Build Your Own Child Tax Credit
As the year comes to a close, lawmakers continue to discuss if and how to extend the American Rescue Plan's one-year Child Tax Credit (CTC) expansion. For 2021, the maximum CTC was increased from $2,000 to $3,000 ($3,600 for children under age 6), made fully refundable so those without earnings or taxes owed could collect it in full, and issued through monthly payments. Permanently extending this expanded version of the CTC could cost as much as $1.6 trillion over ten years. However, policymakers have numerous options to reduce or defray those costs.
Our brand new Build Your Own Child Tax Credit model allows you to design your own CTC policy and estimates the ten-year cost of your customized policy.
Note: we updated our CTC model on January 6 — the updated blog describing the changes can be found here, but all the links in this blog will also navigate to the new version of the model.
Our model gives users control over several different parameters related to the CTC. Users can set the level of the credit, decide whether or not to include an additional credit for young children below the age of 6 or 3, determine what share of the credit would be paid monthly, set the income threshold, and set the pace for means testing the additional benefit. Users can also choose whether or not to make the credit fully refundable, to index the credit for inflation, or to repeal the current requirement that each child have a valid Social Security Number to claim the credit.
Users also decide what to do with the credit after 2025 when the Tax Cuts and Jobs Act's (TCJA) credit increase expires, causing it to fall from $2,000 back to $1,000 under current law (at that point, families get a $5,000 dependent exemption as well). President Biden's proposal ended most of the tax credit expansion after 2025 at a cost of $463 billion under our model. However, users could also choose to extend the credit in full or extend it as a supplement (meaning a $3,000 credit would become a $1,000 additional credit after 2025). Depending on those details, the President's proposal would cost between $1 trillion and $1.4 trillion over a full decade in effect, according to our model.
Importantly, the Build Your Own Child Tax Credit model is not a micro-simulation model and is meant only to provide rough estimates of various choices. It is also still in beta-testing mode, so please contact us if you identify any errors or believe we should add additional features.