In the run up to the 2024 presidential election, both parties promoted aggressive expansions of the Child Tax Credit (CTC).
Vice President Kamala Harris argued for a Child Tax Credit boost up to $6,000 in her first debate with former President Donald Trump. Trump’s running mate, Senator J.D. Vance, suggested increasing the Child Tax Credit to $5,000 per child, although the Republican Party platform only endorsed the Tax Cuts and Jobs Act level of a $2,000 per child credit.
These large suggested figures are perhaps not surprising given pervasive concerns over inflation and the high cost of living. Nevertheless, the U.S. government’s large debt and yearly deficits mean that such Child Tax Credit increases would likely prove fiscally unsustainable. Cost estimates of Harris’s Child Tax Credit plan top one trillion dollars over a ten year period.
The Child Tax Credit is primarily for low- and middle-income families with children. Of the more than 37 million households with children under 18, 26% (9.6 million) reported making less than $50,000 in 2021 and 54% (20 million) reported making less than $100,000 in 2021.
History of the Child Tax Credit
The Child Tax Credit was created in 1997, providing $400 per child in 1998 (about $725 in 2023 dollars) and $500 per child (about $875 in 2023 dollars) in the immediate years after that. Under Presidents Bush, Obama, and Trump, the Child Tax Credit gradually increased to $2,000 per child.
The 2021 American Rescue Plan Act (ARPA) increased the size of the Child Tax Credit from $2,000 per child per year in tax year 2020 to $3,000 per child per year (or $3,600 per child aged 0–5) in 2021. It also allowed the IRS to send the Child Tax Credit—typically a lump-sum benefit delivered once per year in conjunction with a tax return—to parents in monthly payments from July to December 2021.
ARPA’s changes expired at the end of 2021. Since 2022, the Child Tax Credit is a $2,000 per child benefit delivered once per year. At the end of 2025, the credit will be reduced to $1,000 per child with the expiration of much of the Tax Cuts and Jobs Act.
The temporary expansion of the Child Tax Credit under ARPA set off a fierce debate over its future size and payment structure. Many proposals seem to prioritize short-term political gain over long-term fiscal stability.
National Taxpayers Union Foundation’s Child Tax Credit Plan
National Taxpayers Union Foundation makes the following suggestions for an anti-poverty, fiscally sustainable Child Tax Credit:
Make a $2,000 base credit per child permanent and add a $400 bonus credit for children ages 0–5. Begin to phase out the credit for single filers at $75,000 per year of income, for head-of-household filers at $112,500 per year of income, and for joint filers at $150,000 per year of income. The credit would phase out at $50 for each $1,000 in income above these thresholds.
Allow the refundable portion of the credit to increase with inflation, meaning that parents will eventually be able to claim the full $2,000 (or $2,400) per child benefit regardless of their income tax liability.
Allow parents to opt in to quarterly payments of the credit, rather than distributing the Child Tax Credit as a lump-sum benefit at tax filing time, but require that parents estimate updated income, qualifying children, and filing status when they opt in.
Administer the credit through the IRS, but conduct a multi-year study (and possible pilot) on the benefits and drawbacks of the Social Security Administration administering Child Tax Credit benefits instead.
For further study on the child tax credit, check out the NTU articles below:
A Pro-Taxpayer, Anti-Poverty, and Fiscally Sound Path Forward on the Child Tax Credit and the Earned Income Tax Credit (September 2023)
Kamala Harris’s Child Tax Credit Proposal Is Unsustainable (September 2024)
Extending Expensing and the Child Tax Credit is a Win-Win for Taxpayers (January 2024)
How Did President Biden Change the Child Tax Credit? (February 2023)
What’s the Deal With the Child Tax Credit? (September 2021)
How to Make the Child Tax Credit a True Anti-Poverty Measure, While Protecting Taxpayers (July 2021)
High Cost of Expanded Child Tax Credit Remains a Concern for America’s Taxpayers (June 2021)