Spotlight Exclusives

CTC Expansion Offers Valuable Lessons For Policy Makers

Spotlight Staff Spotlight Staff, posted on

As Congress prepares to take up the expiring 2017 Tax Cuts and Jobs Act, which doubled the maximum Child Tax Credit (CTC) from $1,000 to $2,000 per child under 17, researchers say there are clear lessons from the 2021 CTC expansion that policy makers should pay close attention to.

In a briefing last week sponsored by the Hamilton Project, researchers discussed findings presented in a new volume of the Annals of the American Academy of Political and Social Science that demonstrate the remarkable impact of the CTC expansion.

Hilary Hoynes, professor of Economics and Public Policy and the Haas Distinguished Chair in Economic Disparities at UC Berkeley, said the new research found key toplines for the enhanced credit—which was made available to the poorest children through full refundability, expanded from $2,000 per child to $3,600 per child if they were under 6 and was remitted on a monthly basis.

Hoynes said the key takeaways were:

  • The expansion of the CTC in 2021 led to significant and important reductions in material hardship. Child poverty fell to its lowest recorded value in the U.S., with an estimated 2 million children being lifted out of poverty.
  • Providing more resources today will increase future earnings of children in low-income families, improve their health, improve their human capital, reduce health care costs and engagement with the criminal justice system.
  • Expansion of the credit to the poorest children is relatively less expensive and where most of the anti-poverty effectiveness occurs. Universal expansion is more expensive and more uneven in its impact.

“Our issue has consistent evidence that the 2021 CTC expansion benefited children and families across a wide range of indicators,” Hoynes said.

Said Bob Greenstein, a visiting fellow in Economic Studies at the Brookings Institution, where he is affiliated with The Hamilton Project: “With one set of policy changes in 2021, we reduced child poverty something like one-third with one policy measure. We’ve never seen anything like that in the history of the U.S. safety net. To me, that’s the single most important takeaway.”

Greenstein said the findings also make clear that significant benefits for low-income families can be achieved through an expansion of the CTC even if the new, Republican-controlled Congress does not fully follow the 2021 model.

Greenstein said that if a similar expansion is not politically feasible—and Senate Democrats were unable to renew the policy when they controlled the upper chamber—he would like to see a compromise that includes key elements of a 2024 House proposal that drew the support of 169 Republicans. The important provisions, according to Greenstein:

  • Phasing in the credit with earnings on a per-child basis.
  • Phasing out or eliminating the refundability cap.
  • Phasing in the credit with the first dollar of parents’ earnings rather than waiting for the family to get to $2,500 in earnings.

Greenstein also warned that any expansion of the credit beyond the $2,000 figure should be viewed with great caution, as corresponding budget cuts to fund the program could negate any benefits being done for low-income families. “Not every expansion of the Child Tax Credit is necessarily helpful to children in poverty,” Greenstein said.

Michael Strain, resident scholar and director of economic policy studies at the American Enterprise Institute, said policy makers should heed the lesson from the 2021 expansion that despite widespread predictions to the contrary, the policy was not politically popular.

Strain said any renewal of further expansion should have a clear focus for what it is trying to achieve. “What is the purpose of this policy? Is it to lift kids out of poverty? Is it to reduce the tax liability of households making 6-figure incomes? Is the purpose of this policy to increase employment? Is the purpose of this policy to reduce child care costs?” Strain asked. “Any assessment of what happened in 2021 has to reckon with the fact that this was not a popular policy. Why is that? One reason may be that the way progressives talk about this policy is that it is this piece of magic that can solve all of our problems.”

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