Today, Explained - Honey, I shrunk the kids’ tax credit

Episode Date: January 31, 2022

The US government let the expanded child tax credit expire ... just as researchers produced a study showing giving parents money might help improve brain development in kids. This episode was produced by Hady Mawajdeh, edited by Matt Collette, engineered by Paul Mounsey, fact-checked by Laura Bullard and Richard Sima, and hosted by Sean Rameswaram. Transcript at vox.com/todayexplained   Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Get groceries delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit Superstore.ca to get started. It's Today Explained. I'm Sean Ramos. Towards the end of last year, we brought you an episode that was wall-to-wall good news. We spoke to a bunch of Vox reporters about positive developments that they thought went under-noticed in 2021. One of them was Dylan Matthews from Vox's Future Perfect Desk.

He writes all about the ways we can make the world work better for people. I think probably the best thing that's happened on my beat over the past year, besides, you know, the COVID vaccinations and people being protected, has been the huge drop in poverty, especially for kids. One of the things that led to that drop in child poverty was an expanded child tax credit. It was a one-year experiment that happened in 2021. And for six months of 2021, people, for the first time, were getting monthly cash payments from the IRS as part of the child tax credit, which is something that had never happened before. And mere days after Dillon told us about this good news, that expanded child tax credit expired. That was an emergency provision that was passed as part of the Biden stimulus in

March. Today, the expanded child tax credit is here. Today, for families all over our country, for children all over our country. Help is here. Biden very much would like to expand it. Most Democrats in Congress would very much like to expand it. But as of right now, it expired on December 31st, 2021. On the show today, we're going to ask how this expanded tax credit program for kids went, because at least in the United States, it was kind of an unprecedented experiment in social welfare. Child payments or just sort of unrestricted cash to parents is one of those things like universal health care or pre-K that most other rich countries do and the

U.S. doesn't. Poverty researchers and journalists like me who cover their work have been writing about how the U.S. doesn't have a policy like this, whereas Canada does, the U.K. has a version, Germany has a version, Japan has a version, and that this was really hurting us when it came to child poverty, that we have much higher child poverty by a variety of measures than other rich countries. And a large part of that is that they provide cash assistance to parents

and we didn't. So gradually you started to see sort of the ground move in Congress on this, that there was a bill introduced in 2017 by a few senators and then a few members of the House that would establish sort of unrestricted cash payments to parents. That started to build momentum. And then eventually in 2020, Joe Biden got on board and said, you know what, at least for a year during coronavirus, we want to try this out. But I also think we need to give ordinary families a break, a tax break, to help them with the cost of raising their kids. A lot of us were hopeful that not just that that would do some good in 2021, which it did, it drove child poverty way down. By some metrics, 2021 was the lowest year of poverty on record in the United States. We were

hopeful that it could stay on a little longer. That seems to not be true, basically, because of Joe Manchin. And first of all, child tax credits, think about this. If it's child tax credit, you want to help the children and the parents that are basically providing for those children. There's no work requirements whatsoever. There's no education requirements whatsoever for better skill sets. Don't you think if we want to help the children, the people should make some effort? Everyone else, 49 U.S. senators, including Kyrsten Sinema, seem to like this policy. Joe Manchin seems very concerned that because what changed about the child tax credit, several things changed. It got bigger. It got paid out monthly as opposed to with people's tax refunds.

But also, there's no income test at the bottom. Before 2021, you had to make at least $2,500 to get any child tax credit. And even then, it phased in slowly. So if you were living in poverty, you probably couldn't get the full benefit of the credit. And that was one thing that Biden changed in 2021, that the whole credit in its big expanded form went to everyone, whether or not they had a job or not. And that seemed really important as we were recovering from a really awful recession in 2020, that maybe if you don't

have a job, that's not really your fault. And so offering some assistance not tied to that seemed important. And I think it's also just important in general that people living in poverty work in different labor markets than other people in the economy, and it is often tougher to get a job. It's tough to manage childcare. That's one reason experts have been pushing for this change to make it available for people at the very bottom. But I think Joe Manchin looked at that and says, hey, you're paying people not to work. This is a no. I think that's a little silly. This is at most $300 a month per kid. No parent of three is going to be like, oh, $900 a month? That's great. That's all the money I need here. He was very concerned about that. And so right now, I think as we speak, he and Democrats

are trying to figure out if there's a deal they can cut that he's comfortable with to expand it in some form. It's probably not going to look the way it looked in 2021, but he's been very resistant to just carrying that forward indefinitely. Do we have any data that suggests how this, you know, massive experiment in giving people free money worked? We do. Let me pull it up. in the child tax credit is a team at Columbia that does monthly poverty estimates. And that's especially important because, you know, it's the coronavirus, everything is changing really rapidly month to month, policies are changing a lot month to month. What they found is that in December, the child tax credit kept about 3.7 million children out of poverty. Good news.

Their estimate is that due to it expiring in January, the child poverty rate is going to increase from about 12% to at least 17% for early this year. Bad news. So about 5% of kids are going to go from not being in poverty to being in poverty because this policy expired. It sounds like it alleviated a whole lot of poverty for a whole lot of people. Is this, I mean, were people impressed with the results? It depends what you mean by people. Was I impressed? Yeah. I think a lot and a lot of people who've studied poverty their whole careers viewed this as this big watershed moment. And it was it was a particularly big deal because it was exactly 25 years after the U.S. abolished welfare as we know it, as Bill Clinton put it.

From now on, our nation's answer to this great social challenge will no longer be a never-ending cycle of welfare. It will be the dignity, the power, and the ethic of work. There had been a sort of cash program for single mothers, and one that was designed specifically so that they wouldn't work, and Clinton abolished that. And in the 25 years since, there hasn't really been unrestricted cash for parents. And so it felt kind of like the end of an era and the beginning of a new era. I think the public opinion response was not exactly what I or other people were expecting. It was not unpopular. My general rule of thumb is that if you

ask Americans, do you want the government to do a service? They will usually say yes by some margin, unless the service is like, like setting orphans on fire. Won't somebody please think of the children? That pulls badly. The child tax credit pulled better than setting orphans on fire, but it pulled worse than about everything else that Democrats wanted to do. It pulled worse than spending money on climate change. It pulled worse than spending money on elder care and care for people with disabilities, pulled worse than pre-K. And this has been sort of puzzling to a lot of people I know who follow this. I think some of

it is just like a smaller and smaller share of people are parents of kids, especially parents of young kids who got especially big benefits under this. And a lot more people are, say, retirees who want help with nursing home bills or people with student loan debt who want debt relief people in college. It's not as big a part of the life cycle as I think a lot of us went in thinking it was. And so we thought there'd be this sort of natural constituency of both poor and not poor parents being like, hey, I'm getting a few hundred bucks a month. Like, that's not too shabby. And it didn't seem to build that kind of base, at least in the one year that we tried it. And maybe just one year wasn't enough. Is it possible that a lot of Americans who were polled agree with Joe Manchin, or even, I believe,

you know, a couple of researchers at the University of Chicago, Bruce Mayer and Kevin Corinth, that giving parents money might disincentivize work? Yeah, and I've read Bruce and Kevin's paper, and they make a decent point, just that you went from a policy that explicitly incentivized work to one that doesn't try to, and that might have some effects on parents' work. I'm willing to concede that, but even their numbers suggest that it cut child poverty pretty dramatically. They don't think that's worth it. I do. But I do think a lot of Americans share Joe Manchin's fears that people are going to blow it on booze, people are going to blow it on drugs. West Virginia had a really bad opioid epidemic, even sort of by U.S. standards. And I think there's a lot of sort of folk wisdom about

people just blowing government benefits. Well, do we know how parents spent this money? Do we have that data? People seem to spend the money on food. Some on rent, though, for people in really stressed housing situations, the eviction moratorium and other housing measures helped a lot. So they didn't need to lean on the child tax credit the same amount. There's some indication in polling I've seen that people really viewed this as something that was earmarked for their kids. And so it was something that they had to spend on food for their kids or clothing for their kids, back to school stuff.

People didn't know they could just go out and buy heroin with this money. I mean, thankfully, the government didn't put up billboards being like, you know, you can spend this on heroin, right? But they seem to instead invest pretty heavily in their kids because they were told that's what this was for. And I think labeling it, the child tax credits, sort of made that clear of like, this is to help you raise your kid. So even if most American parents ended up spending this money on food for their families, people still aren't completely in love with this program. And it sounds like Republicans in Congress just plain old think it's too dang expensive, huh? Yes. There is exactly one Republican in Congress who is excited about giving cash to every parent.

His name is Mitt Romney, and he has no other friends on this issue. And he has his own plan to do this. Under our plan, parents receive a benefit, a monthly benefit, and they actually begin receiving it four months prior to the time the child is due. Maximum payment is $1,250 per family per month. I like a lot of it. I would pass it in a heartbeat, but he also designed it sort of so it can't pass in its current form. Like all the pay-fors are sacred cows that Democrats love, like getting rid of a variety of other sort of smaller social assistance programs, getting rid of the state and local tax deduction that Democrats in California, New York and New

Jersey view as like their sacred birthright. And I agree with him that that would be a good trade, but it was sort of written as trolling and written in such a way that he had to know this would not be viable for a lot of Democrats. So I think my hope for 2022, and this is, I put low probability on this, but is that he can work out a deal with Democrats where you don't need Joe Manchin, and you might be able to get some buy-in from him as the 50th vote to expand this program and keep it going on an ongoing basis. But he is going to demand that it be permanently paid for, and that's going to raise a lot of tough questions about how to pay for it. Since we're sort of role-playing here, Dylan, and you're talking about how you'd

vote for Romney's bill or not, I wonder, you know, if you were in the room with the Romneys and the Manchins and the Republicans who perhaps see this as a program that's going to disincentivize work and cost way too much money, what data would you present them with? I would point out that efforts to estimate the cost of child poverty in the United States put it at about hundreds of billions of dollars every year. Kids who grew up in poverty, got lower test scores,

are less likely to finish high school or college, earn less as adults, pay less as taxpayers. They're likelier to get involved in the criminal justice system, which costs the government a whole lot of money. Even if you don't care about the kids themselves, which you should, these kids are going to

be adults someday, and they're going to be better adults and better citizens of the country you want to live in if they didn't grow up in poverty. This is really, really costly as a problem for the United States, and trying to fix it with the credit can create a lot of other side benefits. There's also a new study. It's just one study. Don't make too much of it, but suggesting that this could actually sort of change patterns and brains of babies whose families get cash benefits. So there's a lot of evidence suggesting

that this might have profound effects for children as they grow up. I don't want to make too much of it, but I want to hear more about that in a minute. Talk to you in a pocket. Ramp says they give finance teams unprecedented control and insight into company spend. You're able to issue cards to every employee with limits and restrictions and automate expense reporting so you can stop wasting time at the end of every month. And now you can get $250 when you join Ramp. You can go to ramp.com slash explained.

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please contact Connex Ontario at 1-866-531-2600 to speak to an advisor free of charge. BetMGM operates pursuant to an operating agreement with iGaming Ontario. A minute ago, Vox's Dylan Matthews said there was this new study that suggested giving parents money for their kids could potentially change their kids' brain activity. He said not to make too much a stink about it, but, I mean, we have to know more. There are a lot of reasons you might want to give cash to parents or families with kids. Getting them out of poverty is one. That's one that I care a lot about. But there are other sort of more health-related reasons. And for years, economists and doctors and scientists have sort of theorized that child development goes better

when you have more money. Over the last few years, many other scientists have also found links between growing up poor and differences in cognitive development. And that sort of makes intuitive sense to a lot of people. You have more access to education. You have more access to sort of enrichment opportunities, reading. But it hasn't been sort of tested in an experiment before. Okay. And there's a big new experiment called Baby's First Years that started in 2018. The Baby's First Years study included 1,000 low-income moms shortly after they gave birth. Some were given a little more than $300 a month,

while the rest received $20 a month. And the first study to come out of that experiment came out this month. After a year of receiving that money to use how they chose, the babies and the families who received more money had faster activity in key areas of their brain, showing stronger cognitive development. Wow. It's pretty wow. And I want to be clear that this is just one study. And part of why I'm excited about babies' first years as an experiment is that it's going to be tracking these kids for many years. It's going to see what getting this cash means for them at three, at four.

They might have to change the researchers doing it. But the idea is to track this for a very long time. But this is the very first data we've gotten out. And it's suggestive that something is happening to these kids related to them getting cash. Help people listening right now make the connection between, you know, an infant's parents getting cash from the federal government. And it sounds like you're saying neurological activity. One of the things we were very interested in was the surface area of the cerebral cortex, or the thin wrinkly layer on the outer surface of the brain that does most of the cognitive

heavy lifting. And that's because past work by other scientists has suggested that in many cases, a larger cortical surface area is often associated with higher intelligence. Specifically, this is looking at what are informally called brain waves. There's a set of sort of electrical waves that our brains use that operate at different frequencies. And so there are lower frequency or slower waves and there are higher frequency and higher waves. And this found that there were more higher end waves in kids that got the money. And it's kind of hard to say why that happened. There are a lot of theories. So one is just that having more money makes parents less stressed. Having a less stressed

mom or dad or both is probably good for kids and probably helps their development. Another theory is that they invested in things that we know help kids, like sort of high-quality daycare or buying books for them, putting them in enrichment activities, things like that. The study is not as good at teasing out the mechanisms through which this worked, but there are a lot of reasons to think that having more money can help kids develop better, which is partially seen when you compare outcomes for rich and poor kids, that due to no fault of their own, poor kids tend to have lower test scores, worse outcomes on a number of health metrics. In fact, a child living with poverty is likely to perform worse on tests of language and impulse control before they even turn two. And this is

really tracking that and seeing that some of those differences might come up at a very young age and with very slight differences in the amount of money involved. How do you study the brainwaves of infants, of tiny little children? It is cute as hell, Sean. You gotta see the baby. When are you gonna see the baby? Can't they just send us a tape? I couldn't put photos of this in the article because they're of kids in the actual experiment and it would violate their privacy.

Okay. But when the researchers showed them to me privately, they have this little like swim cap that they put on the baby's heads and it has these little tassels that you Velcro together at their chin, sort of like a winter hat for a baby. And they place the baby in their mother's lap and see it at rest and just see what happens through the

cap. The cap is actually measuring the electrical activity on their scalp, which you can pick up from the brain. And so it's these little like swimmer babies with these adorable helmets on, but they're little scientist babies doing it for science. Cutest study ever. You mentioned this is just one study at this point. Is there any chance that there's some other factor involved here with the brainwaves of these infants? Could it be where they live? Could it be, you know, who their parents are or something like that? I've seen some solid critiques of the study, and it was hard to follow up with families

that they had some attrition between people who were initially getting money and people who they were able to get brain scans for the babies. And so that might complicate interpreting it. There's also some statistical issues around sort of how significant the difference between the groups were. It's not an enormous effect, but it's about the effect that the study was big enough to pick up. And so I think reasonable people can disagree about how important this one study is, but it does fit in a broader literature that using a variety of methods

that's pretty consistently found that having more money in the home is good for kids' development. It helps them learn. It helps them mature. Yeah. Well, how do these brain measurements fit into what scientists already know about the link between, you know, giving money and brain development for kids? So Kimberly Noble, who is a neuroscientist and one of the lead authors on the study, argued that this was important because we know that some of these brainwave measures correlate to other things later in life. Now in this study, we found one factor that was associated with the cortical surface area across nearly the entire surface of the brain. That factor was family income. They correlate to better verbal ability when kids start to talk and to read. They correlate to personality characteristics like being more cooperative and able to work with others. And that's important because those are

the very skills that children living in poverty are most likely to struggle with. And so we're not able to know what happened to these kids once they're five or six because they're not yet five or six. But we can try to look forward to what they might be like by looking at factors we do know when they're one. And so if I were a parent, I would not really care what the brainwaves of my one-year-old looked like. It's interesting, but it's not like something that's going to make or break their life. What matters is if it tells you something about where they're going to be at four or five as they're starting to really learn stuff in earnest. And it's at least suggestive that cash can lead to changes in the brain that suggest better things down the road. Put simply, if we can show that reducing poverty

changes how children's brains develop, then a young child born into poverty today may have a much better shot at a brighter future. Certainly, there are a lot of smart people who study early childhood development. How are they looking at this study? I see mostly within the field of child development, people are really excited. Like, studies like this just don't happen very much. It's really expensive. They're giving $4,000 a year to hundreds of people.

And it's very rare for scientists to get the kind of resources to do a study like that, to just hand out that amount of cash. And so, I talked to a psychology professor at Harvard, Katie McLaughlin, and she said, this might be like the most important study we've seen to date on child adversity and brain outcomes. Another response is, it's one study. And I think that's really important for listeners to keep in mind that science doesn't work by big revelations. It works a little bit at a time. And I think this adds a little bit to our understanding of how cash can help kids grow up better. But I'm most excited for what this experiment is going to tell

us later. I'm really sort of excited to watch these kids grow up and learn what happens to them. And what implications might these studies, as they continue, have on policy? I mean, the expanded child tax credit is a thing of the past. Could studies like this turn around the politics? I mean, whether studies like this turn around the politics is a question for Joe Manchin in many ways. This is a no. And I don't know what he thinks about this study personally. Have we studied his brainwaves?

Someone should. We could all use a little EEG in our life. But I think where it fits into the politics is that we talk a lot about the effects of giving cash to parents on the parents. So Manchin's reason for being hesitant to keep the expanded credit going was that he thought it would deter parents from working. And he thought that was a really bad thing for families. I don't think he's right about that, but it's one effect. And I think

the conversation has largely been missing the effect on kids. And whether or not you think parents of kids ought to be working or not, kids didn't do anything to deserve where they wound up at birth. Dylan Matthews, you can find his writing and Future Perfect at Vox.com. Our show today was produced by Hadi Mawagdi with help from Victoria Chamberlain. It was edited by Matthew Collette, engineered by Paul Mounsey, and fact-checked by Richard Seema and Laura Bullard,

who joined our team today for real, for real. Welcome, Laura. It's the hard, not the life for us. It's the hard, not the life for us. Steadicam says we can't kick. Steadicam says we can't kick. It's the hard, not the life. you