Inflation isn’t the biggest thing happening in the economy right now

WASHINGTON The price hike has shattered consumer confidence and has become a major political story as President Joe Biden strives to implement the sweeping social policy agenda that helped him win the White House the year last.

But inflation is actually just one of the many big economic stories unfolding right now. There has also been a sharp reduction in child poverty – and Congress could make it permanent.

The same fiscal policies that are partly responsible for high inflation resulted in a 40% reduction in child poverty in July, according to researchers at Columbia University’s Center on Poverty and Social Policy. The month-long decline was sharper than any year-over-year change in child poverty from 1967 to 2020, when Congress first sent stimulus checks and increased unemployment benefits in response to the coronavirus pandemic.

Since July, the reduction in family poverty has been mainly supported by monthly payments of up to $ 300 per child. The payments have lifted between 3 and 4 million children above the poverty line each month.

“The magnitude of that number is not what we normally see on a regular basis, especially from a single font,” Megan Curran, director of policy at Columbia’s Center on Poverty, said in an interview.

Democrats plan to continue payments until next year under the Build Back Better social spending bill they hope to pass in the coming weeks. If Democrats succeed in entrenching politics, it would represent a sea change for the family-friendly US welfare state.

Inflation is one of Democrats’ biggest hurdles, with news that prices have risen 6.2% since last October, prompting further warnings from Republicans and even some Democrats according to Which ones to Build Back Better is a bad idea.

“From the grocery store to the gas station, Americans know the inflation tax is real and DC can no longer ignore the economic pain Americans feel every day,” said Senator Joe Manchin (DW.Va .), a key Senate vote, said in a tweet last week.

Higher prices weaken the purchasing power of each paycheck, but for most families with children, monthly child tax credit payments more than offset this erosion. In October, Moody’s Analytics estimated that for households with a median income in the United States of around $ 70,000 per year, higher inflation costs them $ 175 per month. Child payments are worth $ 300 for each child under 6 and $ 250 for children under 18; this money comes on top of wage growth that already exceeds inflation for low-income households.

In Washington, reducing poverty means pushing family income above an arbitrary threshold corresponding to the number of people in the household. For those affected, the extra money can be a lifeline; low-income families report using child payments mainly for necessities like food, clothing and shelter. US Census Monthly Survey Data also found that households with children reported noticeable reductions in difficulty obtaining food and meeting basic expenses before and after payment for children, changes that were absent in households without children. Research suggests that people who grow up in poverty tend to earn less money, have poorer health outcomes, and are more likely to be in trouble with the law.

In short, the new payments of the child tax credit reduce real human misery by partly compensating for the indifference of the labor market towards parents, who have more expenses and less flexibility to work regardless of the available job. .

Senator Sherrod Brown (D-Ohio) listens during a business meeting with the Senate Veterans Committee on Capitol Hill October 20 in Washington, DC

Anna Moneymaker via Getty Images

Senator Sherrod Brown (D-Ohio) said the new policy was not getting its due in the national conversation about the economy.

“We don’t talk about it enough, and not to tell you what to do, but you don’t cover it enough,” Brown said, referring to reporters. “The discussion is, ‘Democrats can’t pass these next two bills,’ instead of the discussion, ‘Look what the child tax credit has done. ”

Brown said that “90% of families in my state who have children under the age of 18 have received a tax cut of at least $ 3,000 per year. And it should be said over and over again.

Ally Rykiel has received $ 550 per month since July for her two children aged 5 and 11. She had another baby in October, although she has yet to update her family’s information with the IRS to get an additional $ 300 for the new child.

Rykiel, 33, said her family didn’t particularly notice the inflation, in part because she and her husband didn’t drive, in part because they had recently moved to Richland, Washington, to be with his family, and in part because they bought food at different grocery stores and are used to different prices for similar products.

Still, the cost of food has been a burden, especially after her husband took four weeks off work to care for the baby and received no pay from his employer. The child tax credit has helped.

“If we didn’t have that, we wouldn’t have had anything,” Rykiel said. “Counting on that $ 550 in the middle of the month was huge. We expect it now. “

The family allowance policy may not live up to Democrats’ expectations. It was supposed to reduce poverty by 40% per year, but because they structured the payments as child tax credit prepayments, and because low-income households were not required to file tax returns. federal revenues, the Internal Revenue Service was unable to reach millions of eligible households. As a result, poverty reduction through the child tax credit has fluctuated between 25% and 29% each month since July, according to estimates from Columbia’s Center on Poverty and Social Policy.

The federal government determines the official poverty rate on an annual basis; the center produces its monthly poverty estimates by comparing household budgets to a poverty line equal to one-twelfth of the annual one. For a household with two parents and two children, this monthly poverty line is about $ 2,300 per month. If Democrats continue benefits until next year as planned, the monthly poverty reduction could translate into a similar annual impact, at least according to the federal government’s supplemental poverty measure that takes into account cash payments from the IRS.

A political problem for the child tax credit is that, because economists say that inflation was caused in part by the increase in consumer spending which runs up against supply problems – with the increase consumer demand resulting in part from Congress giving everyone more money – Republicans can skewer the child tax credit as just something else that causes inflation, rather than something that mitigates its impact for most households.

“The economy has an inflation problem – it makes it worse,” Senator Lindsey Graham (RS.C.) told HuffPost earlier this month, referring to the child tax credit. “The more you expand government, the more money you put into the system, the more inflation you will have. Now is not the time to make these policies.

Cash payments boost aggregate demand, said economist Dean Baker, co-founder of the Center for Economic and Policy Research, but to such a small extent that they are unlikely to contribute much to inflation. Baker argued that the explosion in inflation this year is likely to subside as companies resolve supply chain issues and increased demand for durable goods declines.

“I see it as a story where people do pretty well with a higher salary and a lot of them get the CTC, but they hear about inflation in the media 24/7, so they think that the economy is going to hell, ”Baker said in an email.

Many believe the economy will sink, with consumer confidence dropping to a decade-low level in November, according to University of Michigan consumer surveys. And people’s moods could affect what happens with inflation, because if consumers expect higher prices and demand higher wages in return, a self-sustaining cycle could develop. Richard Curtin, of the University of Michigan, said his consumer surveys show people believe their own income gains will be wiped out if inflation continues.

“Nominal income gains have been widely reported, but when asked about inflation-adjusted earnings, half of all families expected a reduction in real income next year,” Curtin wrote. . “The reactions of consumers to soaring inflation should come as no surprise, as has been reported in recent months.”

Tara Golshan contributed reporting.

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