From the series:
Policy Microsimulations

The Tax Liability Red Herring: Defending Child Tax Credit Reforms

Analysis responding to the latest Congressional debates: Insisting CTC improvements go to families who have federal tax liability would ensure benefits do not reach most low-income families. Download PDF ›


The “Tax Relief for American Families and Workers Act” currently under consideration in Congress makes modest improvements to the Child Tax Credit (CTC) that benefit low-income families. Under status-quo law, parents with low or no earnings do not receive the full $2,000-per-child credit that families with middle or high incomes receive. The legislation partially remedies this perverse structure. Specifically, it increases benefits for low-income parents who are not eligible for the full $2,000 credit while maintaining work requirements as a concession to Republican demands. This compromise ensured broad support in the House of Representatives, with over three-quarters of both Democrat and Republican members voting in favor.

Now Republicans in the Senate have voiced a new objection: that the improvements to the Child Tax Credit benefit families who do not pay income taxes. Ranking Republican member of the Senate Finance Committee Mike Crapo said that, “more than 90 percent of the bill’s CTC benefits accrue to taxpayers who will not owe a single dollar of federal income tax,” and represent a shift “to transform the CTC from primarily working family tax relief into a government subsidy.” Reports from the Heritage Foundation and the American Enterprise Institute echo this complaint, likening CTC beneficiaries who pay no taxes to recipients of cash welfare. Objecting to the CTC reforms because they benefit families who do not pay federal income taxes is effectively an objection to providing benefits to low-income working families. On average, a family with children will not have federal income tax liability until they earn over $60,000. If changes to the CTC must go to families who owe federal income taxes, it would prevent most low-income working families from benefiting.

Key Takeaways

  • Parents will not owe federal income taxes until they earn over $43,000—in most cases, far higher amounts. Insisting CTC improvements go to families who have federal tax liability would ensure benefits do not reach most low-income families.
  • Senator Crapo has suggested that the CTC provisions go more to the working poor rather than families without tax liability, but I estimate 98 percent of children living in poverty have parents who do not owe federal income taxes.
  • While most of the CTC changes benefit low-income families, the business tax provisions also included in the legislation benefit more middle-income families. According to the Urban-Brookings Tax Policy Center’s modeling, the legislation as a whole provides more benefits to the 20–80th income percentiles than the 0–20th percentile. 

Download the full brief as a PDF.