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Child Tax Credit Doubts: Why Inflation Makes Boosted Payments Unlikely

·2 min read
imtmphoto / Getty Images/iStockphoto
imtmphoto / Getty Images/iStockphoto

After President Biden’s American Rescue Plan Act significantly increased the Child Tax Credit’s value and expanded family eligibility for 2021, the credit is reverting to its original, pre-pandemic maximum amount of $2,000 per eligible child for 2022.

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By all accounts, the CTC significantly improved the financial security of eligible families amid rising costs, and many advocates are urging for further relief packages through legislation. However, it can be argued that pumping this extra cash into the economy through enhanced CTC payments might not tame the current state of inflation. It may, in fact, cause inflation to soar higher.

Some policymakers and economists blame the larger Child Tax Credit payments (and the third stimulus check) for driving up prices. Last year, Senator Ron Johnson (R-Wis.) tweeted, “We’ve paid people not to work. Now we’re printing more money we don’t have. Inflation is caused by too many dollars chasing too few goods.”

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Inflation occurs when the money supply increases faster than the economy grows and goods are produced.

The recent slowing of inflation and consumer price increases are encouraging, but recovery is a slow ride. Critics of reinstating an enhanced CTC feel that it might be better to wait for the economy to heal and match the money supply growth before committing to larger CTC benefits and possibly contributing further to an already-bloated inflation rate.

The return to pre-pandemic payments will have a significant impact on families, many of whom are already struggling to provide basic needs for their children. Of course, for many families, the Child Tax Credit is a lifeline to afford the necessities in life, regardless of their cost. And for others, the CTC benefit wasn’t necessarily for what they could buy, but what they could pay off and save.

The impact on the country has been felt already. As The Washington Post reported, nearly four million children have been “thrust back into poverty” since the expanded CTC ended, and the child poverty rate is up more than 40%.

Regardless, the Child Tax Credit vs. inflation debate is moot. Biden’s Build Back Better system is dead if Republicans and Sen. Joe Manchin (D-W.Va.) continue to oppose any variation of it. If you are among those worried about the CTC’s influence on increasing inflation, that might turn out to be a good thing.

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This article originally appeared on GOBankingRates.com: Child Tax Credit Doubts: Why Inflation Makes Boosted Payments Unlikely