Stimulus update: Increase in child tax credit has been instrumental in consolidating economies, data shows
When the US bailout was enacted in March 2021, it provided many different forms of relief to the public. Not only did this allow for a series of stimulus checks worth up to $1,400 each, but it also increased the child tax credit and changed how the credit was paid.
Before 2021, the child tax credit capped at $2,000 per child. Last year, its maximum value increased to $3,600 for children under 6 and $3,000 for children 6 to 17 years old.
The credit also became fully refundable, meaning a family can collect it in full even with a $0 tax liability. In addition, half of the credit was paid in monthly installments that hit bank accounts from July to December.
President Biden initially sought to keep the enhanced child tax credit in place for 2022. But the spending bill that allowed it failed to gain traction in the Senate.
Meanwhile, new data from the Federal Reserve reveals that the enhanced child tax credit has helped families save. And with the improved version on the table, economies could now stagnate or run out quickly, especially in the wake of runaway inflation.
A great help for families
The Federal Reserve found that parents who received monthly child tax credits last year most often saved that money, bought things for their children, or used the money to cover necessities. But interestingly, saving was the most common use of these child tax credit payments, with 43% of recipients saying they were able to bank at least some of that money. .
Not only has the increased child tax credit helped families consolidate their savings, it has also helped many people pay off their debts. In fact, 21% of those who received these monthly payments used at least some of that money to pay off their debts.
What happens next?
It’s a really good thing that so many families have been able to use their boosted child tax credit payments to put themselves in a better financial position. As we all know, the cost of living has skyrocketed this year and many people’s paychecks can no longer cover their basic expenses. So having some sort of cushion left over can keep more families from going into debt these days.
The problem, however, is that many families are dipping into their savings to make ends meet in the absence of monthly child tax credit payments to be expected now. And once they exhaust their savings, they could find themselves in a very bad situation.
Unfortunately, there are no immediate plans to revive the enhanced child tax credit. While some lawmakers are still pushing for it, there’s a lot of opposition due to the cost involved.
This means cash-strapped families may have to make tough choices in the months ahead, such as cutting back on spending or getting out and boosting their income with a second job. It is certainly not an ideal situation. But at this point, it’s becoming increasingly clear that the enhanced child tax credit won’t happen for 2022.
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