The Potential of Local Child Tax Credits to Reduce Child Poverty

This report was authored by Ryan Vinh, Kamolika Das, Sophie Collyer, Aidan Davis, David Harris, Galen Hendricks, Rita Jefferson, Yajun Jia, Danielle Wilson, and Christopher Wimer. The analyses were conducted by the Center on Poverty and Social Policy at Columbia University and the Institute on Taxation and Economic Policy, with support from Share Our Strength.

Key Findings

• Child poverty rates in cities across the country sit well above the national average. In the 14 cities selected for this study, 10 have child poverty rates exceeding 15 percent and six have child poverty rates above 20 percent, even after accounting for the role of federal and state Child Tax Credits in reducing poverty.
• Local governments can create their own Child Tax Credits to supplement the poverty-reducing effects of federal and state credits and meaningfully reduce child poverty in their cities.
• With the exception of Los Angeles and Oakland, a base credit of $1,000 or less would be sufficient to reduce child poverty by 25 percent across the remaining localities in this study.
• In 10 of these 14 cities, a credit that would reduce poverty by 25 percent when combined with federal and state credits costs less than 3 percent of the city’s revenues. In most of the cities examined, costs for achieving a 50 percent poverty reduction are less than 15 percent of the city’s governmental revenues, and in three of those cities, the total cost is 5 percent or less.
• With a local Child Tax Credit of ~$4,000 per child or less, 12 of 14 localities in this study could cut child poverty by 50 percent through the combined effects of federal, state, and local credits. In seven of the cities, the same reduction could be achieved with a credit of ~$3,000 per child or less.
• Local costs for achieving a 50 or 25 percent poverty reduction are much lower for cities in states with robust state Child Tax Credits, such as Minnesota. For example, it would cost Minneapolis less than $30 million to cut its baseline poverty levels by half when accounting for state and federal credits.
• Similarly, the local costs of achieving a 50 percent poverty reduction would be markedly lower if the federal Child Tax Credit was expanded as it was in 2021, and if children in lower- and moderate-income families were eligible for the full increased federal credit.

Poverty reductions of the type that could be achieved with the policies suggested in this paper would transform the lives of families with children in American cities.

Introduction

After falling to a record low of 5.2 percent in 2021, child poverty has since surged back to pre-pandemic levels, reaching 13.4 percent in 2024.¹ Child poverty hit its record low in 2021 due to concerted policy choices, namely the expansion of the Child Tax Credit, Economic Impact Payments, and other pandemic-related income supports. As these income supports expired, however, high levels of child poverty reemerged.

As proven in 2021, high levels of child poverty are preventable. Federal and state policies continue to reduce child poverty, but there is more that could be done. Since the expiration of the federal Child Tax Credit expansion in 2022, many states have expanded or created their own credits to help parents afford the costs of raising children. Fifteen states currently provide Child Tax Credits. These vary widely in their design and reach, but they all embody a commitment to helping families with children through the tax code.^2,3

Yet the combination of existing federal and state credits only do so much to reduce child poverty and help families with their costs of living. Local governments can build on federal and state policy, driving more substantial reductions in child poverty.⁴ To date, no city has implemented its own Child Tax Credit. This report documents how local credits could further reduce child poverty and enhance families’ economic security.

Our results suggest that complementing federal and state programs with local child tax credits could substantially reduce child poverty. The options examined in this report also provide the largest gains (as a share of income) to families at the bottom of the income scale, with the bulk of the benefit going to families in the bottom 80 percent of the income distribution in each city (for details, see Appendix Tables A5 and A8). This would lessen existing inequities in state and local tax systems, which are by and large regressive.⁵

Local governments have a track record of implementing ambitious policies that support economic well-being. Cities have been early adopters of stronger minimum wage ordinances, paid sick leave programs, guaranteed income pilots, and universal preschool. Local policy efforts also often become models for broader state and federal investments that build on local successes, and local governments that establish Child Tax Credits could continue this tradition.⁶

In this report, we use data from 14 cities to show how local Child Tax Credits could augment federal and state efforts to reduce child poverty and help families with the costs of raising children. Specifically, we provide the size of local child credit needed to cut child poverty by 25 percent and 50 percent when combined with federal and state Child Tax Credits.

Study Overview

We illustrate the promise of local child tax credits by analyzing their potential effects on child poverty and revenues in 14 select cities:

We selected cities with the largest populations and then focused on the 14 that also have sufficient data on income and poverty in the U.S. Census Bureau’s American Community Survey (ACS) research files. These files include poverty status measured using the Supplemental Poverty Measure (SPM).⁷ Cities were excluded for insufficient sample size because poverty rates did not benchmark well against other data sources, or because their political boundaries were difficult to reconcile with Census data.⁸ We also sought geographic diversity across the country.

Any city or locality could design its own child credit, not just those highlighted here. We model what it would take for a local credit to achieve a 25 or 50 percent reduction in child poverty. There are two ways to think about how a city could hit such targets.

1. The first involves reducing the child poverty rate after the federal and any state credits achieve whatever poverty reduction that they do. In other words, the baseline poverty rate that we aim to cut in half is the current poverty rate after accounting for federal and state credits. Using this baseline, we find the local credit amount that cuts the poverty rate in half on its own.
2. The second involves thinking of a local credit as supplementing the poverty reduction that the federal and any state credits already achieve. In other words, the baseline poverty rate that we aim to cut in half is the poverty rate before any federal or state Child Tax Credits are accounted for. Here, we identify the local credit amount that cuts the child poverty rate by half when combined with existing federal and state credits.

The main results we present here use the latter thought experiment, conceiving of a local credit as a supplement to federal and state policy. In Appendix A we provide results following the first thought experiment listed above, showing the credit values and costs that would achieve child poverty reduction targets from a local credit alone. Costs and credit amounts under the first thought experiment would be substantially higher than those under the second thought experiment because poverty reduction effects in this case are solely attributable to the local credit. Given the interplay between federal, state, and local policies, however, we present costs and credit amounts under the second thought experiment in the main sections of this report.

Policy Design

Local Child Tax Credits, like Child Tax Credits at the state level⁹, that are most effective at reducing child poverty and inequality are guided by the following principles:

• Full Refundability: Children in families with no or low earnings are eligible for the full credit.
• Per-Child Benefits: The full credit is made available to children regardless of family size or where they come in the birth order.
• Indexed to Inflation: The value of the credit is indexed to inflation so as not to erode the credit over time.
• Young Child Bonus: A larger credit to children under age 6 is provided to target additional resources at a critical period of child development when the costs of raising children are often higher.
• Monthly Payments: The credit is delivered in regular installments, rather than a once-per-year lump sum.
• Income Phaseouts: The same full credit is available to children in low- and middle-income families. Weigh tradeoffs when considering if and when to phase out the credit for higher earning families.
• Inclusivity: Ideally, children are included in credit eligibility regardless of immigration status. However, caution should be used given recent drastic shifts in policy that have fundamentally changed the nature of immigrants’ relationship with the tax code and tax filing.¹⁰

Each design choice has different implications for both costs and anti-poverty potential. Past research has demonstrated that Child Tax Credits that are fully refundable, inclusive of a wide range of recipients, and that provide families with large credit amounts have the highest potential to reduce child poverty.¹¹ A universal Child Tax Credit would help the most children and be administratively efficient, but of course it would be more costly. If revenues don’t allow for that broad of a credit, lawmakers can raise more revenue or target the credit more carefully.

In the context of these competing budgetary priorities, lawmakers can consider a number of options to reduce costs while still making a dent in poverty. For example, localities can adjust the income level at which the credit begins to phase out. Setting a lower income threshold would leave out middle- or higher-income families, but would allow lawmakers to target resources towards families with the lowest incomes. Local credits can also be limited to children under 6 given the importance of early childhood development and the higher costs of raising younger children (e.g., child care).¹² And, of course, localities can begin with smaller credits. Future expansions can follow naturally from these design choices, as lawmakers can increase the size of the credits, or raise phaseout thresholds or the age of eligibility to expand access.

Given these tensions between cost and efficacy, we present results under two different design scenarios:

• More universal approach: The credit begins to phase out when incomes rise above $110,000 for joint filers and $75,000 for heads of household at a rate of 5 percent per dollar of income above these thresholds.¹³
• More targeted approach: The credit phases out at a relatively low level of income and at a higher rate – specifically, one that mirrors the structure of the federal EITC for families with three or more dependents. Under this structure, the credit would begin to phase out at a rate of 21.06 percent at the point where families with three or more dependents are no longer eligible for the federal EITC ($61,555 for heads of household and $68,675 for joint filers in tax year 2025). This results in a more targeted credit that would still provide a full local Child Tax Credit to children in the lowest-income households.

Under both credit designs, we also provide a 20 percent bonus in the credit amount for children under the age of 6. In this report, we provide estimates of the local Child Tax Credit values necessary for achieving 25 percent and 50 percent reductions in local child poverty under both design options.

Overview of Federal Child Tax Credits

Since its establishment in 1997, the federal Child Tax Credit has played an increasingly important role in reducing child poverty and helping families with the costs of raising children.¹⁴ Several recent changes to the federal Child Tax Credit have highlighted important design features and their role in either increasing or reducing its antipoverty potential. Before the 2017 tax law was enacted, the maximum credit was $1,000. The refundable portion, which is the part that benefits working low-income people who pay federal payroll taxes but do not earn enough to owe federal income tax, was restricted to a percentage of earnings above a set threshold. This generally meant that low-wage workers with children, the people who needed it the most, usually could not receive the full credit.

The 2017 tax law increased the maximum credit from $1,000 to $2,000. This made it much more effective at boosting income for the families who were eligible for the full credit. However, many children in the most financially vulnerable families were excluded from the full credit. Policymakers capped the refundable part of the credit below the full $2,000 that other families could get and retained an earnings requirement, limiting the credit for those who needed it most. As a result of these two limits, one-third of children were ineligible for the full credit when the law was passed because their family’s income was too low.¹⁵ The 2017 law also barred children without Social Security numbers from receiving the credit.

The temporary expansion to the federal Child Tax Credit under the 2021 American Rescue Plan Act (ARPA) boosted credit amounts substantially and made the full credit available to families with the lowest incomes. This played a significant role in the child poverty rate falling to a record low of 5.2 percent in 2021.^16,17

With the expiration of the expanded Child Tax Credit in 2022, the federal credit reverted to its current structure based on parameters set in the 2017 tax law. Recent research has found that one in four children under the age of 17 were ineligible for the full credit in 2023 because their family income was too low.¹⁸

With the 2017 tax law set to expire at the end of 2025, a flurry of proposals that would modify the federal Child Tax Credit were put forth in the months leading up to the passage of the tax and spending bill – also known as OBBBA¹⁹ – that was signed into law on July 4. OBBBA increases the maximum credit amount from $2,000 to $2,200, but keeps the refundable portion of the credit capped (at $1,700 in 2025), though both maximum credit values are permanently indexed to inflation. OBBBA also makes permanent the credit’s earnings requirement. As a result, the one in four children previously ineligible for the full credit because their family income was not high enough to qualify fully – totaling 17 million children nationally – see no gain in their Child Tax Credit under the new law. Further, 2 million children in moderate-income families only partially benefit from the credit increase because their family income is too low to qualify for the full benefit.²⁰ In addition, OBBBA makes permanent the ban on children receiving the credit if they do not have a Social Security number and expands that restriction by requiring children to have at least one parent or guardian with a Social Security number as well.²¹

These changes to the federal Child Tax Credit will take effect immediately, meaning these rules will govern families’ credits when filing their 2025 federal income taxes in the spring of 2026 (based on their 2025 income). In Figure 1, we show the Child Tax Credit that a married, joint-filing family with two children will qualify for in 2025 based on the new law versus previous law.

Under OBBBA, this new Child Tax Credit structure will be implemented at the same time that cuts to other programs including SNAP and Medicaid take effect. For many families, these cuts will undermine and vastly exceed any gains from the modest Child Tax Credit expansion described above.²² Because the federal credit will retain the same earnings requirements and refundability structure, the families with the lowest incomes will continue to be ineligible for the full credit under the new law. Overall, more than one in four children will be ineligible for the full credit because their family income is not high enough for them to qualify fully.²³

Overview of State Child Tax Credits

States are increasingly investing in Child Tax Credits. The goals of state credits vary, but they generally build on the federal credit and can augment the federal credit’s antipoverty potential while also redressing regressivity in state and local tax codes. Momentum around these credits has grown steadily since ARPA temporarily expanded the federal Child Tax Credit in 2021.²⁴ In just the past five years, many states have created or expanded their own credits. In 2020, only six states had CTCs and most were small and nonrefundable.²⁵ In 2025, 14 states have CTCs, with many credits exceeding $1,000 per qualifying child, and Georgia is set to enact one next year.²⁶ Not all 15 state CTCs are the same, and some are far more generous and wide-reaching than others. Four states – Georgia, Utah, Arizona, and Idaho – have enacted nonrefundable credits that do not reach the lowest-income families, while some states have fully refundable credits of $1,000 or more per child.²⁷ 

Results

Our main results show what size a local Child Tax Credit would need to be to reduce child poverty by 25 percent and 50 percent when we consider the potential credit as a supplement to existing federal and state policies. For example, if the federal Child Tax Credit and a state’s credit reduce child poverty by 20 percent, we ask what size a local credit would need to be to increase that poverty reduction from 20 to 25 or 50 percent. The baseline poverty rates against which we measure poverty reduction are therefore the poverty rates in each locality before accounting for the effect of any Child Tax Credit policy (federal and state) on the poverty rate. We begin by discussing baseline poverty rates in the cities we are studying, the effects of federal and state Child Tax Credits on child poverty in these cities, and the target rates corresponding to a 25 percent and 50 percent reduction in child poverty for each city. We then present the size of local Child Tax Credits needed to reach this target.²⁸

Figure 3 presents, for each city in our study²⁹:

(1) the baseline child poverty rate before accounting for the effects of federal and state Child Tax Credit policies (gray bar),

(2) the child poverty rate after accounting for federal and state Child Tax Credits (blue bar), which also represents the actual poverty rate for each city in our data,

(3) the target child poverty rate (green bar) that corresponds with a 25 percent reduction relative to the child poverty rate before accounting for federal and state Child Tax Credits (as shown in the gray bar),

(4) the target child poverty rate (yellow bar) that corresponds with a 50 percent reduction relative to the child poverty rate before accounting for federal and state Child Tax Credits.

Note that Figure 3 also identifies those cities where there is no state Child Tax Credit. In these cities, children are eligible only for the federal credit, and the blue bar in each panel shows the relative impact of this policy alone. Poverty rates in Figure 3 are measured using the Supplemental Poverty Measure in the American Community Survey, as described in Appendix B.

Figure 3 underscores the important role federal ³⁰ and state Child Tax Credits play in reducing child poverty, while also showing that poverty remains widespread despite these policies. In 10 of the 14 cities examined, more than 20 percent (or 1 in 5) children are living in poverty before counting federal and state credits. After factoring in federal and state credits, six of these 14 cities still have child poverty rates of 20 percent or higher, and 12 have child poverty rates above 10 percent.

Figure 3 also shows that the effects of federal and state credits on poverty are not uniform across cities. These policies, for example, reduce the poverty rate by 4 percentage points in Phoenix (from 21 percent to 17 percent) but by 10 percentage points in Denver (from 22 percent to 12 percent). This variation stems not only from differences in state policies, but also from cross-city differences in cost of living, average incomes, and local demographics such as the average family size. Additionally, in three of the 14 cities (Denver, Jacksonville, and Minneapolis), the combination of federal and state credits (where available) already achieves the 25 percent poverty reduction target.

Figure 4 presents the relative poverty reduction resulting from both the federal and state Child Tax Credits by locality, further highlighting the federal credit’s varying impacts and the substantial differences driven by the presence and size of additional state credits. State credits are projected to reduce child poverty by nearly 25 percent in Denver and Minneapolis, but by less than 5 percent in New York City, and less than 1 percent in Chicago, Baltimore, and Los Angeles.³¹ The larger relative effect of the Colorado and Minnesota credits compared to those in other states reflects the fact that these credits are both larger and available to a wider range of children.³² Of course, state credits have no effect in localities where there is no state credit.

What is needed from local Child Tax Credits to meaningfully reduce child poverty beyond what is accomplished by federal and state policies? Figure 5 presents (1) the local credit amounts needed to cut child poverty in each locality by 25 percent – to the first target rates in Figure 3 – when combined with the federal and state credits, and (2) the additional reduction in poverty that would be associated with the local credit. Note that, following the principles outlined earlier, we assume that young children would receive a larger credit than older children (with the credit for younger children amounting to 1.2x the older child credit).  A base credit of $1,500 or less would be enough to cut child poverty by 25 percent across all localities in combination with state and federal credits. In fact, with the exception of Los Angeles and Oakland, a base credit of $1,000 or less would be sufficient for a 25 percent reduction across the remaining localities in this study. Notably, when combined, state and federal credits reduce child poverty by close to or even more than 25 percent in a number of localities (Jacksonville, Denver, and Minneapolis).

Figure 6 provides the credits needed to achieve the 50 percent reduction in child poverty. We find that, with the exception of Oakland and Los Angeles, a base credit of $4,000 per child or less would enable all localities to achieve the target 50 percent reduction in child poverty. In seven of the cities, such a reduction could be achieved with a base per child credit of $3,000 or less.

The results in Figure 6 also show how the combined effects of federal and state Child Tax Credits have a direct bearing on how much localities would need to supplement them to achieve a 50 percent reduction in poverty. For example, because federal and state credits have relatively small effects in Oakland, a local credit in this locality would need to be more than $5,000 to cut poverty by an additional 37 percent and achieve a 50 percent reduction in child poverty. In contrast, in localities like Minneapolis that benefit from both the federal policy and an expansive state policy, a local credit would only need to be around $500 to cut poverty by an additional 3 percent to reach the 50 percent target. This highlights the importance of robust state child credits for helping local governments meaningfully reduce their city’s often high child poverty rates. Expansions to the federal Child Tax Credit akin to those in place in 2021 would also significantly reduce poverty in cities across the country. With such an expansion, the local credits needed to achieve these poverty reduction targets would be markedly lower.

In eight of the 14 cities examined, the cost for achieving a 50 percent poverty reduction is less than 15 percent of city revenues, and in three of those cities, the total cost is 5 percent or less. When pursuing a 25 percent poverty reduction, the costs are far less; costs are less than 3 percent of the city revenues in ten out of 14 cities and less than 1 percent in a handful of cities. In cities with smaller operating budgets and/or higher child poverty rates, Child Tax Credits can be designed to better meet budget windows. However, smaller credits will result in lower child poverty reduction.³⁶

Table 1 presents the cost estimates for the local Child Tax Credits that would achieve the child poverty reductions presented in Figure 3, assuming that the local credit would be more widely available to children in the cities examined.³⁷ Variation in costs across cities is attributable to differences in population size and composition as well as income distribution, among other factors. Table 3 in Appendix A presents the cost estimates for both baseline poverty rates for each city (i.e., the first and second thought experiments discussed previously). Table 4 in Appendix A presents corresponding cost estimates for credits that have the same maximum values, but are more targeted to children in lower- and moderate-income families.

Conclusion

This report assesses how local Child Tax Credits could supplement federal and state credits to reduce child poverty. We examined how large a local credit would need to be to reach specified poverty-reduction targets and the costs of such credits.

While federal and state Child Tax Credits play an important role in reducing child poverty, much can still be done to reduce child poverty in cities across the country. This is especially true given the inequities resulting from the design of the federal credit. Many children across demographic groups are helped by the child tax credit but others are left behind because of design flaws that could easily be corrected. Black and Hispanic children are disproportionately ineligible for the full federal credit, as are younger children, children with single parents, children in poorer families, and children in larger families.³⁸ Local governments have a critical role to play in reducing child poverty and filling the gaps left by existing state and federal policies with local credits. Local Child Tax Credits could provide large tax cuts (as a percentage of income) to families at the bottom of the income scale, lessening the overall regressivity of state and local tax systems.

The size and cost of credits needed to cut child poverty by half vary by city but are substantially lower when a city is located in a state with a robust Child Tax Credit, such as Minnesota and Colorado. Even where state policies fall short, local governments can still act on their own to create local credits and meaningfully reduce poverty. Cities have long been early adopters of policies that advance equity and broad-based economic security, including stronger minimum wage ordinances, paid sick leave programs, guaranteed income pilots, and universal preschool. Cities should also consider local Child Tax Credits as a powerful policy tool that not only benefits individual households and local economies, but can also inspire broader state and federal action.