2021, making it the largest year-over-year gain since 2008.
“This will only put additional added pressure on that because we have more dollars chasing the same amount of goods being produced,” Scott said.
Scott said he does not find it likely that the Biden administration will enact much more economic policy of this nature. Though nothing is set in stone, the American Families Plan proposes expanding child tax credits into the future. Under this proposal, advance payments would go away, but the amount increases set by the American Rescue Plan would stay for five years.
“Any policy that we see, from a fiscal side and definitely from the monetary side, we need to be asking ourselves, is that policy worth the price? And the price of that is going to be inflation,” Scott said.
Despite the potential of increased inflation, these payments directly benefit families who are experiencing unemployment. By May 2021, the Bureau of Labor Statistics reported a 7.1% unemployment rate for Louisiana. In June, the United States reported a 5.9% unemployment rate.
“The administration is trying to get individuals to spend (payments) to help get us back to full employment, but it does kind of miss the larger picture here,” Scott said. “Right now, we have an employment problem. It’s not a demand problem.”
Scott said the employment issue needs to be resolved in part by finding safe ways to bring folks back to work as well as motivating people to return to work.
“(Employment) is really where the crisis is,” Scott said. “We have to figure out how to make sure that we’re treating the symptoms as well as the root of the disease.”