When federal lawmakers expanded the child tax credit (CTC) in 2021 as part of President Joe Biden’s pandemic relief program, some 35 million parents across the US began receiving hundreds of dollars monthly.
With the expanded credit, nonworking and extremely poor families were eligible for the credit’s full value for the first time since its passage in 1997, and the federal government increased the value of the subsidy itself — up to $3,600 per child. Almost 3 million children were lifted out of poverty as a result, and families used the funds to help them afford gas, food, and school expenses.
But when Democrats failed later to approve an extension of this program — it carried a price tag of $100 billion per year and Sen. Joe Manchin wanted to see a work requirement reinstated — the federal CTC returned back to its pre-Covid form, with a maximum of $2,000 per child for working families only. Economists at Columbia University estimated that making the expanded federal credit permanent would have resulted in a more than 10 times return on investment, measured in terms of increased future tax revenue and less future spending on health care, criminal justice, foster care, and other welfare programs.
While gridlock and partisanship hobbled Congress from expanding this consequential cash-assistance program, state governments have since used the success of the federal experiment to push forward their own versions of the subsidy. All told, since the expanded federal CTC expired, 11 states have passed or expanded their own child tax credits available to families earning $0, or what policy wonks refer to as “refundable.” The subsidies range from up to $180 per child (in Massachusetts) to $1,750 per child (in Minnesota).
The new child tax credits have passed in states that currently hold Democratic majorities, but the policies have been markedly less polarized on the state level compared to Congress. An analysis of the new laws from the Jain Family Institute, a progressive think tank, found that, on average, 40 percent of Republican state senators and 30 percent of Republican state representatives have voted in favor of fully refundable child tax credits. In Montana, it was the state’s Republican governor, Greg Gianforte, who proposed a new $1,200 child tax credit for every kid under age 6, and it was Democrats there who helped sink the idea’s passage.
All of these legislative wins bode well for families — especially because the odds of expanding a child credit once it’s established are relatively high. Of the 11 states with refundable child tax credits, six have already raised their benefit amount or broadened eligibility, per the Jain Institute. Plus, even modest child tax credits have been shown to make real differences: One study found quarterly cash payments of just $150 to low-income families led to increased household savings, fewer late fees on bills, and more spending on health and education.
Perhaps most importantly, this state trend is encouraging because in our byzantine, kludgy tax system — replete with exemptions, deductions, work requirements, and nonrefundable credits — refundable child tax credits have the potential to be one of the most inclusive and progressive social assistance programs for parents and kids. Unlike the other benefit options, refundable child tax credits offer cash that can be spent on a range of needs, and they can benefit even families with no earned income.
How the new state child tax credits vary
When policymakers consider passing or refining a child tax credit, they have to make a number of design trade-offs, weighing the financial and administrative implications of each choice. Will the credit apply to all children or just younger children? Will it be a large credit or a smaller credit? Will the benefits phase out quickly or slowly? Will eligible families receive the benefits annually? Quarterly? Monthly? What do they need to do to claim it?
Some states, like New Jersey, require beneficiaries to fill out just a quarter page of additional questions on their tax filing to get the new cash assistance. By contrast, in Colorado, beneficiaries have to fill out three additional pages of paperwork, which could deter some from applying for or receiving the aid.
States have also taken different approaches to funding new child tax credits. One financing path is through consolidating existing benefits into a more
Another approach is financing state child credits through state revenues from economic growth, rather than new taxes. New Mexico, for example, authorized a new child tax credit this way, using new revenue from the oil and gas industries (though as the Jain Institute warns, oil and gas revenues can be volatile and could create budgetary strain during a recession). A third path for financing is through new progressive tax increases, which is how Colorado first advanced its child tax credit, though ultimately it relied on increased revenue instead.
How state CTCs could be improved further
While these new policies are significant, advocates say there are ways the child tax credits could be improved upon.
If more states were to create or expand child tax credits, one option is phasing out existing benefits that are currently geared toward high-income earners. According to Jack Landry, a researcher at the Jain Institute, Minnesota’s CTC would have been far more expensive — possibly prohibitively so — if it hadn’t been paired with EITC consolidation. “A lot of other states have these earned income tax credits so that’s a possible path forward for them too,” he told Vox.
States can also work to ensure their policies are as inclusive as possible for families where parents or children may not be American citizens. Most states already allow parents with individual taxpayer identification numbers (ITINs) to receive the benefit, but ITINs themselves are not always easy for families to obtain, and states can design other ways to verify residency for child aid.
Another way to improve the effectiveness of state CTCs is by expanding their uptake among those who are already eligible — whether through awareness campaigns to potential beneficiaries or through administrative tax reforms that make claiming the aid easier. In terms of awareness campaigns, the Jain Institute suggests using data from other welfare programs like SNAP and Medicaid to alert parents of their eligibility for new state programs. To distribute the funds more easily, states could also create simplified web portals for applicants, or even just send the money out to eligible families automatically. (The expanded federal CTC was sent automatically to eligible families who had previously filed their taxes or who had signed up to receive an IRS stimulus check.)
The flurry of bipartisan progress on state-level refundable child tax credits is a silver lining to the federal government’s failure to expand its generous pandemic-era credit. Even in Washington, DC, though, advocates and federal lawmakers are once again turning their attention to improving the federal CTC, in part because of looming Trump-era tax cuts set to expire at the end of 2025. That tax deal negotiated in 2017 included an expansion to the federal CTC to make it more generous, and without further federal action, the already shrunken child tax credit could diminish further to pre-2017 levels.
The House Problem Solvers Caucus, a centrist group of 32 Republicans and 32 Democrats, recently signaled its interest in negotiating a new deal on the credit, though little enthusiasm exists for reviving the expanded CTC wholesale, and Republicans remain staunchly committed to the idea of work requirements. Senators, too, have recently voiced interest in working together on the federal credit. “I think we will find far more areas of agreement and learn from each other,” Sen. Ron Johnson (R-WI) told Sen. Michael Bennet (D-CO) during a subcommittee hearing this month.