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New BPC Proposal to Reform the Child Tax Credit and Earned Income Tax Credit Would Lift 2.8 Million Americans From Poverty Next Year

Washington, DC – With the American Rescue Plan’s temporary expansions of the Child Tax Credit and Earned Income Tax Credit set to expire at year’s end, the Bipartisan Policy Center released a new report detailing policy proposals to responsibly reform and extend the programs to better address the chronic struggles of families and low-wage workers. The proposal, if implemented next year, is independently projected to lift 2.8 million Americans from poverty—including 1.6 million children—and would increase labor force participation among low-income households.

Some of the challenges identified by BPC include the traditional CTC’s lack of support for the lowest-income families, and the EITC’s ineffectiveness in helping workers without children and unfair treatment of workers with one child relative to those with multiple. Additionally, current administrative inefficiencies associated with refundable tax credits, such as high improper payment rates, limit their ability to alleviate poverty and simultaneously undermine their legitimacy among policymakers.

The report, How to Sensibly and Permanently Expand the Child Tax Credit and Earned Income Tax Credit, includes recommendations that would create fiscally responsible solutions to the programs’ current shortcomings in the wake of expiring expansions, balance the safety net with rewarding work, and reduce improper payments.

“Congress’ all-or-nothing debate on temporarily extending the tax credit expansion from the American Rescue Plan or reverting to provisions of the Tax Cuts and Jobs Act that expire in 2025 are not long-term solutions that American families can count on,” said Bill Hoagland, BPC senior vice president. “Our proposal offers a durable fix that better targets households most in need, doing so in a cost-effective manner that should garner bipartisan support.”

Key recommendations include:

  • Increase the maximum CTC amount per child ages 6-17 to $2,200 ($2,800 for children under age 6), make the first $1,200 of the CTC fully available regardless of earnings ($1,800 for young children), and phase in the remainder starting at the first dollar of earnings.
  • Eliminate the $1,400 per-child cap on CTC refunds and lower the credit’s phaseout income threshold.
  • Double the EITC maximum credit and phase-in rate and expand the income eligibility range for childless adults, while lowering the minimum eligibility age to 19 and increasing the maximum eligibility age to 66, matching the Social Security Full Retirement Age.
  • Raise the EITC maximum credit for workers with one child to $5,248 in 2022 and accelerate the phase-out rate to match the rate applied for two-child families.
  • Equip the IRS with adequate resources and authorities to improve the audit process, regulate unenrolled tax preparers, and expand support for Volunteer Income Tax Assistance sites.

“Recent temporary expansions to the child tax credit and earned income tax credit have demonstrated just how critical they are to reducing poverty and strengthening work incentives, especially as we recover from the COVID-19 pandemic,” said Rachel Snyderman, BPC associate director of economic policy. “By improving the cost-effectiveness and political viability of these tax credits under a bipartisan framework, we can ensure that they continue benefitting American workers and their families for years to come.”

Rachel Snyderman and BPC Economic Policy Director Shai Akabas are available for interview

Read the Report

Additional Resources