Working Paper: NBER ID: w29342
Authors: Jacob Goldin; Elaine Maag; Katherine Michelmore
Abstract: Recent proposals to expand the Child Tax Credit (CTC) are at the center of current policy discussions in the United States. We study the fiscal cost of three such proposals that would expand refundability of the credit to low-income children, increase the maximum credit amount, and/or eliminate the income phase-out to make the credit universal. For each proposal, we use the Current Population Survey to estimate three components of the net fiscal cost: the direct cost (additional tax refunds or lower tax liability), revenue changes due to taxpayers’ labor supply responses, and long-term changes in tax revenue due to changes in children’s future earnings. We find that direct costs are by far the most important component but that long-term earning changes also play an important role, offsetting 20% of the direct costs of making the credit fully refundable. In contrast, labor supply responses modestly contribute to the fiscal cost of the CTC expansions we model.
Keywords: child tax credit; fiscal cost; low-income children; refundability; labor supply
JEL Codes: H2; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Expanded CTC (C24) | Direct fiscal cost (H69) |
| Expanded CTC (C24) | Long-term changes in tax revenue (H29) |
| Increased earnings from children benefiting from expanded CTC (J13) | Long-term changes in tax revenue (H29) |
| Permanent extension of CTC under ARPA (H29) | Net fiscal cost (H69) |
| Universal CTC (L96) | Net fiscal cost (H69) |
| Direct fiscal cost (H69) | Net fiscal cost (H69) |