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Expanded Child Tax Credit Provides Major Economic Benefits: Analysis

A new analysis from the conservative-leaning Niskanen Center finds that the expansion of the child tax credit pushed through by the Biden administration will provide significant benefits to the broader economy, especially in rural America.

According to the analysis, the temporary, one-year boost to the child tax credit – which is now delivering up to $300 per child to the majority of American households – will result in $27.6 billion in additional spending and provide support for more than 500,000 new jobs. It will also produce an estimated $1.9 billion in revenues for local governments from sales taxes.

“While only enacted for one year, the expanded CTC is expected to reduce child poverty by 40% and support investments in children that promote family stability,” Niskanen said in a press release. “Less appreciated, however, is how child benefits like the CTC can serve as a powerful economic stimulus for local communities given the greater consumption needs of households with children.”

Getting the most from federal spending: The analysis finds support for the idea that providing money to lower-income households provides more bang for the buck than giving money to higher-income families, since the former are far more likely to spend their benefits quickly, creating more economic activity. This “implies that the economic impact of the CTC will exceed its headline budgetary cost,” the economists say.

Big boost for red states: Given the way the tax credit is structured, more money will flow to states with lower household incomes and larger families. That includes red states such as Utah, Texas and Florida that have often elected Republican representatives who tend to oppose expansions of the social safety net.

“The child tax credit expansion is going to be huge for rural working-class communities,” Samuel Hammond, the Niskanen economist who co-authored the report, told The Washington Post. “It’s strange to see Republicans oppose spending money even when it goes to their own constituents.”

Read the full analysis from the Niskanen Center here.

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