If Congress Expands The Child Tax Credit, Who Benefits At What Cost?

Forbes

12-05-2025

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The Child Tax Credit (CTC) delivers substantial benefits to families with children—but the credit's design means that 17 million children (about 1 in 4) live in families who miss out on the full CTC benefit because the parents—most of whom work—do not earn enough.
At the end of this year, along with a host of other Tax Cuts and Jobs Act of 2017 (TCJA) individual income tax changes scheduled to expire, the maximum credit will fall from $2,000 per child to $1,000 per child under age 17. Congress could extend the $2,000 benefit and other aspects of the current CTC — and still deliver more benefits to very low-income working families than scheduled under current law.
Indeed, several members of Congress have proposed alternative CTC designs to better assist families with multiple children and families with young children. The credit could also address rising costs and other issues facing working families while investing in our nation's future.
In a new TPC analysis, we show who would benefit from various plans, and how much they would cost. We show that phasing in the CTC more quickly delivers benefits mostly to families with low incomes at relatively modest cost; resources can be targeted to parents of newborns with very low incomes at modest cost; and broad expansions of the credit amount are relatively costly and deliver the majority of benefits to middle- and high-income families. More details of each of these follow; additional reform options appear in our paper.
Phasing in the CTC with earnings faster: Phasing in the refundable portion of the CTC starting with the first dollar of earnings, at a rate of 15 percent per child (up to 45 percent for families with three of more children), and allowing the full $2,000 to be received as a refundable credit would cost about $48.5 billion over the 10-year budget window from FY2025 to FY2034. Benefits from this change would largely be concentrated in the lowest fifth of the income distribution (Figure 1).
Distribution of Benefits by Income Quintile for Families with Children
Making the CTC fully refundable for families with a newborn: This would allow families to benefit from the full $2,000 credit for their newborn, even if they did not have earnings. It would cost about $7.5 billion over the 10-year budget window. That is substantially less than other proposals we evaluated since there are relatively few families with newborns and most of them already receive the full $2,000 credit. Low-income families are currently the least likely to receive the full credit; as a result low-income families with a newborn would get an estimated 86 percent of the benefits from this proposal.
Extending CTC eligibility to 17-year-old children and increasing the credit to $2.500 per child under age 17: Families with incomes in the middle three income quintiles would get most of the benefits from increasing the maximum eligible age for the CTC by one year to 17 (at an estimated cost of about $57.5 billion over the 10-year budget window) and increasing the credit amount to $2,500 per child (at an estimated cost of about $229.5 billion over ten years). That's because benefits to families with 17-year-old children essentially replicate benefits of the Child Tax Credit as it is today. Making the credit larger without adjusting how the credit phases in still leaves lower-income families bumping up against phase-in rules that limit their CTCs.
Research shows that delivering benefits to families with children is a sound investment, with particularly large payoffs among families with low incomes. Additional CTC options, their costs, and how much each would benefit families with children is available here. Policymakers can select which one fits their policy goals and budget constraints.