Family benefits are a good investment

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Duración lectura: 4m. 58s.
Las prestaciones a las familias son una buena inversión

On July 15, the United States will begin sending tax credit to parents for each of their children. In doing so, it joins the list of countries, including Germany and Poland, which have recently increased child benefits.

Last March, President Joe Biden signed the American Rescue Plan Act (ARPA), a $1.9 trillion relief package that, among other benefits, increases those provided via tax relief to families with dependent children (Child Tax Credit, CTC).

The first batch of monthly deposits will be sent out on July 15 to more than 34 million American households as a measure to fight against child poverty and to offer help in the economic crisis caused by the pandemic, which has affected, especially, the most disadvantaged families.

With this, ARPA expands CTC payments for fiscal year 2021 up to $3,600 for each child under the age of 6 and up to $3,000 for each child between the ages of 7 and 18. Until now, the tax refund that parents could obtain was limited to $2,000 for each child under the age of 17. These amounts start phasing out at certain income thresholds.

Fully refundable

One of the important new aspects of the plan is the change in the requirements to receive credit, making it fully refundable. Previously, low-income families could only get up to $1,400 per child as a refund (70% of the full amount), if the child credit was more than the federal income taxes they owed. This meant that low-income families who did not have to pay income taxes were left without the remaining 30%. Under the new regulations, parents who are entitled to the child tax credit can receive the full amount, regardless of the federal income taxes they owe.

U.S. parents will receive between $250 and $300 per month per child starting this July

In addition, the prior requirement that the credit could only be claimed by those earning at least $2,500 per year has been eliminated. For 2021, parents who are unemployed or who do not meet this minimum can claim the credit if they meet the other requirements for obtaining it. These changes represent a fundamental shift in favor of low-income families, many of whom were previously excluded from receiving the full amount.

Another new characteristic of the expanded credit has to do with the timing of its distribution. Families will begin receiving credit payments on July 15 through December of this year, that is, before families file their 2021 tax returns. These advance payments (which will be between $250 to $300 per month per child) will represent up to 50% of the total credit amount. The remaining amount will be sent out during the 2022 tax refund period. The payments will be distributed mainly via direct deposits (about 80% of recipients). The rest will get checks or debit cards mailed to them.

These advance child tax credit payments are a real lifesaver for many American families, critically affected by the pandemic and with an extreme lack of resources to care for their minor children. The current child poverty rate in the U.S., the richest country in the world, is at a very worrying level, almost 20%. In comparison, other developed countries, such as Finland or Denmark, have rates around 11%.

One “but” about the expanded credit per child though is that, for now, it is limited to the 2021 tax year. President Biden proposed in mid-May to extend the plan until 2025.

Child benefits are nothing new

Most developed countries have had similar types of aid for years, and several have increased it because of the pandemic. Germany, for example, increased its monthly child benefit (known as Kindergeld) by €15 this past January; it hadn’t seen such an increase since 2010. The current monthly amounts, which increase according to a family’s number of children, are: €219 for the first and second child, €225 for the third, €250 for the fourth child and for each additional child. Doing the math, a family with four children receives €913 per month from the German state. The payments increase if a child has a disability.

Using resources to alleviate child poverty helps save on many costs from the long-term consequences it brings

The requirements for receiving the credit are only that the children be minors, that the parents assume full parental responsibility of the children, and that they reside in Germany (regardless of nationality) or in another European country (if they have German citizenship).

Poland also has a child benefits program and, as part of a new economic recovery program presented on May 15, it recently increased the credit payments. The measures include an increase in the benefits of the current Family 500+ plan (introduced in 2016), which provides families monthly payments of 500 zlotys (€115) for the second and any subsequent children. The change introduced is a one-time payment of 12,000 zlotys (€3,240) to families for the birth of each child.

Investing in the future is cheap

The fact that more and more countries are incorporating monthly payments to families for each child is rooted in social responsibility and commitments to citizens’ well-being. But idealism aside, one of the reasons why governments make these decisions are for the clear economic benefits doing so implies for the country. Recent studies have demonstrated the economic gain investing in children yields. It is not only an incentive to help falling birth rates, as families have economic support to help with the financial burdens of maintaining a family (which are heavier the bigger the family). Using resources to alleviate child poverty helps save on many costs from the long-term consequences it brings.

A 2018 study conducted by the University of Washington found that the aggregate annual cost of child poverty in the U.S. was $ 1.03 trillion (the American Rescue Plan is $ 1.9 trillion), which represented 5.4% of the GDP. These costs were mainly derived from health issues, abuse and homelessness suffered by many children, and led, in the long term, to a loss of economic productivity and increased crime. What’s more, the researchers estimate that for every dollar put towards families, the country would save at least seven dollars from the economic burden of child poverty.

Translated from Spanish by Lucia K. Maher