Taxes aren’t just for grown-ups. In fact, our new Urban/Brookings study estimates that 40 percent of all federal expenditures spent on infants and toddlers flows through the tax system. That’s more than $22.8 billion.

The two main programs that drive this spending are the earned income tax credit (EITC) and the child tax credit (CTC). Although both allocate fairly large percentages (18%) of their total program expenditures to families with infants and toddlers, they differ dramatically in the benefits that are refundable and those that are not. The EITC is fully-refundable, so in 2007 (the most recent year of available data), almost 90 percent of benefits received by families with infants and toddlers ($7.1 billion) came as a tax refund. In contrast, only one third of the partially refundable CTC benefits ($2.8 billion) were refundable, so most of CTC’s benefits reduced tax liability but failed to put cash back into needy families’ hands.

Such a difference is a big deal given how hand-to-mouth many families with infants and toddlers live. Indeed, when compared to those in other age groups, infants and toddlers consistently rank among those most likely to live in low-income families. In 2007, 43 percent of all infants and toddlers lived in low-income families. Lack of income constrains many of these families’ attempts to provide a stable and nurturing environment – which, childhood development specialists agree, is a must at this pivotal stage of human development.

Expanding the CTC’s refundable portion could help struggling families move toward economic stability. And the President’s proposed 2010 budget would permanently lower the CTC earnings threshold to $3,000 – a positive step toward the kind of stability very young kids need to realize their potential.

It’s not all that’s needed, but it’s a start.