Make the Child Tax Credit Refundable from the First Dollar of Earnings

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 (also inflation-adjusted).

This option reduces the refundability threshold so that the credit phases in from the first dollar of earnings, instead of $2,500 of earned income. This would shift the phase-in range of the credit downward, changing marginal tax rates faced by lower-income taxpayers.

On a conventional basis, this option would increase the primary deficit by $25.8 billion over the budget window. Long-run GDP and GNP would decline slightly. On a dynamic basis, the primary deficit would increase by $36.7 billion from 2027 through 2036, $10.9 billion more than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be higher than baseline, reaching 176.2 percent by 2056.

This option would affect taxpayers in the bottom quintile, increasing after-tax incomes of this group by 0.4 percent in 2027 and 0.3 percent in 2036.