The voices of Tax Policy Center's researchers and staff
The Tax Cuts and Jobs Act made many changes to the individual income tax. In particular, the child tax credit (CTC) was increased to provide families with a tax credit of up to $2,000 per child under age 17 and other dependents were provided a credit of up to $500. But 37 million children live in families that will get less than the full CTC because their incomes are too low. Three changes in the program’s design - focused on the portion of the credit for families with children under 17 - could reduce that number to 21 million, with all but 10 million children under 17 receiving the maximum $2,000 per child credit.
Under current law, if the aggregate amount of CTC exceeds the amount of federal income tax a family owes, households with children under 17 can receive a refund worth 15 percent of their earnings over $2,500 - up to a maximum credit of $1,400. I co-authored a new report for the US Partnership on Mobility from Poverty project that proposes:
- Allowing all earnings to count toward the calculation of the CTC.
- Making the full $2,000 refundable for all families.
- Phasing in the credit at a rate of 50 percent for families with children under 6.
Combined, these changes would reduce annual tax revenues by about $12 billion.
The Tax Policy Center estimates that 70 percent of these benefits would flow to families with children in the lowest one-fifth of the income distribution (making $25,000 or less in 2018). Together, the earned income tax credit and CTC already lift more working-age families out of poverty than any other program. The proposal would lift an additional 1.2 million families out of poverty.
Investing in young, low-income children makes sense not only because families with young children are more likely to be poor than other households, but also because the positive effects of this investment are clearest for the youngest and poorest children. Children in poverty whose families receive increased income support experience significant gains in education and health, with the biggest gains for the poorest children. Research is particularly clear about the strong positive effects of additional family income for young children, who are undergoing rapid brain development and may be especially vulnerable to the lasting effects of poverty-related stresses.
The Tax Cuts and Jobs Act modestly and temporarily reduced individual income taxes for many low-income families with children. However, it could be improved by allowing more low-income families with children to receive the maximum $2,000 per child credit, particularly families with the youngest children.
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