Just Taxes Blog by ITEP

States Can Halve Child Poverty with Child Tax Credits

States Can Halve Child Poverty with Child Tax Credits

November 16, 2022

Aidan Davis
Aidan Davis
State Policy Director

State policymakers have the tools they need to drastically reduce child poverty within their borders. A new ITEP report, coauthored with Columbia University’s Center on Poverty and Social Policy, explores state Child Tax Credit (CTC) options that would reduce child poverty by up to 50 percent.

Temporary expansion of the federal CTC in 2021 reduced child poverty and material hardship, lifting more than 2 million children from poverty. That unequivocal success has many lawmakers pushing to reinstate the federal credit expansion for 2022 and beyond. But state lawmakers need not wait for Congressional action to implement and expand their own state CTCs. They can, and should, take immediate steps to ensure that more families have the resources they need to meet their basic needs and move toward economic security.

Most families with children are eligible for the federal CTC, but the 2021 expansion was strategically targeted to have the largest impact for those families toward the lower end of the income scale who have historically been excluded from much of the credit’s benefits, and who have been left behind by an economy that does not work for them. “Full refundability,” which grants access to the full credit for eligible recipients even if they have little or no income, was a key feature of the federal expansion and is an essential component of successful state CTCs as well. Fully refundable CTCs boost the after-tax incomes and economic security of families of all races and are particularly important for Black, Hispanic, Indigenous, and other people of color confronting the economic hardships created by systemic racism.

Our new report provides options and best practices—including full refundability—for state CTCs that would dramatically reduce child poverty and counteract the regressive nature of nearly all state and local tax systems. Heading into 2023 state legislative sessions, 10 states already have some form of a Child Tax Credit on the books and many others are considering one. The momentum toward state CTCs is evident, as is the poverty-fighting potential of these credits.

The report provides state-by-state data on each credit option, including the size of the credit needed in each state to achieve 50 percent and 25 percent drops in child poverty, the overall cost of such credits, the number of beneficiaries, the number of children lifted out of poverty, the impacts of each policy across the income distribution and the anti-poverty effects associated with credits of varying amounts. For more information on CTC options in your state, visit the accompanying state pages.

The amounts that states would need to invest to achieve meaningful poverty reduction vary by state and depend on how high up the income scale the credit would be made available. The options presented in this report are bold and come with a budgetary cost, but states have no shortage of options for funding these credits in an equitable way.

The benefits of robust, refundable Child Tax Credits are immense: greater economic security for families, healthier children, lessened racial inequities and a sharp departure from the “upside-down” way in which most state and local tax systems ask more of low- and middle-income families than the wealthy. All these things are within reach for states willing to pursue a more positive vision for their future.

This report was conducted by the Institute on Taxation and Economic Policy and the Center on Poverty and Social Policy at Columbia University on behalf of Share Our Strength.