The Child Tax Credit: Tradeoffs and Preferences
Alex Brill | AEIdeas
There has been a flurry of discussion in Washington recently about potential reforms to the child tax credit (CTC). The House of Representatives passed one CTC reform, Kamala Harris and JD Vance have discussed reform ideas, and various experts in the policy community have opined on the topic as well. Every proposal inherently makes tradeoffs and reveals preferences, but these are rarely explicitly acknowledged.
CTC reform proposals have budgetary, distributional, and work incentive consequences. Balancing tradeoffs related to the credit’s overall cost, (dis)incentives for work, and impact on child poverty make reforming the CTC a difficult task. For example, a reform that reduces child poverty rates by eliminating the phase-in of the credit may negatively impact labor supply. A policy to increase the credit’s maximum value will also increase its budgetary cost and require higher taxes or more federal borrowing. A policy that eliminates benefit phase-outs for higher-income households would encourage work but would be regressive.
In a recent Tax Notes article and AEIdeas post, my colleagues Kyle Pomerleau and Stan Veuger and I compare CTC proposals from JD Vance and Kamala Harris. Both proposals would increase resources for families, especially low-income households. But both policies would be costly and would discourage work by removing the current phase-in of the credit for lower-income workers. The Harris proposal is less costly because the credit is generally smaller and is slightly more progressive because it phases out the credit for higher-income households. But, this phase-out further magnifies the negative effects on labor supply.
Read the entire blog post here. Find other articles about the presidential election here, here, here, here, here and here.
