Deciduous shrub abundance is increasing across the Arctic in response to climatic warming. In a recent field manipulation experiment in which shrubs were removed from a plot and compared to a control plot with shrubs, Blok et al (2010 Glob. Change Biol. 16 1296–305) found that shrubs protect the ground through shading, resulting in a ~ 9% shallower active layer thickness (ALT) under shrubs compared to grassy-tundra, which led them to argue that continued Arctic shrub expansion could mitigate future permafrost thaw. We utilize the Community Land Model (CLM4) coupled to the Community Atmosphere Model (CAM4) to evaluate this hypothesis. CLM4 simulates shallower ALT (~− 11 cm) under shrubs, consistent with the field manipulation study. However, in an idealized pan-Arctic + 20% shrub area experiment, atmospheric heating, driven mainly by surface albedo changes related to protrusion of shrub stems above the spring snowpack, leads to soil warming and deeper ALT (~+ 10 cm). Therefore, if climate feedbacks are considered, shrub expansion may actually increase rather than decrease permafrost vulnerability. When we account for blowing-snow redistribution from grassy-tundra to shrubs, shifts in snowpack distribution in low versus high shrub area simulations counter the climate warming impact, resulting in a grid cell mean ALT that is unchanged. These results reinforce the need to consider vegetation dynamics and blowing-snow processes in the permafrost thaw model projections.