Washington, D.C. — A new CAP issue brief outlines a simple policy solution that would cut child poverty and offset some of the harmful effects of President Donald Trump’s 2017 tax law: allowing families to claim a child tax credit on their state income taxes.
While many families receive a child tax credit (CTC) on their federal income taxes, only seven states give families the ability to take a CTC on their state returns.
The brief describes several ways that state policymakers can design a state tax credit to be maximally meaningful for families with children, including:
- Extending the credit to all low- and middle-income children, by allowing families to claim it in years when they have little or no state tax liability
- Delivering an extra benefit to the youngest children, for whom expenses are often the greatest
- Extending the credit to families with disabled adult children
- Strengthening the credit in the states where state CTCs already exist. None of the existing states with CTCs have all of the features above. By adopting these policy solutions, states can ensure their CTCs have the greatest impact.
“The research is clear: Child tax credits are an effective way to offset the rising costs of raising children, reduce child poverty, and increase family economic security—especially during the early, formative years of a child’s life,” said Rachel West, former director of research for the Poverty to Prosperity Program at CAP and author of the brief. “Rising costs and stagnant wages are increasingly squeezing middle- and low-income families nationwide. State child tax credits would give state governments a ready-made policy solution to increase economic stability without having to wait for Congress to act.”
The idea of using child tax credits as policy tools to increase economic stability is gaining new traction. This spring, congressional Democrats introduced two bills that would expand the national CTC: the American Family Act and the Working Families Tax Relief Act. While both pieces of legislation are receiving widespread support from the Democratic caucus—and all major Democratic Senatorial candidates for president have signed on as co-sponsors—they are unlikely to pass Republican opposition in the Senate. As West points out in the brief, state child tax credits enable state legislatures and governors to help families with children now—without having to wait for Congress to act.
For more information or to speak to an expert, contact Julia Cusick at [email protected] or 202-495-3682.