If you have children under the age of 18, you may have noticed a deposit into your bank account from the IRS last week. These monthly payments are the result of an expansion to the child tax credit—part of the American Rescue Plan passed in March—and provide families with as much as $3,600 per child annually, compared with $2,000 normally.
The IRS has now made the first of six monthly payments in 2021 to more than 35 million families with nearly 60 million children throughout the U.S. Each payment is up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17.
We here at the BBER have been wondering what this increase in household income could mean for families and the local economy.
According to the U.S. Census Bureau, there were roughly 19,000 families with more than 35,000 children under the age of 18 living in Minnesota’s St. Louis County in 2019. More than 80% of those families meet the income eligibility guidelines for the expanded child tax credit—single-parent families earning less than $75,000 or married-couple families earning less than $150,000 annually. For families above those incomes the amount of additional income gradually phases out and was not included in our analysis. The number of eligible families by income and family structure is shown in the table below.
Assuming a family size of 1.9 children for all families, regardless of income, the BBER calculated the additional income that the county would receive as a result of the expanded tax credit. In other words, the amount of new income over and above the previous child tax credit of $2,000 per child. In total, the payments county-wide would equal more than $35 million over the course of the year.
Economic impact analysis tracks an initial economic shock or activity (like an increase in household income) through multiple rounds of industry and consumer spending to show the multiplier or ripple effects through a local economy. Using the additional income from the child tax credit as an initial economic shock, our research team calculated the resulting economic impacts on St. Louis County’s local businesses and industries. According to the results of our analysis, the economic impacts resulting from these payments will be significant. The stimulus is estimated to create 236 new jobs, $10.8 million in additional labor income, and $19.7 million in gross regional product in the county. These economic impacts are the result of an increase in household spending attributable to the stimulus payments.
Industries that are most likely to benefit from additional spending on the part of local households include restaurants, medical facilities, retail stores, child care services, and housing, among many others.
Most importantly, these payments, currently scheduled to end after this year, could actually reduce the percentage of families living in poverty in the county–especially if the payments became permanent. In 2019, nearly 20% of families living in St. Louis County with children under 5 years old were below the poverty level, compared with only 10% statewide. An increase in income of this magnitude could dramatically reduce the poverty levels for local families.
Special thanks to Carson Gorecki at Minnesota's Department of Employment and Economic Development for assistance with this article.