- Child poverty is higher in the Eighth Federal Reserve District than in the rest of the country.
- Recessions, such as the one caused by COVID-19, increase child poverty and income instability.
- Changes to the federal Child Tax Credit (CTC) can help reduce the proportion of children living in poverty.
Child poverty in the United States is widespread, affecting nearly 1 in 7 children. Living in poverty is defined as having a family income below a certain threshold, adjusted for the number of adults and children in a household, and has been shown to have long-term impacts on health, education, and income. children when they are adults.
Changes to the federal CTC implemented in the American Bailout Act of 2021 are intended to reduce child poverty and income instability. For this article, we look at child poverty rates and income volatility within the Eighth Federal Reserve District and across the US.
Child Tax Credit
The CTC, introduced in 1998, previously offered up to $2,000 per dependent under age 16 and was reimbursable up to $1,400. The American Rescue Plan, which was signed into law in March, expanded the CTC for 2021 up to $3,000 per child between the ages of 6 and 17 and $3,600 per child under 6, with the entire credit refundable.
If a refundable tax credit exceeds the amount of a family’s tax liability, the difference between the two up to the limit is given as a refund. In other words, a family with no federal income is still eligible to receive the full tax credit. This year, all eligible families will automatically receive full credit if they earn up to $150,000 per married couple or $112,500 for single-parent households.
However, instead of a single lump sum payment, half will be paid out in installments during the second half of the year, with the rest claimed on tax returns. It is estimated that this change in CTC Reduce by 40% the proportion of children living below the poverty line.. The increased benefits, as well as the new distribution plan, could help families increase and smooth their income during the year.
A look at the data
The data in this article comes from the Annual Economic and Social Supplement (ASEC) of the Current Population Survey (CPS). The ASEC is completed each March using families currently in CPS and contains detailed information on family income and earnings. Families appear in the ASEC for two consecutive years before leaving the sample.
Families can be matched consistently over the years from 1978 onwards. We limit our sample to households with children whose head of household is between the ages of 18 and 64. Information on the poverty line comes from the Census Bureau and the Office of Management and Budget. They create a set of income thresholds that vary by family size and composition to determine who lives in poverty. For example, a family with two adults and two children earning less than $26,246 in 2020 would be considered living in poverty.
Child Poverty in the Eighth Ward
The first figure shows the proportion of families with children below the poverty line for their family size over time, with recessionary periods shaded in grey. Since 1980, the proportion of families with children living below the poverty line has generally been higher in the Eighth Ward than in the country as a whole (excluding a brief period in the late 1990s). In addition, child poverty rates are cyclical, and child poverty in the Eighth Ward generally increases more during recessions.
Looking more recently, the second figure shows the average proportion of families with children in the Eighth Ward living below the poverty line for the past five years. The dark gray bar represents the average for the entire country, including the Eighth District, while the blue and green bars represent the states and the largest Eighth District metropolitan statistical areas (MSAs), respectively. Illinois, Missouri, Little Rock, and St. Louis all have child poverty rates below the national average. Mississippi has the highest child poverty rate, followed by Louisville, Ky., and Memphis, Tennessee.
Income Volatility in the Eighth District
While increasing the child tax credit will primarily help alleviate overall poverty levels, another goal of the American Rescue Plan is to help reduce volatility for families with children. The volatility of a family’s income can come from many sources, such as inconsistent work schedules, changes in wages, or changes in employment.
To measure income volatility, we calculate the probability of a 20% or more drop in total household income over the course of a year. The third figure shows the three-year moving average of the probability of a large drop in total household income within and outside of the Eighth District. Although the overall level of income in the Eighth District is lower than outside of it, there are no significant differences between the level of income volatility between the two different areas. However, in periods of recession, the level of income volatility tends to increase more in the Eighth District.
The increased value of the CTC and changes to its structure will lift children out of poverty and help low- and middle-income families smooth out their incomes throughout the year. The proportion of families with children living in poverty is higher in the Eighth District than in the rest of the country, suggesting that the increase in CTC may have a greater impact in the District.
While income volatility is about the same in the two areas, in downturns like the one caused by the COVID-19 pandemic, the Eighth Ward struggles the most with volatility and poverty. Therefore, the CTC changes will be helpful to families in the District, even as the economy picks up.
- The Eighth District includes all of Arkansas, eastern Missouri, northern Mississippi, southern Illinois, southern Indiana, western Kentucky, and western Tennessee.
- Due to data limitations, we report data for the Eighth District states as a whole, with the understanding that parts of these states, such as Illinois, are outside of the District.
- The measure shown in the first figure is the three-year moving average of the proportion of families with children with a total income below the poverty line, as calculated by the Census Bureau. We take three-year moving averages due to sample size limits.
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