While the future of an expanded child tax credit (CTC) on the national stage appears murky, states around the country are dutifully writing their own child tax credits into state tax codes. Eleven states have passed legislation to grant qualifying households with dependents direct cash assistance since the temporary expansion of the federal child tax credit ended. The fully refundable, but temporary federal CTC helped low-income households feed their children, alleviated household expenses, and generally made life easier for families. The abundant anti-poverty results induced by the credit provided a much-needed safety net for households financially recovering from a global pandemic.
Policymakers around the country seem to agree. The uptick in state CTCs demonstrates the power of state authority to eliminate unnecessary economic burdens and barriers for adults, and for the children in their care by extension.
Child tax credits represent the possibilities of legislation crafted with abundance in mind. In a country where it is incredibly expensive to raise a child, direct cash assistance affords dignity and relief to families who make very little income or none at all. Our research led to further questions of why and how our behemoth tax system makes life challenging for low and middle-income families.
Unfortunately, tax structures in 45 states exacerbate income inequality. These tax codes are a swamp of inequity, taking less income from wealthier families than low-income families with a fraction of access to financial resources and support. It is often difficult for low-income taxpayers to access the same benefits, credits, and refunds as wealthier taxpayers.
A refundable tax credit, such as the federal and state CTCs, ensures low-income families experience direct cash government assistance as wealthier families do. Child tax credits and other forms of universal income programs inject measures of equity and justice into an otherwise unjust tax system and push us toward economic empowerment for all communities.
State Child Tax Credits vary widely. Some have more generous payments than others and some have wider scopes of qualification than others. At TEP, we acknowledge that no state is like another and that policymakers must make decisions that fit the best interests of their state. We advocate for a general foundation from which all states can build sustainable and effective child tax credits. We can best center the joy of Black and brown children by removing barriers to thriving. Increased economic empowerment is one such way of doing so. All states should adopt credits that are fully refundable, with a $0 phase-in, and are open to families without social security numbers. Below, we briefly summarize how three different states maximize impact in their communities.
How states are supporting families within their tax codes:
Minnesota’s child tax credit, the largest in the country, recently passed as part of a larger bill full of tax reductions for low-income households. Qualifying families can expect an annual payment of $1750 a year if their households include dependents under the age of seventeen. With a $0 phase-in, families who make no income will have access to the annual credit. Families who file taxes with an Individual Taxpayer Identification Number (ITIN) rather than a Social Security Number will have access to the full credit. Minnesota’s child tax credit is a generous one that maximizes resources to ensure the impact is most directed at low-income families. Considering 81,000 Minnesotans are undocumented, the credit can and should be expanded to non-ITIN holders as well.
Maine made its already existing dependent tax credit fully refundable after the federal CTC expired. The credit, an annual sum of $350, has a $0 phase-in and a high phase-out, making it available to low-income earners as well as high-income earners with dependents under the age of seventeen. It is a smaller credit, which the state offsets by making it available to a range of taxpayers. Maine is the only state that restricts the credit to dependents with social security numbers. Maine’s CTC is an example of one that could be expanded to widen inclusivity, particularly toward immigrants without ITINs.
Vermont is another state that made its CTC fully refundable in the wake of the federal CTC expansion. The benefit gives an annual sum of $1,000 to qualifying households who make $125,000 or less with children under age 5. With the maximum credit directed toward the lowest-income families, Vermont’s CTC. It is also the only state that extends the benefit to both children with ITINs and those without, demonstrating the possibility of widening inclusion to undocumented children.
Child tax credits provide relief to households navigating an inequitable economic frontier. Although the federal government is slow to enshrine an expanded CTC in our national tax code, states can seize the opportunity to distribute resources more equitably. We encourage states and advocates to think about maximizing the impact of a credit as they decide how to allocate resources to support families. States must think critically about how to best include all people within their jurisdiction, which means including people with ITINs and people without. All children deserve the resources to ensure their basic needs are met to the highest degree. Such a world is within our reach, through policies that promote the equitable distribution of public goods and enhance the lives of all children and families.