Tuesday, October 12, 2021
Elaine Maag (Tax Policy Center) presents Imagining the Next Stage of the Child Tax Credit (with Samuel Hammond (Niskanen Center)) at Georgetown today as part of its Tax Law and Public Finance Workshop hosted by Brian Galle:
The American Rescue Plan Act of 2021 (ARP) expanded the Child Tax Credit (CTC) for one year and delivered it as a monthly benefit to the vast majority of recipients. Whether the credit will retain its current form, revert to its previous form, or take on a new form altogether is unclear. Even if the credit is extended, it is unlikely to be extended permanently and there remains the possibility that if will continue to evolve as discussions around providing a robust child benefit continue. A robust child benefit could provide a minimum source of support to all or most families with children which would mean that fewer children would grow up in poverty and would be harmed by temporary income drops. We compare how a tax credit such as the Child Tax Credit (CTC) administered by the Internal Revenue Service (IRS) or a universal child allowance administered by the Social Security Administration (SSA) could be structured to best meet the needs of families with children. Tax credits, in general, have been the more popular tool of choice for both Democrats and Republicans to redistribute income in recent years (Faricy 2015)–including the temporary expansion of the Child Tax Credit (CTC).
Tax credits are sometimes considered administratively simpler for both claimants and administrators. A benefit offered through SSA would likely be more responsive to changing family circumstances and better able to follow children that move between households, but it would be more complex to administer and has yet to gain substantial political support.
We discuss differences in eligibility determination and administration between a tax credit and a child allowance and discuss options for making the CTC more robust to mid-year changes in family circumstances. We evaluate these two options using guiding principles including that the benefit should be simple to understand and to administer, that it should be aligned with other child benefits in the tax system, and that it should provide support to children in the lowest income households.