Child tax credit has little effect on workforce, but is driving Americans toward entrepreneurship: study

Andrew Trunsky, DCNF

  • A new study suggests that the child tax credit is not reducing overall employment nationwide but is driving some low and middle-income parents away from their private sector jobs and toward self-employment.
  • The study, provided exclusively to the Daily Caller News Foundation, found that the monthly payments had barely any impact on the job market whatsoever, contradicting concerns that the tax credits would worsen the labor shortage.
  • The CTC also drove people away from private sector jobs and toward self-employment and non-profits, the study showed, with the shift among recipients earning less than $50,000 annually being the most pronounced.
  • “Our research suggests that the expanded CTC is helping low and middle-income families to meet both short-term and long-term needs,” said Dr. Leah Hamilton, an associate professor of social work at Appalachian State who helped lead the study.

A new study suggests that the child tax credit (CTC) is not reducing overall employment nationwide but is driving some low and middle-income parents away from their private sector jobs and toward self-employment.

The study, led by researchers at the Washington University in St. Louis’ Social Policy Institute and Appalachian State University and provided exclusively to the Daily Caller News Foundation, found that the monthly payments had barely any impact on the job market whatsoever, contradicting concerns that the tax credits would worsen the labor shortage. It also found that adults were far less likely to list child care as a reason for unemployment, with the share of people saying so dropping from 26% to below 20% once they began receiving the payments.

The new study also appears to contradict a recent study that projected as many as 1.5 million workers, or 2.6% of the national workforce, would ultimately exit the labor market while receiving payments.

“Our research suggests that the expanded CTC is helping low and middle-income families to meet both short-term and long-term needs,” Dr. Leah Hamilton, an associate professor of social work at Appalachian State who helped lead the study, told the DCNF.

The study was conducted using data from the Census Household Pulse Survey from July to October, the first three months of the CTC implementation. The data was collected by the Census Bureau and other federal agencies in order to best monitor and implement policy responses to the coronavirus pandemic, and was gathered via a questionnaire sent to Americans of different backgrounds across the country.

Over 60% of those earning less than $50,000 also reported using the CTC on food, while over 20% said they used the payments for essential bills, clothing, rent or a mortgage, school supplies or to pay off debt. Conversely, the study also found that those earning over $150,000 annually and still receiving at least part of the credit were more likely to save or invest the money than anything else.

But the CTC also drove people away from private sector jobs and toward self-employment and non-profits, the study showed. The shift among recipients earning less than $50,000 annually was the most pronounced; 16% described themselves as self-employed, up from 13% before the payments began, while participation in non-profits ticked up as well.

“If this trend continues, it could indicate that the CTC is encouraging low-income households to pursue self-employment to make ends meet,” the study said.

“By offsetting some of the rising costs of child care, the monthly CTC is helping parents raise children and advance their careers all at once,” Greg Nasif, the chief spokesman for Humanity Forward, a bipartisan policy center that has advocated for the CTC, added in a statement to the DCNF.

The monthly payments of $300 for each child under six and $250 for each child ages 6-17 were passed as part of President Joe Biden’s coronavirus relief package in March and began in July, extending for one year. While they have been credited with lifting millions of American children out of poverty, most Republicans oppose the policy as written, some Democrats have called for them to be more targeted towards lesser earners and some polls have shown the policy to have only lukewarm support among Americans, potentially jeopardizing its continuation beyond mid 2022.

“Families across the income spectrum commonly planned on using CTC funds for expenses like child care, extracurricular activities and building a college fund for their children,” Dr. Stephen Roll, a research assistant professor at Washington University that helped lead the study, told the DCNF. “If the CTC expires, we would anticipate that many of these investments in children’s futures would once again be out of reach for families in poverty.”

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