As both presidential nominees work to garner support among American families, the expansion of the popular child tax credit (CTC) has become a key issue in the election since the temporary increase of the tax credit in 2021 was shown to improve childhood poverty.
An expansion will have widespread impacts, as it would increase the spendable income for families and likely be included with legislation that would provide tax breaks and costs for businesses.
The pandemic-era policy temporarily raised the tax credit from $2,000 to $3,600 for children under six years of age and $3,000 for children under 18. The payments reduced the monthly rates of childhood poverty by close to 30%, according to Columbia University’s Center on Poverty and Social Policy. The policy reverted to previous levels in the 2022 tax year and is scheduled to drop to $1,000 in 2025.
Both former President Donald Trump and Vice President Kamala Harris are in favor of expanding the child tax credit, though their proposals differ.
The Republican Plan for the Child Tax Credit
The 2017 Tax Cuts and Jobs Act, enacted by the Trump administration, raised the credit from $1,000 to $2,000 and Trump has expressed intent to “consider a significant expansion of the child tax credit.”
While Trump has not elaborated on specifics for an expansion, his running mate Ohio Sen. J.D. Vance said increasing the credit to $5,000 per child would be ideal, if viable. Vance said he would like to see the CTC expanded to all families, regardless of income. Additionally, Trump is hopeful that his proposed tariffs would bring in enough money to cover rising child care costs.
“Those numbers, compared to the type of numbers I’m talking about by taxing foreign nations at levels that they’re not used to, but they’ll get used to very quickly,” Trump said earlier this month at the Economic Club of New York. “We’re going to be taking in trillions of dollars and as much as child care is talked about as being expensive, it’s relatively speaking not very expensive compared to the kinds of numbers we’ll be taking in.”
The Democratic Plan for the Child Tax Credit
Harris plans to extend the child tax credit to $6,000 for newborns, $3,600 for children ages one to five and $3,000 for children five and older. No income threshold has been specified in her plan for the CTC.
“We know young families need support to raise their children,” Harris said during the Sept. 10 presidential debate. “And I intend on extending a tax cut for those families of $6,000, which is the largest child tax credit that we have given in a long time. So that those young families can afford to buy a crib, buy a car seat, buy clothes for their children.”
Potential Impact of Child Tax Credit Expansion
The tentative Republican goal to boost the CTC to $5,000 for all families could cost between $2 trillion to $3 trillion over the next ten years, according to the nonpartisan Committee for a Responsible Federal Budget. The Democratic proposal is estimated to cost around $1.2 trillion over the next decade, according to Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget.
An increase in the credit could prove to make a crucial difference in the welfare of low-income families.
When the credit amount was initially increased as part of the 2021 American Rescue Plan Act, half of the credit was paid to families on a monthly basis in advance of filing their tax return. This especially helped those families living paycheck to paycheck.
Cherry Bekaert’s tax professionals can help you understand, and prepare for, potential tax credit changes and how they may impact your family. Our team is experienced in guiding clients through ever-changing tax guidelines and helping you grow forward.
Disclaimer:
The content focuses on the candidate’s tax proposal plans and is intended to provide general information about the potential tax legislation that may be implemented by the future government. The information provided in this content piece is not intended to serve as legal or tax advice and should not be relied upon as such. The prospective potential legislation mentioned in this content piece is subject to change, and there is no guarantee that any proposed legislation will be enacted into law. Any action taken based on the information provided in this content piece is at their own risk, and Cherry Bekaert shall not be held liable for any such action taken.
