The Agenda

Expanding the Existing Child Tax Credit

How much would it cost to make the existing child tax credit more generous to low-income households as well as middle- and high-income households by tripling its size (from $1,000 to $3,000), making it fully refundable (i.e., households with little or not tax liability would get a check from the federal government), and eliminating the current phase-out for high-earners? I asked Loren Adler of the Committee for a Responsible Federal Budget, which recently released an analysis of the cost of the child tax credit and the likely fiscal impact of various reforms. He estimates that the cost of a fully refundable $1,000 CTC with no phase-out would be $810 billion over the next ten years, and that tripling the size of this more expansive CTC would cost an additional $1.62 trillion, for a grand total of roughly $2.4 trillion. Preserving the phase-out for high earners would reduce this price tag. But financing this revenue loss with tax increases would be challenging nevertheless. 

It is important to keep in mind, however, that expanding the child tax credit along these lines might yield other savings as well, particularly if it greatly reduces the incidence of child poverty. Harry J. Holzer, Diane Whitmore Schanzenbach, Greg J. Duncanc, and Jens Ludwig estimated the aggregate costs associated with childhood poverty to the U.S. economy in 2008:

Our results suggest that these costs total about $500 billion per year, or the equivalent of nearly 4% of gross domestic product (GDP). More specifically, we estimate that childhood poverty each year: (1) reduces productivity and economic output by an amount equal to 1.3% of GDP, (2) raises the costs of crime by 1.3% of GDP, and (3) raises health expenditures and reduces the value of health by 1.2% of GDP.

But this is hardly a rock-solid number, for reasons Holzer et al. acknowledge. 

(And it should go without saying that this theoretical CTC expansion is different from the new child tax credit in the Family Fairness and Opportunity Tax Reform Act, which is meant to offset income and payroll taxes.)


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