Some members of Congress are considering cuts to social safety net programs that serve children. To fill the potential gap in supports, policymakers could consider expanding the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC), which are the primary tools the federal government uses to invest in children’s health, education, and future success in the workforce. The CTC and EITC lift more children out of poverty than any other safety net program aside from Social Security.
Moreover, these tax benefits have not been designed to keep pace with our growing economy. In the face of safety net program cuts, expanding the CTC and EITC could help ensure families have what they need to thrive.
The CTC and EITC are Proven Investments in Children’s Health and Well-Being
Each year, the federal government spends about $500 billion on children. More than $200 billion of that investment is delivered through the tax code. That’s more than the government spends on any type of assistance for children, including health assistance.
More Than 40 Percent of Federal Spending on Children Is Delivered through Tax Provisions
Federal expenditures on children by category in 2023 dollar
Source: Heather Hahn, Elli Nikolopoulos, Cary Lou, Hannah Sumiko Daly, Eden Phillips, Michelle Casas, and C. Eugene Steuerle, Kids’ Share 2024: Report on Federal Expenditures on Children through 2023 and Future Projections (Washington, DC: Urban Institute, 2024).
Notes: CCDF = Child Care and Development Fund. EITC = Earned Income Tax Credit. ESI = employer-sponsored insurance. CHIP = Children's Health Insurance Program. SNAP = Supplemental Nutrition Assistance Program. SSI = Supplemental Security Income. TANF = Temporary Assistance for Needy Families. Training includes youth components of job training programs, such as Job Corps.
Research shows these tax credits support children’s health and development and reduce material hardship by enabling families to purchase goods and services that directly benefit children and reduce parental stress. In the long term, children whose families receive the credit have better education outcomes, employment outcomes, and overall health.
How Policymakers Could Use the Tax Code to Better Serve Children and Our Nation’s Future
In the face of significant cuts to social safety net programs that serve children, the tax code could fill potential gaps in support for families and children in need. Policymakers could do the following:
- Increase the maximum CTC and index it to inflation. With the 2017 Tax Cuts and Jobs Act set to expire later this year, some members of Congress have expressed interest in expanding the act’s temporarily increased CTC benefits. But increasing the CTC alone will not help families in the long term. To ensure the credit keeps pace with families’ expenses, policymakers could increase the maximum credit from $2,000 to $2,500 per child under 17 and index the credit to inflation.
- Ensure families with little to no income can receive the CTC as a refund. Under current law, 17 million children live in families that do not receive the full $2,000 credit per child because their parents earn too little. Congress could phase the CTC in faster and eliminate the cap on how much of it can be received as a refund to ensure more families with low incomes get the full benefit.
- Assess how providing more federal benefits through the tax code would affect families at different income levels. The EITC delivers more benefits to low-income families than high-income families, whereas the CTC delivers the most benefits to middle-income families. If the CTC becomes a larger share of spending on children, working families most in need could end up receiving a smaller share of federal spending. Assessing this imbalance could identify future improvements.
- Set an annual target for federal tax spending on children. Committing to spending 1 percent of US gross domestic product on tax supports for children could help ensure federal investments in children keep pace with economic growth.
