Targeted Child Tax Credit: An affordable option for state governments to reduce child poverty rates

Abstract

The federal expansion of the Child Tax Credit (CTC) in 2021 contributed to a record low child poverty rate for the United States; however, the expansion expired after 1 year and Congress is unlikely to reinstate the expansion in the near future. State governments are increasingly interested in implementing their own fully-refundable CTCs, yet face strict budgetary constraints relative to the federal government. This policy report proposes a state-level, fully-refundable CTC that is affordable, strongly targeted at low-income families, and complementary to federal tax credits, yet would make meaningful reductions in states' child poverty rates. Specifically, I demonstrate that the average state government can use existing spending within the Temporary Assistance for Needy Families program to fund 61% of a targeted CTC, and all states could fund the proposal with less than 2% of their total tax revenues. The targeted CTC could reduce child poverty by 10%, and deep child poverty by 21%, for the average state, with a level of spending efficiency that exceeds other income-transfer programs.