Adam N. Michel
Adam N. Michel

House Republicans recently passed the first key legislative hurdle to modify and extend the 2017 Tax Cuts and Jobs Act (TCJA). The budget resolution allows a net $4.5 trillion tax cut, limiting the types of additional tax cuts Congress can include. Expanding the child tax credit (CTC) is likely one of the add-ons that will be curtailed.
Republican tax writer Blake Moore recently acknowledged that his almost $600 billion plan to expand and reform the child tax credit would likely not make the final cut. However, he remains hopeful that the credit will be “modernized.”
Republican proponents of family and child subsidies should focus on streamlining federal programs and leave any further expansions to states. This is not to recommend states create or expand welfare and other family subsidies—such policies tend to be wasteful and ineffective at any level of government—but leaving it to states to experiment would likely lead to less inefficient, more fiscally responsible, and more politically responsive policies than further federal expansion.
Child Tax Subsidies
The CTC is more than a simple family tax cut. The CTC is a direct spending program for the 24 million taxpayers with no income tax liability. These taxpayers benefit from the CTC’s “refundable tax credit.” In 2024, about 40 percent of the fiscal cost of the CTC is estimated to be direct spending instead of income tax cuts.
In 2017, the TCJA increased the CTC from $1,000 to $2,000 per child. This expansion was paired with eliminating the dependent exemptions, a $4,050 (for 2017) deduction for each household member, including children. The larger CTC for dependent exemption swap did not meaningfully increase the total fiscal cost of the tax code’s child subsidy. However, it shifted more of the subsidy to lower-income Americans, expanding the number of Americans who are net beneficiaries of the income tax system.  » Read More
https://www.cato.org/blog/leave-child-tax-credit-expansion-states