Reduce the Child Tax Credit to $1,000

Currently, 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 reduces the child tax credit to $1,000 and does not inflation-adjust it going forward. The smaller credit would limit taxpayer exposure to both the phase-in and the phaseout ranges of the credit, reducing both the positive and negative work incentives created by the credit’s effects on marginal tax rates.

On a conventional basis, this option would decrease the primary deficit by $928.1 billion over the budget window. Long-run output would decrease slightly, while long-run GNP would rise by 0.1 percent as the additional revenue raised would decrease federal government borrowing and interest payments to foreigners. On a dynamic basis, the primary deficit would decrease by $901.4 billion from 2027 through 2036, $26.7 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 170.2 percent by 2056.

On average, in 2036, taxpayers would see decreases in their after-tax incomes of 0.4 percent. The top quintile of taxpayers would experience a 0.1 percent decrease, whereas the bottom quintile would experience a 1.5 percent decrease. On a long-run dynamic basis, taxpayers would see a 0.4 percent decrease on average.