Proposed reforms to the child tax credit could reduce child poverty by up to 43 percent

WASHINGTON (Feb. 14, 2023) –– Today, the R Street Institute released a new study, written by Jacob Bastian, a senior fellow for the Competition Policy program, that analyzes three proposed ways to adjust the child tax credit (CTC) and examines each approach’s effect on poverty, cost per child pulled out of poverty, effect on parental employment and total cost.

Each proposal increases maximum CTC benefits to $3,000 per child and phases out benefits in an identical way. The key difference among the three proposals is whether benefits are restricted to working families.

The first proposal increases the existing 2022 CTC and restricts benefits to workers; the second resembles the temporary 2021 CTC that was available to both working and nonworking families; and the third proposal is a combination providing some benefits to both workers and nonworkers, as well as additional benefits to working families.

The first would decrease child poverty by 23 percent; the second would decrease it by 35 percent; and the third by 33 percent. They would cost $69, $87 and $83 billion more, respectively, than the baseline 2022 CTC.

If the goal is bipartisan compromise, proposal three may be the most attractive, as it could significantly reduce child poverty with a minimal—and maybe even positive—effect on parental employment. As the author’s analysis demonstrates, if proposal three’s approach were to provide $2,000 in CTC benefits for everyone and another $2,000 that phase in for workers, it could lead to a large, 43 percent reduction in child poverty and a small, positive employment effect.

If the goal is cost-effective poverty reduction, the author notes, proposal two would be the best option. This proposal costs $57,900 per child pulled out of poverty, less than the $78,000 and $60,300 estimated under proposals one and three. After accounting for the number of parents who would choose to stop working, proposal two pulls the most children out of poverty.

The author concludes, “We have a collective responsibility to reduce the number of children living in poverty in the United States. The CTC is a key tool that—if crafted properly—can be instrumental in accomplishing this goal. With the CTC proposal analyses provided in this paper, policymakers have a path forward to compromise in a way that can meet the primary concerns of both political sides while benefiting millions of children.”