Last week, President Donald Trump unveiled his objectives for tax reform, which included a proposal that “significantly increases the child tax credit.” Now there are reports that senior advisor Ivanka Trump is hosting dinners with members of Congress to discuss changes to the child tax credit. As researchers who study child poverty, we know the importance of the child tax credit. We also know the details matter. How these changes are designed will have a major impact on the effectiveness of this critical program.
Since the child tax credit was enacted in 1997, it and its companion, the earned income tax credit, have had a major impact on child poverty. Yet despite this success, child poverty remains high in the United States.
Changes to the child tax credit have the potential to lift millions more children out of poverty. But they have to be properly structured.
There are three essential ways the child tax credit should be improved.
First, the credit should be expanded to cover children who live in families that are too poor to qualify under current rules. Right now eligibility is based on a family’s earnings. This means many families ― even some with a parent working full time, full year ― are left out of the full credit simply because they earn too little. This group includes families with multiple kids, rural families who tend to be poorer, and some military families ― base pay for an Army Private is under $19,000 a year ― too little to get the full credit if you have more than two kids.
Focusing on expanding the credit to families that are too poor to qualify right now would both lift more children out of poverty and reduce the severity of poverty for the nation’s poorest families.
Second, we should increase the amount families currently receive to improve the quality of life for millions of children. We can do this by increasing the size of the maximum credit from $1,000 to a higher number, and by indexing it to inflation. The current child tax credit has been a flat $1,000 per child since 2004. It loses purchasing power every year, while the cost of diapers is only going up. Unfortunately, President Trump’s proposal appears to keep the maximum credit at $1,000 for these families.
Finally, we should give an additional increase to families with young children to help focus the credit on the most vulnerable members of our society: young children below the age of six. Research finds that investments in young children matter and can have life-long effects. Yet young children are nearly 50 percent more likely to be in families too poor to get the full credit than families with older children. The birth of a baby and the new costs that come along with it can push a family deeper into poverty.
Research from child development and economics suggests that the first years of life are critical and when children should be receiving more help. Pediatricians and other child development experts have known for years about the importance of the early years. More recently, economists have shown the importance of additional income to struggling families with young children, with associated benefits ranging from improved health to greater educational attainment to increased earnings in adulthood.
Taken together, these reforms could make a sizeable dent in poverty. Along with eight of our colleagues, we’ve found that a program combining all of these elements would reduce child poverty by 40 percent, cut deep poverty in half, and virtually eliminate the experience of families living on cash incomes below $2 per person, per day, as written about in $2.00 a Day: Living on Almost Nothing in America.
There is much good Congress could achieve in reducing child poverty through a wisely-designed child tax credit. But the details matter. As the debate over tax reform heats up, there will be a lot of attention to the fairness of the overall package. We hope that this appropriate focus extends to the child tax credit as well.