How Is The Child Tax Credit Impacting Colorado?
By Carol Hedges
How is Colorado’s economy doing?
As we noted when state economists released the most recent revenue forecasts, the data show Colorado’s economy is rebounding from the pandemic. Incomes have more than fully recovered for people who earn high incomes, and even sectors most affected by COVID are seeing significant income growth.
Income growth propels job creation, economic vitality, and increased state and local revenue. In a sharp contrast to March and April 2020, which showed how a bad public health scenario can create drastic economic fallout, we’re now seeing how good economic conditions create waves of more good news.
What’s the Child Tax Credit got to do with it?
While the distribution of COVID-19 vaccines and subsequent loosening of public health restrictions has been the primary driver for this economic growth, another major contributor to increased well-being, especially in low- and moderate-income families, is the expanded federal Child Tax Credit (CTC). Congress increased the size and the reach of the CTC in the American Rescue Plan, and it’s making a real difference for kids, their families, and the state’s economy.
First, let’s talk about what it’s doing for kids. Especially kids in families who are struggling to afford basic needs like food and rent. For kids, there are benefits in both the short and long term. Recent reports show fewer kids are going hungry now that monthly advance payments of the CTC have been going directly to families, and data from years of experience with direct cash infusions prove there are long-term positive impacts for kids. These include being more likely to graduate from college, higher future earning, and even leading longer, healthier lives.
For families living in poverty, the cash available through the credit helps them meet basic needs like clothing, rent, utilities, and other expenses like car repairs. These families, especially those most strapped for cash, are spending this money immediately. They’re also more likely to spend it in their communities.
How much money does the Child Tax Credit expansion mean for Colorado?
We’ve seen time and again that economic activity increases when all families are able to meet their needs, and our collective economic well-being is built on that economic vitality. According to newly released data from the IRS, monthly CTC payments are infusing $255 million into our state economy every month. That will add up to over $3 billion in the next year. While that’s a substantial sum in and of itself, there are indirect benefits from this increased economic activity. It propels purchases at local businesses. It means rents and mortgages get paid on time, restaurants have more customers, local retailers are selling more products, and the dollars circulate to create even bigger impacts. This is known as a multiplier effect.
We often see these kinds of multiplier effects when businesses and industries want to tout their economic influence. For example, the University of Colorado—the state’s flagship university and one of Colorado’s largest employers—said in 2019 their economic impact was $1.9 billion over a four-year period. Recent reporting from The Denver Business Journal showed immersive art company Meow Wolf’s new installation in Denver has the potential to generate over $2.5 billion in direct and indirect economic activity. If we apply multipliers used in economic studies of other cash infusions, the economic value of the providing the CTC to all families could end up being over $6 billion annually. A recent study from Columbia University suggests that the societal multiplier for the expanded credit may be even higher, primarily due to the future health and economic impact expected from investments in the CTC. Anyone who works in economic development has to love hearing that, and they ought to be the biggest advocates for keeping this historic reduction in poverty on the books as-is.
Who’s trying to limit the Child Tax Credit?
Being able to see and feel the benefits of these investments must mean support for these improvements to the equity of our tax code is universal, right? Well, unfortunately, some members of Congress want to limit the availability and coverage of these tax credits by proposing policies like limiting the refundability of the credits and imposing a work requirement for eligibility.
The expanded, fully refundable credit is expected to reduce child poverty by more than 40 percent, breaking the intergenerational cycle of long-term hardships for millions of families that come from growing up living in poverty. Boosting educational attainment, earnings and health means a better path through adulthood for hundreds of thousands of our friends and neighbors. These benefits are particularly powerful as tools for changing the economic trajectory for Black and Brown kids.
Reducing barriers to making ends meet for the lowest income households means they’ll have more money for child care to support their work, higher chances of stable living arrangements that support school achievement, and better nutrition and health for all family members. But we only get the benefits if everyone continues to be eligible, and full refundability is protected. This will ensure that the most families and kids can overcome the barriers that for too long have kept them away from economic opportunities.
Why Congress needs to extend the Child Tax Credit expansion
The CTC expansion, along with the other components of the Build Back Better Agenda, is an important goal. The pandemic laid bare the impact years of systemic racism and oppression built into our government policies has on everyone regardless of their skin color or income. For a long time, our economic policies have limited the potential of our economy by leaving some people behind and leaving others out altogether.
The expanded Child Tax Credit is demonstrating the power of inclusive and comprehensive investments to fuel real economic progress. Congress must all they can to make sure that a fully refundable child tax credit is a centerpiece of efforts to build a stronger economic future for our kids.
