The expansion of the Child Tax Credit (CTC) in 2021, under President Joe Biden’s pandemic relief efforts, resulted in approximately 35 million parents across America receiving substantial monthly payments. Despite a deadlock in Congress, state-level child tax credit initiatives have gained bipartisan support, particularly in states with Democratic majorities.
The new policy made it possible for families with low or no income to qualify for the full value of the credit for the first time since it was established in 1997, with the federal government raising the subsidy to a potential $3,600 per child. This helped lift nearly 3 million children out of poverty and offered a lifeline to families struggling to cover essential costs like gas, food, and educational expenses.
Child Tax Credit Expansion
Unfortunately, the program was not extended due to concerns about its annual cost of $100 billion and calls for the reintroduction of a work requirement, particularly from Sen. Joe Manchin. The CTC thus reverted to its pre-pandemic form, offering a maximum of $2,000 per child but only to families with an income. Despite this, a Columbia University study suggested that a permanent expansion could have generated a return on investment more than ten times the initial outlay, via increased tax revenues and reduced healthcare, criminal justice, foster care, and welfare expenditure.
Nevertheless, the brief federal experiment inspired many state governments to launch their own versions of the program. Since the federal CTC expired, 11 states have introduced or expanded their own child tax credits, available even to families with no income, or so-called “refundable” credits. These range from $180 per child in Massachusetts to $1,750 per child in Minnesota.
The Jain Family Institute found that roughly 40% of Republican state senators and 30% of Republican state representatives voted in favor of fully refundable child tax credits.
This legislation offers a lifeline for families, especially since the chance of further expanding a child credit once it has been introduced is quite high. In fact, six of the 11 states that have introduced refundable child tax credits have already increased the benefit amount or broadened eligibility.
Most crucially, in a complex tax system filled with exemptions, deductions, work requirements, and nonrefundable credits, refundable child tax credits could serve as one of the most inclusive and progressive forms of social assistance. They offer cash that can be spent according to the families’ needs and are available even to families with no income.
Variations in State Child Tax Credit Programs and Potential Improvements
However, the design of these credits varies across states, based on a range of considerations including who is eligible, the size of the credit, how quickly the benefits phase out, how often they are distributed, and the process for claiming them. In some states, like New Jersey, claiming the new cash assistance involves completing a short section of the tax filing form. In others, like Colorado, the process is more onerous, requiring three additional pages of paperwork.
Funding for the new child tax credits also varies. Some states, like Massachusetts and Minnesota, have simplified their systems by consolidating existing benefits into the new child credit. Other states, like New Mexico, have financed their credits through economic growth, while some, like Colorado, have used new progressive taxes.
While these policies are significant, advocates argue that there is room for further improvement. This could involve phasing out benefits for high-income earners, ensuring the inclusivity of the policy for non-citizen parents or children, or increasing uptake among eligible families.
Jack Landry of the Jain Institute suggested that consolidating existing earned income tax credits could be a way for more states to introduce or expand child tax credits.
Another suggestion from the Jain Institute involves using data from welfare programs like SNAP and Medicaid to make families aware of their eligibility for new state programs, and to make it easier for them to claim the benefits. This could involve creating simplified web portals for applicants, or even automatically distributing the funds to eligible families.
Which states have introduced or expanded their own child tax credits?
Since 2019, 14 states have introduced legislation to enact state child tax credits, according to the National Conference of State Legislatures. After the expiration of the expanded federal child tax credit in 2022, three states—New Mexico, New Jersey, and Vermont—created new child tax credits
As of the end of 2022, 10 states had implemented child tax credits, according to a count by the Institute on Taxation and Economic Policy (ITEP). These states include New Mexico, New Jersey, and Vermont, among others.
Other states, including Connecticut and Rhode Island, had temporary, limited policies in 2022.