Lots of Plans to Boost Tax Credits: Which is Best?

Recent tax credit proposals to help low- and middle-income families, such as Senator Kamala Harris’ LIFT the Middle Class Act, are being hotly debated. We examine the ability of these proposals, the current earned income tax credit (EITC), and the child tax credit (CTC) to achieve three goals: reducing poverty, making work pay, and supporting children. While these goals overlap, it would be a mistake to ignore the tradeoffs involved when deciding which goal to prioritize. In this context, the EITC stands out: it reduces poverty, supports work, and supports children. Efforts to expand the EITC, specifically the GAIN Act proposed by Senator Sherrod Brown and Representative Ro Khanna, thus also have strong appeal. A worker tax credit is also promising, specifically to support work. Recent expansions to the CTC are not likely to be socially beneficial, especially given their costs, but there is a strong case to reform the CTC to better target poor families.

This report was originally published by the Brookings Institution on January 15, 2019.