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TaxWatch: Here’s one more reason why Americans are currently experiencing financial woes

As President Joe Biden addressed the nation during his first State of the Union speech this week, political observers say he’s got to strike a balance between the country’s progress and its ongoing pain.

Biden talked about household finance problems.

“The pandemic has been punishing,” he said. “And so many families are living paycheck to paycheck, struggling to keep up with the rising cost of food, gas, housing, and so much more.”

The president spoke about cutting energy costs for families by an average of $500 a year by combatting climate change, and he also talked about reducing the cost of child care.

“Many families pay up to $14,000 a year for child care per child,” he told Congress. “Middle-class and working families shouldn’t have to pay more than 7% of their income for care of young children. “

“My plan will cut the cost in half for most families and help parents, including millions of women, who left the workforce during the pandemic because they couldn’t afford child care, to be able to get back to work.”

“Many families pay up to $14,000 a year for child care per child. Middle-class and working families shouldn’t have to pay more than 7% of their income for care of young children”

— Joe Biden’s State of the Union address

More than two months after the last Child Tax Credit advance payments were distributed, that pain includes the slipping capacity for some families to pay their bills, according to Census Bureau data.

As the direct payments hit bank accounts last summer through December, 30% of families with children said it was either “somewhat” or “very difficult” to cover their expenses, Census researchers said.

When researchers asked who was struggling to pay their bills in January and February, 35% of households with children said they were having difficulties paying their expenses.

The final round of advance payments arrived on Dec. 15 to families who were raising approximately 61 million children age 17 and younger. The payments totaled nearly $93 billion from July to December, the Treasury Department said.

Before and after the payments ended, struggling households were at least two times more likely to say they used the Child Tax Credit money for expenses, the researchers said. They were also at least eight times more likely to say they borrowed money from friends and family, the data showed.

“The big change was that families were no longer receiving CTC payments,” the researchers noted.

The Census findings fit with other surveys and anecdotes showing more financial strain for some families after the advance payments ended, and inflation’s grip tightens its hold on the budgets of U.S. households.

Raising kids can be expensive and the absence of the Child Tax Credit payments are really hurting some families, surveys say.

AFP via Getty Images

For instance, one Washington D.C. mother told MarketWatch the CTC payments helped to defray costs and take some of the sting out of her rising grocery bills and increasingly expensive trips to the gas station.

Almost half of parents (47%) said the absence of the Child Tax Credit will have a “major impact” on their finances and 36% said it would have a minor impact, according to a 1,000-person poll released last month by the National Parents Union last month.

Three quarters of people who received the payments said the end of the payments would have at least a minor strain on their finances, according to a separate poll last month from Morning Consult and Politico.

Even as some polls show the strain, other academic gauges on American household wealth and poverty paint a different picture of the consequences of life without the Child Tax Credit payments.

“ The very topic of the Child Tax Credit gets back to the pain and progress tightrope President Biden attempted to walk during his State of the Union address.”

On one hand, Columbia University researchers said 3.7 million more children fell into poverty, with the monthly child poverty rate climbing to 17% in January, from 12.1% one month earlier.

On the other hand, the estimated overall poverty rate in January declined to 10.6%, down almost 0.8 percentage points from December, according to researchers at Notre Dame University and the University of Chicago.

The federal government put the 2022 poverty line at $27,750 for a family of four.

Bear in mind the two estimates work with different methods and datasets. Either way, the very topic of the Child Tax Credit gets back to the pain and progress tightrope Biden attempted to walk during his State of the Union address.

Congress expanded the Child Tax Credit for one year in the $1.9 trillion American Rescue Plan that passed in March 2021 to help families and businesses struggling during the pandemic.

Biden pushed hard for the enhanced Child Tax Credit to continue past 2021, as one part of his agenda to strengthen the social-safety net. Other initiatives included two free years of pre-kindergarten and two free years of community college.

So far, that push has stalled in the Senate, where Democrats need every single vote from their side of the aisle. West Virginia centrist Democrat Sen. Joe Manchin has refused to support another year of the expanded Child Tax Credit, at least in its proposed form.

An extension for the enhanced credit is not likely, some observers say. At best, the free pre-kindergarten proposal has a 40% chance of passage, according to Tobin Marcus, a policy and politics strategist at Evercore ISI.

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