Manzo: A child tax credit can reduce child poverty and grow Illinois' economy

As we approach the holiday season and the end of year, there is much good news for the economy.

The U.S. economy grew by more than 5% annualized last quarter. Wages are now outpacing inflation. New manufacturing is coming online, as are trillions of dollars in investments in infrastructure and energy system modernization.

Illinois' economy continues to expand. Employment has surpassed pre-pandemic levels. Multibillion-dollar data centers and electric vehicle plants are coming to Illinois, and the state ranks second for corporate investment, with hundreds of expansion projects underway. The state not only has budget stability, but is paying down its liabilities. Our Rainy Day Fund now exceeds $2 billion and we recently received our ninth credit rating upgrade in three years.

But amid all this great progress, one area where both Illinois and the nation as a whole have fallen short is child poverty.

Research shows poverty has particularly damaging effects on children, including negative mental health consequences, lower high school graduation rates, and reduced economic opportunities as adults.

It doesn't have to be this way.

In 2021, the American Rescue Plan Act made historic investments in families by expanding the federal Child Tax Credit. This change increased the amount of the credit, made it fully refundable, and expanded eligibility. The results were staggering.

Research shows that the enhanced federal Child Tax Credit reduced child poverty by as much as 36%. Providing substantial tax relief to working families, it enabled more people to pay for basic necessities like housing, food, diapers and medicine. As a result, it injected $27 billion into the economy, creating 511,000 jobs nationwide, including $1 billion and 18,000 jobs in Illinois.

Unfortunately, Congress allowed this enhanced credit to expire. Since then, child poverty has more than doubled. If the expanded credit had remained in place, 3 million fewer children would be impoverished, including tens of thousands in Illinois.

Public opinion polling suggests voters want the federal government to correct this mistake. A recent survey found bipartisan support for expanding Child Tax Credits, including from a majority of Democrats and Republicans.

Illinois does not need to wait around for the federal government to act.

Indeed, many states have established their own Child Tax Credits. In 2023 alone, Minnesota, Oregon, and Utah enacted Child Tax Credits of between $1,000 and $1,750 per child that phase out based on household income. In total, 15 states now have Child Tax Credits on the books. At least 13 other states have considered starting programs since 2019, including Illinois.

In 2023, Illinois state Sen. Mike Simmons and state Rep. Marcus Evans introduced legislation to offer a $700 credit per child that would be phased out for single taxpayers earning more than $50,000 annually and joint filers earning more than $75,000. Another proposal by state lawmakers in 2022 would have created a $600 credit for any low-income household with at least one kid.

A state-level Child Tax Credit could be designed to accomplish key goals. It could significantly reduce child poverty. This would save taxpayers money on government assistance programs, like food stamps. A well-designed program would also deliver much-needed tax relief for Illinois families. By uplifting low- and middle-income households, a Child Tax Credit can boost the economy.

America's experience has proved the Child Tax Credit to be sound policy. Time and again, investment in children has proved to improve health, educational, and economic prospects, which produces long-term gains for Illinois and the nation.

Ultimately, politics and policymaking are about priorities. Lifting our children out of poverty is both an economic and moral priority.

Enacting a Child Tax Credit has proved itself to be an effective tool for achieving this end. Along the way, it delivers tax cuts and economic growth. That's the kind of policy that should be able to bring everyone together - Democrats, Republicans, and Independents alike - in the coming year.

Frank Manzo IV, MPP is an economist with the nonpartisan Illinois Economic Policy Institute.

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