The federal government’s child tax credit just had its 25th anniversary, but not everyone is celebrating. Some conservatives think it’s a runaway entitlement program. A few on the left would rather redirect the money elsewhere. Advocates, meanwhile, want to expand it – but don’t agree on how.
The critics are mostly wrong. But its supporters risk letting their conflicting ambitions obscure what matters: The credit is shrinking in value, and protecting it ought to be the top priority.
The disagreements among supporters reflect the tax credit’s multiple purposes. It is a way to fight child poverty and to deliver middle-class tax relief. It helps parents meet the needs of children. It rebalances the burden of government among adults without minor children, parents of small families, and parents of large ones. Some supporters hope the credit will mitigate the plunging birth rate.
These goals come with tradeoffs. Making the credit more generous to the lowest earners may mean making it more than just tax relief – since those with the lowest incomes pay little in federal taxes in the first place – and will leave less money available to boost middle-class families.
Those conservatives who oppose the child credit have too many complaints about it to list here. They say that it’s bad for civic health to exempt large numbers of people from paying the income tax, as the child credit does. Never mind that most people haven’t paid income tax for most of U.S. history. Opponents also say that the credits will dangerously reduce the incentive for parents to work, citing academic models that other scholars call implausible. And they say that the credits’ cost keeps Congress from passing pro-growth tax cuts, even though the actual history of such tax cuts shows they can’t be passed without such measures to aid middle-class families.
While some conservatives want to scant the child credit in favor of cutting taxes on capital gains, some liberals have other ideas for the money. Isabel Sawhill, a senior fellow at the Brookings Institution, recently warned against enlarging the credit: “I could build you a Cadillac pre-K or child care system for that kind of money.”
Leave aside whether these proposals could garner the bipartisan support the child tax credit has usually enjoyed. Their purported advantage – that they target a smaller group of children for benefits – comes with a major drawback: They favor some parental decisions over other, equally responsible ones. Families that decide to have one parent stay home to care for small children can benefit from the credit, as can families who use child care or pre-K. The targeted benefits generally leave out the former group. They push familial decisions in one direction, for no good reason.
Meanwhile, it’s not as though the child tax credit is expanding at the expense of other government priorities. In fact, it’s not expanding at all. The Republican tax reform of 2017 doubled it from $1,000 to $2,000 per child and allowed it to offset some payroll taxes as well as income taxes.
But that enlargement was partly an illusion. It was temporary; it will expire in 2025. The reform also eliminated another tax benefit for children, the dependent exemption, which was worth $600 per child for a plurality of taxpayers. Democrats increased the size of the credit even more briefly, but that expansion has already expired.
The $2,000 credit has also seen its value eroded by the recent bout of high inflation. It has lost nearly a fifth of its purchasing power since 2017. The tax code is only slightly more generous to children now than it was before then, and it is getting less generous all the time.
So the critics’ vision of a relentlessly expanding child benefit is mistaken. And before trying to expand it, the advocates ought to be concentrating on restoring the benefit level that parents had in 2018 and making sure it doesn’t expire. A second priority should be legislation that prevents future erosion of the child credit. The maximum credit of $2,000 per child should be indexed at least to inflation, and ideally to nominal wages (which tend to grow a little faster).
The alternative is a steady tax increase on parents, especially of large families, followed by a sharp increase in 2026. (And yes, “tax increase” is the right description: It falls entirely on households that pay either income or payroll taxes or both.) Republicans and Democrats ought to be able to agree on blocking that tax increase – if they can ignore some of the extraneous noise of the debate over the child credit.
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