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The Child Tax Credit Is Rolling Out: How It Will Be Spent, What’s Next

Retailers and restaurants may be in for another consumer spending windfall as 39 million American families will find their bank accounts flush with a couple of hundred more dollars as the new and improved 2021 version of the child tax credit (CTC) officially begins rolling out Thursday (July 15).

Some say that the funding is well timed, as federal and some state unemployment booster funds run dry.

The “underappreciated stimulus,” as it is being called, revises the Clinton-era tax credit, increasing the credit to $3,600 per child under 6 and $3,000 for those with children between 6 and 17, up from $2,000 and extended to low-income households that did not earn enough to pay income taxes. The most impactful change is in the payout, which is paid out in half via monthly installments directly to consumers accounts when possible, via mailed check when not, with the rest to be paid out when citizens file their 2021 taxes next spring.

And while the expectation is the new infusion of funds will impact those whose financial situations are dire, the retail and commerce expectations for the program are much higher.

Where Will All Those Funds Go?

Given that the entirety of America’s children will be returning to school this fall, a boom back-to-school shopping season is already widely forecast.

The National Retail Foundation forecasts that consumers are on track “to spend a record amount to prepare students for school,” also noting that apparel and school supplies will be big sellers in 2021. In fact, given how early the season started this year, parents are looking positively excited to be spending money to actually send their kids back to classrooms. As of early June, one-quarter of back-to-school and college shoppers had already started picking up items for their fall classes. This is up from 21 percent last year and 17 percent in 2019 before the pandemic.

That back-to-school boom, plussed up by the child tax credit payments, according to research by Cowen, will directly advantage retailers like Walmart and Target.

“[W]e expect Walmart will benefit from the child tax credits across other departments including apparel and hardlines. Walmart is one of the top back-to-school destinations in the U.S., and we expect child tax credits will only fuel its business in the coming months,” Cowen analysts wrote in their report.

“Target’s grocery business outperformed during the pandemic as the retailer’s category portfolio positioned it to be a one-stop shop as customers consolidated trips.”

Cowen also reports that Amazon will benefit from its large array of merchandise, Prime membership program and growing consumer loyalty.

Moreover, the give the back-to-school shopping season is already shaping up to be hotter than expected, analysts are also forecasting boosts for retailers and brands that cater to the back-to-school crowd like Kohl’s, Foot Locker, Dick’s Sporting Goods and Nike; retailers that cater to low-income consumers with lower pricing structures like Burlington, Ross and T.J. Maxx also are in line to see a big boost as the child tax credit rolls out.

But not all those funds are likely to go to buying school supplies. Cowen forecasts a major bounce across the restaurant segment as a whole, begging an interesting question: Will consumers be dining in actual restaurants, or will they be ordering their food in? Consumers are assuredly excited to eat in restaurant dining rooms — but the July edition of the Order To Eat Tracker® indicates that rush back might not quite be the stampede expected, as 92 percent of vaccinated consumers said they plan to stick with mobile and online order-ahead, curbside pickup and delivery capabilities that gained traction during the pandemic

And some of these funds will go to somewhat less noble ends. Analysts estimated that the tobacco industry could pick up about $1.2 billion and alcoholic beverages could pick up roughly $2.7 billion of the estimated $150 billion impact of the child tax credit.

Vice, it seems, always finds a way to take its cut.

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