Government transfer programs delivered through the tax code, including the Child Tax Credit (CTC), offer important benefits to American families. Although recent temporary expansions—such as those passed under the Tax Cuts and Jobs Act of 2017 (TCJA) and the American Rescue Plan Act of 2021 (ARP)—enhanced the CTC’s amount, they have created uncertainty about the credit’s future, as expirations at the end of 2025 conflict with aspirations for a more generous permanent credit. Moreover, policymakers continue to debate how to best enhance or extend the CTC, which has historically garnered strong bipartisan support, while mitigating unintended negative effects on labor force participation.
The immediate benefits of a CTC expansion include reducing child poverty and boosting disposable income for many low-to-moderate-income households with children. Indeed, the ARP’s short-term CTC reform temporarily lifted 2.9 million children out of poverty, contributing significantly to the 46% reduction in the child poverty rate in 2021 during the COVID-19 pandemic. While many policy experts pointed to this success as reason to permanently expand the CTC, others cautioned that the short time frame and temporary nature of the policy made it difficult to accurately assess the long-term impact on employment—parents changing their workforce behavior in response to an expanded CTC. An important trade-off thus emerges: Enhancing the credit reduces child poverty but might also alter work incentives in a way that causes parents to reduce their hours worked or to exit the workforce over time if the expansion were to become permanent.
This trade-off underscores one of the key questions in the ongoing reform deliberations: To what degree would an expanded CTC affect workforce participation? The following brief examines the latest research on anti-poverty and employment effects and offers a nuanced, objective look at the evidence in an effort to catalyze productive, bipartisan discussions on how to durably reform the CTC.
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