Policy 108 – Child Tax Credit

Policy 108

Child Tax Credit

One Sentence Argument

The increase in the Child Tax Credit from the Republican tax bill was wildly inadequate – we need to further expand it and make it fully refundable in order to lift millions of children out of poverty.

Issue Breakdown

The Child Tax Credit is a partially-refundable tax credit of $2,000 per eligible child, with parents able to receive up to $1,400 per child as a refund if the credit is larger than what they owe in income tax. Taxpayers eligible for the credit subtract it from the total amount of federal income taxes they would otherwise owe. For example, if a couple with two qualifying children would owe $4,600 in taxes without the credit, they would owe $600 in taxes with it, because the credit would reduce their tax bill by $2,000 per child.

Enacted in 1997 and expanded with bipartisan support since 2001, the CTC is a powerful weapon against poverty. In 2015, it lifted approximately 2.8 million people out of poverty, including about 1.6 million children, and lessened poverty for another 13.3 million people, including 6.6 million children.

Research suggests that boosting working families’ income can expand opportunities for children, such as by improving school performance. Lifting low-income families’ income when a child is young not only tends to improve a child’s immediate well-being, but is associated with better health, more schooling, more hours worked, and higher earnings in adulthood, research has found.

Recent (Underwhelming) Changes to the Child Tax Credit

The GOP tax bill doubled the Child Tax Credit, from $1,000 per child to $2,000 per child, and increased the amount of the credit that is refundable. This may seem like a massive improvement, but when other provisions of the bill are taken into account, things don’t end up so well for needy parents. The GOP bill eliminated the deduction for personal exemptions, largely offsetting the increased CTC for larger families.

Previously, filers were able to deduct $4,050 for themselves, their spouses, and each child or dependent. For a family of four, that means that $16,200 would be shielded from federal taxation. In addition to the standard deduction of $6,350, a total of $28,900 would go tax free. The expanded standard deduction covers some of that, but many families with more children will now see their tax bill actually increase.

Even for those that will be getting a cut due to the expanded credit, almost none will get anything approaching an extra $1,000 per child. In fact, according to a study by CBPP, at least 10 million children in working families will receive CTC increases of just $75 or less.

While the tax bill didn’t dramatically increase the amount of money low-income earners get from the credit, it did extend the credit to rich families with children. It did so by raising the threshold under which tax filers can claim the full credit. You used to need to make less than $110,000 as a couple to qualify for the CTC, but now couples earning up to $400,000 a year can take full advantage of the credit. This syncs with the bill’s larger approach of helping the wealthy while doing little for the poor, and it’s completely unnecessary. There is no reason a couple making $400,000 a year should need this credit.

Instead of expanding the CTC for high-income earners, Congress should increase the tax credit per child and the percentage eligible for a refund. This would give poor and middle class families the relief they need in a targeted, proven, and effective way.

Further Reading:


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