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The Child Tax Credit Will Make Or Break Success For Tax Reform


The contentious alliance between Republicans in Congress and the White House has been held together with pixie dust and the promise of tax reform. If the administration and congressional leaders don’t go to bat for an improved child tax credit, they’ll be forced to rely on Tinker Bell to keep the first half of the Trump presidency from ending in a stalemate and a political crackup.

With a tight window before the 2018 congressional campaigns begin in earnest, Republicans— establishment and populist alike—need to deliver a win. A plan that simply focuses on lower rates for business and high earners will not have the popular support to get across the finish line, nor should it deserve to. Ensuring that a substantial expansion of the child tax credit (CTC)—not just in its dollar amount, but in the way it is applied—is a part of the final tax reform package should be a non-negotiable for conservatives of all stripes, ensuring that tax reform meaningfully helps middle-class American families.

An Improved Child Tax Credit Helps Middle America

As a quick refresher, the CTC is currently set at $1,000 per child and directly deducted from the amount a taxpayer owes. The CTC is partially refundable, and phases in after a taxpayer hits the minimum earnings threshold of $3,000. A family with two kids, for example, needs to make $16,333 in annual yearnings to receive the full $2,000 credit. The credit starts to fade out when adjusted gross income reaches $110,000 for married couples filing jointly.

The structure of the CTC make it an ideal way to target tax relief for low- and middle-income families. Its limitations can be easily adjusted to make it an even better tool for boosting the fortunes of working-class American parents and their children. In 2011, an estimated 29 percent of children under three were in families ineligible for the full CTC due to its limited refundability.

Improving the way the CTC helps working-class kids is low-hanging fruit, both politically and economically. The initial Tax Cuts and Jobs Act released by the House would only bump the CTC up the $1,600. The latest version of the Senate bill incorporates the Heller-Scott amendment, which increases the total value of the credit up to $2,000. This is a good step, but leaves crucial questions unaddressed.

It’s clear that the credit’s overall value should be raised. Inflation has eaten away nearly one-third of the credit’s value since it was set in 2001, and increasing it substantially would recognize the costs associated with raising a child and the importance of investing in America’s children. But absent other changes, merely increasing the total amount of credit will only benefit upper-middle income families who earn enough to capture the full amount of the credit.

As written, the refundable part of the CTC would increase over time at the rate of inflation, so that working-class Americans will have to wait a while—decades, even—to receive the full benefit. At 2 percent inflation, for example, even with the Senate’s proposed immediate $100 boost, lower-middle class parents who have a child next year wouldn’t see their CTC reach even $1,650 before their child graduated high school.

While low-income Americans might be expected to benefit less from tax reform because they pay little to no federal income tax, they should not be left out of the discussion of improving America’s economy and the future of our nation’s families. Making the CTC refundable against both income and payroll taxes, as proposed by senators Mike Lee and Marco Rubio, would be a way towards broaden the scope of the credit.

Refunding Is Better than Other Forms of Welfare

Expanding the refundable portion of the CTC is sometimes criticized for being “stealth welfare” or breaking the bank. In the current context, neither of these critiques hold water. Increasing the amount of cash in poor- and middle-income parents’ pockets is more responsible and efficient than increasing spending in yet another anti-poverty program. Also, in tax reform negotiations where even the most severe deficit hawks have acquiesced to using future growth paying for tax cuts, the question of deficit spending on tax cuts becomes a question not about if we should do it, but to whose benefit: solely on corporations and wealthy filers, or on families with children as well?

Politically, CTC expansion should have been guaranteed yesterday. For conservatives narrowly eyeing Democratic momentum behind federal paid leave mandates or more funding for child care, giving parents back more of their money through an expanded CTC could help stem some of that push. A coalition to expand the child tax credit, of which I am a member, boasts an impressive spread of ideological bedfellows, from anti-poverty groups to pro-family evangelical networks, and working toward a bipartisan common cause in the name of investing in America’s children is a sure-fire sell.

More practically, the coming crack-up in the Republican Party can perhaps only be staved off by successful tax reform (and even that may not be a healing salve). Tax reform will not pass unless pro-family conservative groups feel they have enough skin in the game to take ownership of the tax reform bill.

Economic growth is good and necessary, but a tax reform package that simply cuts taxes on businesses and the wealthy while leaving low- and middle-income families no better (or worse!) off would fulfill every parody of conservativism dreamed up by MSNBC.

Even those who support the president less for who he is than for who his enemies are have to recognize the precariousness of the Republican majority and the narrowing window for pursuing conservative policymaking. Friends of the president and his administration should recognize the peril of a failure to keep the campaign promise of looking out for the “forgotten man” and America’s working-class families. To bring home a win, the White House and Congress need tax reform. To pass tax reform, they need to ensure middle-class families will meaningfully benefit.

It’s not too late for tax reform authors to ensure that any package include a substantive provision aimed at supporting families through an expansion of the size and scope of the child tax credit. To do otherwise would doom tax reform and with it, the best chance in this administration to seize a meaningful win for families in the middle class and those aspiring to get there.