Make the Child Tax Credit Fully Refundable

The child tax credit reduces income tax liability by a maximum of $2,200 (inflation-adjusted) for each qualifying child under age 17. It phases out by $50 for every $1,000 of adjusted gross income above $200,000 for single parents and $400,000 for married couples filing jointly. If a taxpayer’s tax liability is smaller than the value of the credit, a limited amount of the credit can be refunded, calculated as 15 percent of their income that exceeds $2,500, up to a maximum of $1,700 per child (inflation-adjusted).

This option makes the credit fully refundable, removing the phase-in with earned income and the limitation on how much is refundable. While full refundability would increase the tax benefit lower-income taxpayers receive from the credit, it would also increase marginal tax rates on earned income by removing the phase-in.

On a conventional basis, this option would increase the primary deficit by $272.4 billion over the budget window. Long-run GDP and GNP would fall by 0.1 percent. On a dynamic basis, the primary deficit would increase by $334.9 billion from 2027 through 2036, $62.5 billion more than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be higher than baseline, reaching 177.6 percent by 2056.

On average, in 2036, taxpayers would see increases in their after-tax incomes of 0.2 percent. The top quintile of taxpayers would be unaffected, whereas the bottom quintile would experience a 2.9 percent increase. On a long-run dynamic basis, taxpayers would see a 0.1 percent increase on average.