Theses Doctoral

The Child Tax Credit: How the United States Underinvests in Its Youngest Children in Cash Assistance and How Changes to the Child Tax Credit Could Help

Harris, David B.

In this dissertation I examine the Child Tax Credit (CTC), who gets it and who doesn't, paying particular attention to children under the age of three, its legislative and political history, and how it could be improved. At $56.4 billion per year, the Child Tax Credit (CTC) is nearly the largest U.S. federal expenditure on children and families, second only to the Earned Income Tax Credit (EITC), at $59.5 billion (JCT, 2011). Created in 1997, it has been expanded seven times in just the last decade. Yet in spite of America's federal commitment of dollars and legislative commitment of reform, little has been written about the CTC.
I examine the literature first to see if cash and cash assistance matter, finding on balance that there is strong evidence that it does, particularly for young children; second to show that the U.S. underinvests in this domain in young children relative both to what is needed and to what other advanced industrialized countries do; and third to lay out the case that changes to the refundable CTC offer one opportunity to address this underinvestment. I examine the legislative history of the CTC, as I believe both the policy analysis and history need to be understood to inform the policy responses.
Next, I examine whether the portion of the new safety net that was fashioned as tax policy is working as child policy - specifically, whether it is reaching our youngest children, with initial evidence that it may not be in the case of the CTC (Burman and Wheaton, 2007) yet may be in the case of the EITC (Dowd and Horowitz, 2011). Using the 2011 Current Population March Supplement, I examine empirical evidence of the age distribution of federal tax credits for children, finding that 29% of children under the age of three are in families with too little earnings to get the full CTC, as opposed to 20% of older children. Nearly 13% of children under the age of three are in families with no earnings and as such get no CTC or EITC, as opposed to 8% of older children. While the EITC may disproportionately benefit young children, poor young children are more likely to be left out eligibility of the EITC than their older counterparts. Since infants may or may not be eligible for any CTC or EITC, depending on their birth month, I suggest that as some have found a marriage penalty in parts of the tax code, that there may also be a "baby penalty." I use micro-simulation to examine the costs and benefits of alternative CTC policies. Here I find that while full refundability may be the optimum CTC policy, that there are other possibilities, including those that increase the phase-in of eligibility, that are less costly, and also substantially lower child poverty among young children, including doubling the CTC for young children, increasing the phase in, and using a look back provision to allow families to use their previous year's earnings to calculate their refundable CTC and EITC. Yet, only moving to full refundability would do anything for the 12.67% of young children in families with no earnings.
Finally, I propose policy responses that are rooted both in the science of increased cash investments in young children, and in the politics of working legislatively to get there, suggesting that policy makers consider the question of age equity when examining the distributional effects of tax policies. Implications for research and policy are discussed.


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More About This Work

Academic Units
Social Work
Thesis Advisors
Garfinkel, Irwin
Ph.D., Columbia University
Published Here
April 15, 2014