The Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) support American workers and families by easing the high cost of raising children and the difficulty of making ends meet with low or moderate wages. These credits are effective anti-poverty and family-support policies that have historically earned strong bipartisan support.
With temporary CTC and EITC expansions expiring as early as next year, lawmakers face time-sensitive decisions.a Working with experts from both parties, the Bipartisan Policy Center has developed a package of permanent reforms that would produce lasting benefits on which Americans can count. This issue brief recommends 13 changes to the CTC and EITC that would create a more secure safety net, reward work, ensure fiscal sustainability, reduce payments made in error, and strengthen the foundation of bipartisan support for these two programs.
Among its long-term impacts (measured in 2031), BPC’s proposal would:
- Reduce the number of Americans in poverty by 4.1 million, reduce the number of children in poverty by 2.3 million, and reduce the number of children in deep poverty by more than 800,000.
- Increase the labor supply by 0.3% among households in the lowest-income quintile.
- Improve the cost-effectiveness of these poverty-reducing credits, as measured by the number of children and adults lifted from poverty per federal dollar. BPC’s proposal is significantly more cost-effective than a permanent extension of the CTC expansion enacted under the Tax Cuts and Jobs Act of 2017 (TCJA), and has comparable cost-effectiveness to permanently extending the CTC and EITC changes under the American Rescue Plan Act of 2021 (ARP).
Permanently Enhance the Child Tax Credit
- Increase the maximum credit amount per child to $2,200, make the first $1,200 fully available regardless of earnings, phase in the remainder starting at the first dollar of earnings, and eliminate the cap on refundability.b
- For children under age 6, increase the maximum credit amount per child to $2,800 and make the first $1,800 fully available regardless of earnings
- Raise the age of eligible children to 17.
- Pay the fully available portion of the CTC periodically throughout the year.
- Lower the income threshold for the CTC phaseout.
Permanently Expand the Earned Income Tax Credit for Childless Adults and Workers with One Child
- Double the maximum credit and phase-in rate and expand the income eligibility range for childless adults.
- Lower the minimum eligibility age for the childless EITC to 19, excluding full-time students.
- Increase the maximum eligibility age for the childless EITC to 66 and link it to the Social Security Full Retirement Age (FRA).
- Raise the maximum credit for workers with one child to $5,248 in 2022 and accelerate the phaseout rate to match the rate applied for two-child families.
Reduce Improper Payments of Refundable Tax Credits
- Authorize the IRS to regulate unenrolled tax preparers.
- Adequately fund the IRS and improve the audit process.
- Expand support for Volunteer Income Tax Assistance (VITA) sites.
Pay for Permanent Policies
- Ensure sustainability of permanent policies by raising revenue or redirecting spending toward more efficient programs for needier groups.
BPC’s proposal produces a more optimal combination of poverty reduction, work incentives, and overall cost than other proposals, including permanent extension of the TCJA or ARP.
a Temporary expansions to the CTC under the Tax Cuts and Jobs Act of 2017 will expire at the end of 2025, while additional temporary expansions to both the CTC and the EITC enacted by the American Rescue Plan Act of 2021 will expire at the end of 2021.
b While no minimum earnings are required to qualify for the $1,200 fully available portion of the credit, it phases out (along with the rest of the credit) for those with higher incomes.
c Cost compared to current law, which includes the TCJA through 2025. Thus, the TCJA’s cost row only includes costs from 2026-2031, while the ARP and BPC cost rows include costs compared to a TCJA baseline from 2022-2025 and a permanent-law baseline from 2026-2031.
d Poverty defined using the Supplemental Poverty Measure. All poverty rate estimates are static and do not reflect poverty reduction from increased hours worked.
e Deep poverty is defined as household income below 50% of the Supplemental Poverty Measure.
f Cost is annual in 2031, not adjusted for inflation. It equals Proposal’s cost in 2031 / Number of people lifted from poverty in 2031