Abstract
The Tax Relief for American Families and Workers Act of 2024, which the US House of Representatives passed on January 31, 2024, and the Senate is now considering, would make important changes to the child tax credit (CTC) if enacted. The legislation would increase CTC payments for families with lower earnings, apply a one-year “lookback” provision to the refundable credit’s earnings test, and begin increasing the maximum benefit with inflation. We first summarize how this legislation would affect benefits for families based on their marital status, number of children, and earnings. Then we discuss how it would affect work and marriage incentives. We conclude by arguing that more research is needed to inform how behavioral responses to these changed incentives would ultimately shape the legislation’s effects on employment, marriage, and family well-being.
Introduction
The child tax credit (CTC) was enacted in 1997 to provide tax relief for families with dependent children. Originally a nonrefundable credit that offset federal income tax liability, the CTC has expanded over time to become partially refundable—that is, available to taxpayers without a federal income tax liability to offset. Under existing law, the CTC provides a maximum nonrefundable credit of $2,000 per child under age 17. For taxpayers without sufficient federal income tax liability to claim the full nonrefundable credit, the CTC provides a refundable credit worth up to $1,600. The CTC’s refundable portion phases in at 15 percent for each dollar in earnings above $2,500.
On January 31, 2024, the US House of Representatives passed H.R. 7024, the Tax Relief for American Families and Workers Act of 2024. In addition to providing corporate tax relief, the legislation would change the CTC in four ways.
First, the maximum CTC benefit would be indexed to inflation. Second, the maximum refundable credit would increase to $1,800 immediately and would by 2025 equal the maximum nonrefundable credit, so taxpayers without sufficient income tax liability could receive the maximum CTC as long as their earnings were high enough. Third, the CTC’s refundable portion would phase in at 15 percent times the number of dependent children, so, for example, a family with three children would see its phase-in rate rise from 15 percent to 45 percent. Fourth, the refundable CTC would be calculated based on earnings in the previous tax year if doing so results in a higher credit.
The speed at which H.R. 7024 has progressed through Congress has spurred intense debate over its provisions, especially those regarding the CTC. H.R. 7024 was first introduced in the House on January 17, 2024, and five days later, it passed out of the Ways and Means Committee. Just eight days later, on January 31, the House passed it in a 357–70 vote.
The legislation has since moved to the Senate for consideration, where its prospects are uncertain. Empirical analysis of the CTC changes has been sparse because of how quickly the legislation has progressed. In this report, we analyze how the CTC changes would affect benefits for different types of families, employment incentives, and marriage incentives. We argue that the complicated effects on employment and marriage incentives warrant further research to estimate how the legislation as a whole would affect family well-being after considering behavioral responses. In the meantime, our early look at H.R. 7024’s changes to the CTC provides some initial evidence to policymakers as they consider the legislation’s merits.