President Donald Trump and House Speaker Paul Ryan (R-WI) have vowed to overhaul the nation’s tax system, introducing a plan on September 27, 2017, that will cut taxes for the wealthy at the expense of working families. The president’s daughter, Ivanka Trump, has teamed up with Sen. Marco Rubio (R-FL) to advocate for an expanded Child Tax Credit (CTC) as part of that plan. Recently, Ivanka Trump spoke at a town hall in Bucks County, Pennsylvania, and claimed that the CTC would help families pay for child care and position the United States to catch up to other countries on early childhood investments.
Not surprisingly, the Trump tax plan is specific on tax cuts for higher earners but provides no details on the amount of increase to the CTC. But even a significant increase to the CTC would not be enough to offset the significant losses many working families would experience under Trump’s overall tax plan. And it would be nowhere near what is needed for Trump to make good on another unfulfilled campaign promise—to make child care affordable for families.
Tax credits for families with children
Two modest but important tax credits—the CTC and the Child and Dependent Care Tax Credit (CDCTC)—help families meet the costs of raising children and the costs of caring for children and other dependents, respectively. These two credits are often confused in the tax policy conversation, but they serve distinct purposes. While Trump’s tax plan would increase the CTC—albeit by an unspecified amount—it makes no attempt to change the CDCTC, which is dedicated to families’ care expenses.
The Child Tax Credit
The CTC offers a modest benefit to help families cover the costs of raising a family. Families with children under age 17 are eligible for the CTC and can receive up to $1,000 per child each year.
The CTC is not fully refundable, which means that lower-income families who owe little or no federal income tax do not get its full benefit. Families who earn less than $3,000 during the tax year—such as when a parent loses a job or cannot work—do not benefit at all from the credit, and the refundable portion of the credit phases in slowly such that many low-income families receive only part of the credit. Families do not receive the credit until they file their taxes and receive their annual refund, meaning that they must cover significant child-related expenses upfront. This does not help families that are struggling to cover the cost of necessities—including families with very young children, who need a daily supply of diapers and formula.
The Child and Dependent Care Tax Credit
The CTC is sometimes confused with a separate credit, the Child and Dependent Care Tax Credit, which provides a modest benefit to help families defray costs associated with child care. Families with children can receive a maximum of $1,050 annually for one child and $2,100 annually for two or more children. The CDCTC is the only tax credit that specifically helps families afford the costs associated with child care. However, the CDCTC is not refundable, which means that it does not reach many families with low and moderate incomes. Most families that can take advantage of the credit earn between $100,000 and $200,000 annually.
Like the CTC, parents do not receive the tax credit until they file their taxes, which means that they must pay for child care upfront and wait up to a year to be reimbursed. If a family cannot afford to make child care payments on a weekly or monthly basis, a tax credit will not help them pay for child care.
The amount of the tax credit is much lower than the amount of money that most families actually spend on child care. The annual cost of a child care center exceeds $10,000 in most states. Under the CDCTC, a family can only claim $3,000 in child care expenses per child and will be reimbursed for only 20 percent to 35 percent of that expense, depending on their income. There is no tax benefit for child care expenses beyond $3,000 per child, for up to two children.
Trump’s plan to increase the CTC will not reach the families that need it most
President Trump and his daughter, Ivanka, claim that an increased Child Tax Credit fulfills their promise to make child care more affordable for working families. However, Trump’s tax plan proposes an unspecified CTC expansion alongside tax breaks for millionaires that will ultimately harm working families, raising taxes on 1 in 4 families while delivering 80 percent of benefits to the top 1 percent by 2027. A recent Center for American Progress column found that if the bottom 99 percent of households were to foot the bill for Trump’s tax breaks for the top 1 percent, each household would have to pay an average of $1,370 in 2027.
Any benefit for middle- and working-class families from an expanded CTC would likely be offset by Trump’s plan to eliminate the $4,000 dependent exemption and increase the lowest tax rate from 10 percent to 12 percent—both of which would increase taxes on middle- and working-class families with children.
Trump’s CTC proposal will do little or nothing for the nearly 11 million children with at least one working parent who do not earn enough to claim the full credit. And it will do nothing for the nation’s most vulnerable children and families who receive no CTC at all. In 2011, an estimated one-fifth of children—disproportionately young children and children of color—lived in families that received less than the full CTC benefit because their families’ earnings were too low.
On the other hand, wealthy families with children would be helped most by Trump’s increased tax credit. These families have enough tax liability to claim the full CTC amount, so they would benefit from an increased credit. Trump’s plan seeks to further benefit these families: Currently, the CTC starts to phase out slowly for single parents earning $75,000 and married couples earning $110,000 per year. The Trump tax plan would increase this phase-out threshold to an unspecified amount, targeting the maximum benefit toward higher-earning families.
Tax credits are no substitute for child care reform
Tax credits such as the Child Tax Credit and the Child and Dependent Care Tax Credit do not address some of the systemic problems in child care, including low wages for people who work in child care, limited supply of quality options, and flexibility for parents who need child care in the evenings or on weekends. This is because tax credits help some parents with just a small fraction of their child care costs and arrive only during tax season, rather than giving them the support they need to pay for child care throughout the year and to select a high-quality provider of their choice.
Tax credits such as the CTC and CDCTC are potentially powerful mechanisms for lifting families out of poverty and supporting young children during a critical time in their development. However, Trump’s claim that he is supporting hardworking families through an increased CTC—even though his overall tax overhaul demonstrably deserts them—is just putting a bandage on a bullet wound.
Solutions that families with children need
Strengthen the Child Tax Credit
While Trump’s CTC proposal would provide at most a minimal benefit to working families, there are alternative changes that could substantially strengthen the CTC, including for families that need it most. A CAP report proposed these changes, including increasing the credit’s size for the youngest children, which were introduced in legislation by Sen. Sherrod Brown (D-OH) and Rep. Rosa DeLauro (D-CT).
The CAP proposal would eliminate the $3,000 minimum earnings requirement and make the CTC fully refundable to ensure that it reaches all low- and moderate-income families with children. It would index the value of the credit to inflation so that it would not continue to lose value over time. And it would enhance the CTC with a supplemental Young Child Tax Credit of $125 per month for children under age 3, which would be made available to families on a monthly basis in recognition of the fact that child-related costs do not wait until tax time.
Support the Child Care for Working Families Act
The Child Care for Working Families Act, introduced in September 2017 by Sen. Patty Murray (D-WA) and Rep. Bobby Scott (D-VA), is a comprehensive bill to make child care more affordable for low- and middle-income families. Unlike a tax credit, this bill includes a significant, holistic investment in child care, addressing issues such as teacher pay, child care quality and access, and parent choice and flexibility.
The Child Care for Working Families Act would establish a new federal-state partnership to provide high-quality, affordable child care for children from birth through age 13. This investment would more than double the number of children eligible for child care assistance and would ensure that all eligible families can enroll their child in a quality program, including during nontraditional hours. The bill would also provide incentives and funding for states to create universal preschool programs for 3- and 4-year-olds. The bill would increase workforce training and compensation, ensuring that all child care workers are paid a living wage and early childhood educators are compensated at the same level as elementary school teachers who have similar credentials and experience.
Conclusion
The Trump tax plan is yet another broken promise to the American people. While Trump has vowed to cut taxes for the middle class and make child care more affordable, his proposal to increase the CTC will do little for most working families. Meanwhile, his tax plan is one more way for him to give tax breaks to the wealthiest in the country at the expense of working families.
Leila Schochet is a research associate on the Early Childhood Policy team at the Center for American Progress. Rachel West is an associate director for the Poverty to Prosperity Program at the Center. Katie Hamm is the vice president for Early Childhood Policy at the Center.