Just Taxes Blog by ITEP

Legislative Momentum in 2022: New and Expanded Child Tax Credits and EITCs

Legislative Momentum in 2022: New and Expanded Child Tax Credits and EITCs

July 22, 2022

Neva Butkus
Neva Butkus
State Policy Analyst

State legislatures across the country made investments in their future, centering children, families, and workers by enacting and expanding state Earned Income Tax Credits (EITCs), Child Tax Credits (CTCs), and other refundable credits this session. In total, six states either expanded or created CTCs this session: Connecticut, New Mexico, New Jersey and Vermont created new CTCs while California and New York expanded and temporarily enhanced existing credits. States also leveraged their state-level EITCs for similar wins, with eight states in total either expanding or enacting EITCs.

Some states pushed tax cuts for their wealthiest, disproportionately white residents this year. The states highlighted here, by leading the way on tax reform, showed a far more equitable path forward, one that targets assistance to families of all races and pushes back against economic and racial inequality.

Federal tax credit expansions demonstrated power of public policy

The instability felt by many low- and moderate-income households in the early stages of the pandemic prompted federal lawmakers to pass some of the most powerful anti-poverty legislation seen in decades. In particular, the expansion of the Child Tax Credit and Earned Income Tax Credit under the American Rescue Plan Act (ARPA) of 2021 dramatically decreased the number of families living in poverty. The CTC expansion alone kept 3.7 million children out of poverty in December 2021. When elected officials let those reforms expire in January 2022, child poverty surged by 41 percent.

The ARPA reforms to the Child Tax Credit included boosting the credit from $2,000 to $3,000 per child and offering an additional $600 per child under age six. The CTC was also made fully refundable and available in monthly payments, giving families the flexibility to respond to financial needs in real-time and ensuring that no family was deemed too poor to access the full credit amount. Together these reforms moved millions of workers and families above the poverty line. ARPA also enhanced the federal EITC, allowing low-wage workers under 25 or over 64 years of age without dependent children to claim the credit for the first time, and boosting the credit for other workers without children who already qualified. These enhancements have since expired.

On the ground, the real impact of the 2021 changes were documented with data and testimonials. For example, the Kentucky Center for Economic Policy collected feedback from parents and caregivers around their state who reported being less stressed about unexpected expenses and being able to afford necessities like school supplies and utility bills. Across the country, from California to South Carolina, advocates and families called for the expansions to become permanent. For families on the ground, the 3.7 million children lifted out of poverty was not an abstract number. It represented families who could now weather the unexpected expense of a flat tire, who could provide their children the appropriate supplies to get through the school year, who could keep their homes warm in the winter. Legislators in many states took note of these powerful anti-poverty tools and rather than waiting for the federal government to extend these expansions, opted to lead the way by creating and expanding EITCs and CTCs of their own.

In New Mexico, a state that persistently struggles with high child poverty rates, legislators passed a refundable child credit of $25 to $175 per child depending on household income. On the other side of the country, New Jersey developed its first CTC which will provide families whose annual income is less than $30,000 with a $500 per child credit. The credit is available to children under 6 and decreases as family income rises, with a minimum credit of $300 for households making up to $80,000 a year. More details on each of the state-level CTC enhancements can be found by scrolling over the accompanying map.

Utah passed a new nonrefundable EITC, while Connecticut, Hawaii, Illinois, Maine, New York, Virginia and Washington, D.C. enacted meaningful expansions. In Illinois, advocates loudly called for boosts to the state EITC to be a part of any tax relief plan, and it paid off. Illinois increased its EITC from 18 to 20 percent, extended the credit to workers without dependent children whose age disqualifies them for the federal credit and expanded the credit to undocumented families who file income taxes. Utah, a state with a very different political climate than Illinois, enacted its first EITC. The credit, a 15 percent match of the federal, is nonrefundable, reducing the available benefit in particular to low-income families. While refundability was a missed opportunity for policymakers in Utah, it is a victory for children and families to enact an EITC in such a conservative state.

The momentum continues

EITC and CTC negotiations continue in states with ongoing legislative sessions. The current debate in Massachusetts includes discussion of increasing the state’s EITC to 40 percent of federal (up from 30 percent). Gov. Gretchen Whitmer of Michigan has pushed for the legislature to reverse previous cuts to the state’s Earned Income Tax Credit and restore it to 20 percent of the federal amount as part of any tax package. Rhode Island passed a budget out of the House that includes a $250 Child Tax Credit similar to Connecticut’s one-time credit that now awaits Senate approval.

States also leveraged targeted credits to reduce the regressivity of property and sales taxes. For instance, legislators in Maine increased their property tax fairness credit which will provide a tax credit to households who pay more than 4 percent of their income in property taxes through their mortgage or rent, ultimately helping 100,000 low- and middle-income families. Idaho expanded the power of its circuit breaker by allowing local governments to issue property tax rebates for residents who qualify for the state circuit breaker. Other states tackled the regressivity of their sales taxes: Illinois temporarily suspended its 1 percent sales tax on groceries through June 30, 2023, and Kansas will phase out its 6.5 percent tax on groceries altogether.

The tax policy wins mentioned above demonstrate significant progress and momentum. But policymakers need not wait for record-breaking surpluses or a global pandemic to prioritize legislation that uses the tax code to reduce poverty. Equitable economies and tax codes are possible if legislators set strong visions for their states that do not cater to their wealthiest residents and instead center the needs of workers, families and communities.