Among the NAE’s public policy priorities outlined in “For the Health of the Nation” are commitments to “strengthening marriages, families and children” and “seeking justice and compassion for the poor and vulnerable.”[i] Two little-known provisions of our tax code contribute significantly to these goals: the Child Tax Credit and the Earned Income Tax Credit. They can be made even more effective.
The NAE affirms that “the family is central to God’s vision for human beings and for human society” and that “the family is central to life together as diverse people in society.”[ii] While families themselves, along with their churches, bear the primary responsibility for nurturing family life, the NAE recognizes that “other social institutions, including government, play important roles in encouraging healthy family life and the well-being of children.”[iii] Tax and other social policies “concern not only individuals but can significantly affect families.”[iv] We are thus committed to working “for measures that strengthen the economic viability of marriages and families, especially among the poor.”[v]
The Child Tax Credit
The Child Tax Credit provides financial assistance to parents who are raising children. It was first proposed in 1994 as part of the Republican Party’s Contract With America. It became law three years later as part of a bipartisan budget agreement. In subsequent years the credit was expanded, most recently as part of the Tax Cuts and Jobs Act of 2017. Current law temporarily increases the tax credit to $2,000 per eligible child, of which $1,400 can be refunded to taxpayers who, after applying the credit, do not owe taxes. After 2025 the credit will be reduced to $1,000 per child. The full credit is currently available to families making up to $400,000 per year, and after 2025 the family income limit will be reduced to $110,000.
The Child Tax Credit has been a financial blessing to many families. However, as currently constituted, the full benefit is only received by middle and upper income families, since parents who owe no taxes do not receive the nonrefundable part of the credit. The credit could be improved both by increasing the amount and making it fully available, regardless of the family’s tax liability, and by better targeting it to families of modest means.
An important feature of the child tax credit is that it helps families directly, allowing them to keep more of their money rather than filtering assistance through government agencies and programs that may compete with private charities and impose eligibility criteria that religious parents cannot support.
Both Republicans and Democrats have proposed further improvements to the Child Tax Credit. The NAE encourages efforts to strengthen support for American families and urges that this support be targeted to low-income families who need it most.
The Earned Income Tax Credit
The Earned Income Tax Credit (EITC) was first enacted in 1975. The credit grew out of a debate over the best way to assist low-income Americans while incentivizing work. It has enjoyed broad bipartisan support as it aids the poor while rewarding work. It is now the largest federal anti-poverty initiative. Notably, like the Child Tax Credit, it provides support directly to beneficiaries rather through government-funded agencies and services. The credit slowly phases in and out, avoiding benefit cliffs that discourage work.
The EITC is particularly beneficial to families with dependent children. It provides only a tiny benefit of $530 or less to childless low-income adults, who are the only workers who earn incomes above the poverty line, but are then taxed back into poverty. It is currently not available at all to workers under 25 or over 65.
Reforming the EITC to better support childless workers, and including workers of all ages could lift millions of Americans out of poverty while enabling them to gain valuable work experience that could lead to higher incomes. This would be particularly helpful to minority workers who represent a disproportionate share of low wage employees.