Pick Your Child Tax Credit

This post first appeared on March 2, 2021 at AEIdeas. AEIdeas is a public policy blog from the American Enterprise Institute (AEI).

By Alex Brill, Kyle Pomerleau, and Grant M. Seiter

The Child Tax Credit (CTC) is all the rage these days. Democrats and Republicans both are advancing proposals to increase the maximum value of the CTC and make it available to more families. The 1.9 trillion dollar American Rescue Plan passed by the House of Representatives includes a temporary, one-year child tax credit expansion worth over 100 billion dollars. This policy is a modified version of a proposal advanced by President Biden. Republicans already doubled the CTC in 2017, and recently Senator Romney (R-UT) has advanced his own proposal to expand the credit. These proposals follow more than two decades of incremental expansion of the CTC, which was first enacted in 1997 and valued at $500.

In a recent AEI report, The tax benefits of parenthood: A history and analysis of current proposals, we analyze a set of tax provisions which provide targeted tax relief to parents including the child tax credit, the earned income tax credit, the dependent exemption (scheduled to return in 2026), the head-of-household filing status, and the child and dependent care tax credit. Together, these policies are worth 209 billion dollars annually and the CTC comprises more than half of that (114 billion dollars). We find that the proposals advanced by President Biden, the House of Representatives, and Senator Romney would expand the total value of child tax benefits, make the tax code more progressive, and reduce poverty, but they would also reduce work incentives by raising marginal tax rates.

We have developed a web application to accompany our recent report. Design Your Own Child Tax Credit Reform allows any user to compare popular current proposals or choose the parameters of their own preferred custom CTC reform. Available policy levers include the maximum credit value (2000-3500 dollars), an additional credit for children under six (0-1000 dollars), partial or full refundability, and a choice of credit phase-out rules

Read the full post at AEIdeas.