Estimating the Net Fiscal Cost of a Child Tax Credit Expansion

Details

Author(s):
Publish Date:
September 3, 2021
Publication Title:
National Bureau of Economic Research
Format:
Journal Article
Citation(s):
  • Jacob Goldin, Estimating the Net Fiscal Cost of a Child Tax Credit Expansion, National Bureau of Economic Research (2021).

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 one-third or more of the direct costs, depending
on the proposal and modeling assumptions. In contrast, labor supply responses only modestly
contribute to the fiscal cost of CTC expansions and can actually reduce fiscal costs depending on
the reform.