State child tax credits (CTCs) can be powerful drivers of economic security for families with children. Michigan lawmakers have proposed one that mimics the federal CTC but tops out at half of its value: $1,100 in benefits instead of $2,200 under federal law. This is administratively convenient: State legislators piggyback off federal definitions and rules and families who benefit from the federal credit are more likely to understand and claim the state credit.
But like the federal credit, as proposed this state credit would deliver larger benefits to families with high incomes than those with low incomes.
Michigan has a better option to address the “increased costs of goods and services” that prompted the bill’s introduction. It could target state CTC benefits to families with low- and middle- incomes. This would reduce the proposal’s cost, potentially leaving room in the budget to increase the credit amount for the lowest-income families.
The federal CTC provides families up to $2,200 per child. But the design of the credit leaves 19 million children living in families that do not receive the full credit because their parents do not earn enough.
In contrast, many high-income families receive the maximum benefit, which doesn’t begin to phase out until income reaches $200,000 for single parents or $400,000 for married parents (see figure, average benefits in Michigan are likely half of what is shown for the federal credit).
Other states have modified the design of the federal CTC by boosting the credit for very low-income families or focusing benefits on young children. In Oklahoma, married couples stop receiving the CTC once their income reaches $100,000.
TPC estimates that reinstating pre-2017 income limits (in place before the Tax Cuts and Jobs Act) of $75,000 for single parents and $110,000 for married couples would save about 25 percent of the federal credit’s cost. It is reasonable to expect that Michigan would reap similar savings from this cap. This could ease lawmakers’ concerns about the cost of the credit without sacrificing benefits for the most marginalized children in families in the state.
As state policymakers look for policies that help families afford what they need, CTCs can be accessible and impactful tools. Credits that provide the largest benefits to families with very low incomes are best at reducing poverty, which can have long term benefits for children, families, and society more broadly. The federal credit’s design is a useful starting point, but further adapting the credit could better meet families’ needs within state budget constraints.
