Several provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) affecting individual income taxes are set to expire after 2025. Key among these expiring provisions are changes to the child tax credit (CTC), a credit worth up to $2,000 per child under 17. As Congress grapples with extending the TCJA, we present nine options to further modify the CTC alongside extending other expiring individual provisions and evaluate their distributional and revenue effects.

Why This Matters

Policymakers have signaled an interest in extending the TCJA’s changes to the CTC. Our analysis shows they could increase the credit’s investment in families with low incomes by enhancing how the credit phases in or providing the full CTC to families with newborns, regardless of earnings (sometimes referred to as making the credit “fully refundable”).

Phasing in the credit with the first dollar of earnings and on a per child basis (up to three children) would reduce revenues by about $50 billion over the 10-year budget window. Almost all benefits would go to families with very low incomes.

Allowing parents of newborns to receive the full $2,000 CTC would reduce revenues by about $7 billion over the 10-year budget window, with almost all benefits flowing to families with very low incomes.

Policymakers could also take the opportunity to harmonize the definition of “child” with that often used outside the tax system by including children who are 17 years old, rather than providing a reduced benefit for children starting at age 17. This would cost about $57 billion over the 10-year budget window and would distribute benefits somewhat evenly across the income distribution.

Policymakers could adjust the maximum credit for inflation since the law’s passage or expand the maximum credit more. This would deliver benefits mostly to families with high and middle incomes. Finally, we show the impact of combining some of these options, including fully offsetting the cost of expanding the credit by phasing it out at lower income levels in effect prior to the TCJA.

How We Did It

We used the Tax Policy Center’s microsimulation model to estimate the impact of changes to the CTC, assuming other temporary changes to the tax code that were made by the TCJA (like eliminating personal exemptions for dependents) were extended. The model is similar to those used in government.

Additional Materials

The model estimates used in the report are available at https://taxpolicycenter.org/tax-model-analysis/options-expand-child-tax-credit