1 in 3 children in working families would either be excluded entirely or only partially benefit from the CTC increase.The House Republican tax bill would increase the maximum Child Tax Credit (CTC) from the current $1,000 to $1,600 per child, but only some families would benefit. Republicans have highlighted this proposal as their plan’s signature benefit for working families, but it would completely exclude 10 million children whose parents work for low pay — about 1 in 7 of all U.S. children in working families, including thousands of children in every state. Another 12 million children in working families would receive less than the full $600-per-child increase in the credit (in most cases, much less). Altogether, about 1 in 3 children in working families would either be excluded entirely or only partially benefit from the CTC increase.[1]

The House Republicans’ proposal would partially or entirely exclude more than 25 percent of children in working families in almost every state. In 12 states, at least 40 percent of these children would be excluded: Alabama, Arizona, Arkansas, Florida, Georgia, Louisiana, Mississippi, Nevada, New Mexico, South Carolina, Tennessee, and Texas.

House Republicans’ decision to partially or entirely exclude these 23 million children from their proposed CTC expansion is especially striking because they also chose to newly extend the CTC (in whole or in part) to families with higher incomes. Married couples with two children with incomes between $150,000 and $294,000 would become newly eligible for the credit.

The House bill would also cut or eliminate the CTC for roughly 1 million immigrant children in low-income families, most of them Dreamers, creating further economic hardship for this group of families. (See text box.)

Even as the House tax plan excludes millions of children from the CTC expansion, it provides large new tax cuts for the wealthiest families and profitable corporations while increasing deficits by $1.5 trillion over the next decade. Congressional Republicans are likely to use rising deficits as an excuse to come back as soon as next year and seek large budget cuts in areas such as Medicaid, food assistance for struggling families, and education. These cuts will be borne heavily by the same families that receive no or only modest benefits from the tax bill, leaving them worse off when the tax cuts and subsequent budget cuts are considered together.

The CTC Proposal in the House Tax Bill

The CTC now provides a maximum tax credit of $1,000 per eligible child under age 17. The credit is “partially refundable,” meaning that it is partly, but not entirely, available to many low-income families. Specifically, the refundable portion of the CTC is limited to 15 percent of a family’s earnings over $3,000. Thus, a single mother with two children and earnings of $10,000 is eligible for a CTC of $1,050, or $525 per child, rather than for the $2,000 ($1,000 per child) that a middle-income family with two children receives. Because of the credit’s slow phase-in for working families with low incomes, families with two children do not receive the full credit of $1,000 per child until their earnings reach $16,333. The poorest children consequently qualify for only a very small CTC or none at all.

The House tax plan proposes to increase the maximum CTC to $1,600 per child. But it would not increase the refundability of the existing credit, which would still be limited to 15 percent of earnings over $3,000. Moreover, as explained below, the House bill limits low-income families’ access to its CTC increase, capping the amount of the credit that is refundable at $1,100 next year, indexed for inflation going forward. The maximum refundable amount would not reach $1,600 until around 2036.

While doing nothing to strengthen the CTC for the lowest-income working families, the plan calls for increasing the income levels at which the CTC begins to phase out for higher-income families, thereby making more families with six-figure incomes eligible for the credit.

Millions of Low-Income Working Families Would Be Left Out

To see how the House bill’s CTC expansion would fully or partially exclude children in low-income working families, consider two examples.

A single mother with two children working full time as a home health aide at the federal minimum wage earns $14,500. Based on her earnings, her total refundable credit is capped at $1,725, less than the current-law $1,000-per-child credit. Thus, she would receive no benefit from the higher maximum credit under the House proposal.

A married couple with two children earns $24,000. Based on their earnings, this couple could qualify for a total refundable credit of $3,150, so it would seem they could receive almost the full benefit of the House bill’s $600-per-child CTC increase. But because the bill would cap refundability at $1,100 per child, indexed for inflation, the family would benefit by only $100 per child ($200 total) next year. This is because their income tax liability before the CTC is not large enough to qualify them for a bigger credit.

We estimate that 10 million children in low-income working families (about 1 in 7 of all U.S. children in working families) would be entirely excluded from the CTC increase, with situations similar to the first example above.[2] Another 12 million children would benefit by less than the full $600 increase in the credit; the majority of these children are in families that would benefit by less than $200 per child in 2018.[3] In total, 23 million children — or about 1 in 3 children in working families — would be partially or fully excluded from the CTC increase. This includes:

6.0 million children in working-poor families, 1.2 million of whom live in deep poverty (i.e., below half the poverty line);

8.4 million children under age 6; and

8.5 million Latino children, 7.8 million white children, 4.5 million African American children, and 600,000 Asian children.

(See Table 1. For detailed methodology and state-by-state estimates of children who would be excluded, see the Appendix.)

TABLE 1 Children in Working Families Fully or Partially Left Out of CTC Increase in House Tax Bill Due to Low Income Fully excluded (millions) Partially excluded (millions) Fully or partially excluded (millions) Latino 3.7 4.8 8.5 White (non-Latino) 3.3 4.4 7.8 African American (non-Latino) 2.3 2.2 4.5 Asian (non-Latino) 0.2 0.4 0.6 Other 0.7 0.6 1.3 Total 10.3 12.5 22.7 Including Under age 6 3.9 4.6 8.4 In poverty 3.8 2.2 6.0 In deep poverty (below half the poverty line) 1.1 0.2 1.2

The average income of working families with children that would be partially or entirely left out of the CTC increase is $22,000. Among these working families, two-thirds include at least one parent who works full time for most of the year.[4] The parents in these families work in a range of occupations, many of which pay low or modest wages (see Table 2).

TABLE 2 Top Occupations of Working Parents Fully or Partially Left Out of CTC Proposal in House Tax Bill Due to Low Income Number of working parents Sales 1,279,000 Office and administrative support 1,247,000 Food preparation and serving 1,130,000 Building and grounds cleaning and maintenance 1,058,000 Construction and extraction 1,002,000 Transportation and material moving 980,000 Manufacturing 885,000 Personal care and service 866,000 Health care support 630,000

Large Share of Children in Every State Would Be Excluded

In almost every state, at least 1 in 10 children in working families would be completely excluded from the House bill’s CTC increase (see Appendix Table 1). And in almost every state, at least 1 in 4 children in working families would either be excluded or receive less than the full increase.

But in many states, generally higher-poverty, lower-wage states, a much larger share of children would be left out. In 12 states, at least 40 percent of children in working families would receive less than the House bill’s touted $600-per-child CTC increase: Alabama, Arizona, Arkansas, Florida, Georgia, Louisiana, Mississippi, Nevada, New Mexico, South Carolina, Tennessee, and Texas.

Children Left Out Are Those Who Would Benefit the Most

The children who would be fully or partially excluded from the proposed CTC changes are those whose families experience the greatest financial hardship, and those for whom additional help would likely make the most difference in helping make ends meet and creating a more stable environment for children. They are also those for whom, extensive research indicates, a CTC boost could make the most difference over the long run.

Research indicates that income from the Earned Income Tax Credit (EITC) [5] and the CTC yields benefits for many children at virtually every stage of life . [6] Starting from infancy — when larger refundable tax credits have been linked with more prenatal care, less maternal stress, and signs of better infant health — children who benefit from tax-credit expansions have been found to do better than similar children who don’t benefit. They have higher odds of finishing high school and therefore going on to college, and the added income from the credits has been linked to significant increases in college attendance by making college more affordable for families with high-school seniors. Researchers note that the education and skill gains associated with the EITC and CTC are likely to keep paying off through higher earnings and employment in adulthood.

. Starting from infancy — when larger refundable tax credits have been linked with more prenatal care, less maternal stress, and signs of better infant health — children who benefit from tax-credit expansions have been found to do better than similar children who don’t benefit. They have higher odds of finishing high school and therefore going on to college, and the added income from the credits has been linked to significant increases in college attendance by making college more affordable for families with high-school seniors. Researchers note that the education and skill gains associated with the EITC and CTC are likely to keep paying off through higher earnings and employment in adulthood. Research also shows that income gains from sources that include tax credits matter the most for the poorest children. “[T]here is very strong evidence that increases in income have a bigger impact on outcomes for those at the lower end of the income distribution,” a systematic review of the research literature on the effects of income during childhood, conducted by researchers at the London School of Economics and Political Science, concluded. All 13 of the relevant studies the researchers examined supported this finding.[7] One study found, for example, that the EITC’s effect in increasing children’s math and reading test scores was almost three times larger for the lowest quartile of its sample than for other low- and moderate-income families.[8] These findings are consistent with the view of many experts that the adverse effects of poverty on children are most pronounced for children who live below half of the poverty line.[9]

Many Families With Six-Figure Incomes Would Be Made Newly Eligible for the Credit or Receive the Largest CTC Increases

While the lowest-income working families would get nothing from the CTC proposal in the House tax bill, those who earn substantial salaries would qualify for the maximum CTC boost (see Figure 1). Of particular note, the proposal would increase the income level at which the CTC begins to phase out, making more filers with six-figure incomes eligible for the credit. For example:

Married couples with two children and incomes between $150,000 and $294,000 would become newly eligible for a CTC. (Currently, the CTC phases out at $150,000 for married filers with two children.)

Married couples with two children and incomes between $115,000 and $230,000 would become newly eligible for the maximum CTC. A married couple with two children earning $200,000 would receive a $3,200 CTC increase; its CTC would rise from zero today to $3,200 under the plan.

Rubio-Lee Proposal Would Help But Still Fall Short

Republican Senator Marco Rubio rightly criticized the House bill for doing too little to help low-income working families.[10] A proposal from Senator Rubio and Senator Mike Lee, also endorsed by a number of other Republican senators, would modestly increase the amount of the CTC that would be refundable, in addition to providing a substantial increase in the maximum credit.[11] The proposal thus would provide some increase in the CTC to the poorest working families. Even so, those families still would receive only a fraction of the proposed increase in the maximum per-child credit and much smaller increases than those families higher up the income scale.

The Rubio-Lee proposal would change the refundable amount of the CTC to 15.3 percent of a family’s total earnings — that is, it would start phasing in with the first dollar of earnings — instead of the credit equaling 15 percent of earnings over $3,000, as at present. The impact of these changes would be positive but modest. For example, if the Rubio-Lee refundability proposal were added to the House Republican bill, a single parent with two children working full time at the federal minimum wage, earning $14,500 annually, would receive a CTC increase of $494, rather than zero as under the House bill. But this would be only a quarter of the $2,000 CTC increase that two-child families at higher income levels would receive under the Rubio-Lee CTC design.

CTC reforms could be designed to strengthen the credit for lower-income families. The current CTC could be made fully refundable so families with very low or no earnings could receive the full CTC. A more modest improvement would begin phasing in the credit with the first dollar of earnings, as the Rubio-Lee proposal would do, and raise the phase-in rate significantly above 15 percent, at least for families with a young child, so that working-poor families would receive a more adequate CTC. The amount of the maximum CTC could also be increased further, especially for young children. Children under 6 tend to be poorer than other children, and the research literature is particularly clear that young children would benefit significantly from the additional income that such CTC improvements could provide. These and other CTC improvements are included in bills introduced by Rep. Rosa DeLauro, Senators Sherrod Brown and Michael Bennet, and other lawmakers.[12]

CTC Changes Can’t Overcome House Bill’s Larger Problems

Improvements like these would substantially improve the CTC proposal in the House tax bill. But they would not alter the two overriding shortcomings in the overall plan: its heavy tilt toward the highest-income households and profitable corporations, and its impact in substantially increasing budget deficits and debt. Rising deficits in turn would lead to increased pressure to make deep budget cuts in areas such as health care, food assistance for struggling families, and education — cuts that would fall heavily on low- and middle-income families and render them net losers, even if the plan’s CTC provisions are strengthened.

Overall, the House tax bill is heavily skewed toward high-income households and profitable corporations. When fully in effect, 38 percent of its benefits would go to the 0.3 percent of filers with annual incomes over $1 million, Joint Tax Committee estimates show.[13] Even a substantially improved CTC would only modestly mitigate this extreme tilt.

Tax Bill’s Child Tax Credit Change Would Hurt About 1 Million Children In addition to largely excluding millions of children from its CTC increase, the House tax bill would harm roughly 1 million low-income children in working families by denying them the Child Tax Credit (CTC) because they lack a Social Security Number (SSN). People who work in the United States must pay taxes on their income, regardless of their immigration status. Immigrant workers lacking an SSN file their income tax return using an ITIN. ITIN filers are generally subject to the same tax rules as other filers and are eligible for the same tax benefits, such as the CTC (including the “refundable” part that goes to those who earn too little to owe federal income tax). The House bill, however, would allow filers to claim the CTC (both the refundable and non-refundable portions) only for children who have an SSN rather than an ITIN. Proponents describe this CTC change as an “anti-abuse” measure. It isn’t: it’s a major eligibility cut for working families who are doing nothing wrong by claiming the credit. Roughly 1 million children, most of them in low-income working families, would lose eligibility for the CTC, Pew Hispanic Center estimates suggest. These children are overwhelmingly Dreamers — undocumented children who were brought to the United States by their immigrant parents. Their parents use the credit to help feed their families, keep a roof over their heads, and offset income taxes; and it goes only to working families, including many in which the parents work in tough jobs that often lack basic protections that most other workers take for granted. Many of these individuals pick crops, clean houses and offices, or care for other Americans’ children or grandparents. The children who would lose the tax credit will continue to be part of our communities and the economy as adults. All Americans thus have a stake in ensuring that these children get the resources they need to become productive workers. Taking the CTC’s income away from poor children would not only increase poverty and hardship immediately, but would also make it less likely that these children will finish high school and go on to college, recent research indicates.a The CTC changes thus could increase poverty both today and in the future. The IRS is already acting to prevent error and fraud concerning ITINs and the CTC, and Congress took action as well. But the CTC provision in the House bill isn’t designed to strengthen tax compliance. It’s an attempt to deny the credit to 1 million children in immigrant families. a Arloc Sherman and Tazra Mitchell, “Economic Security Programs Help Low-Income Children Succeed Over Long Term, Many Studies Find,” Center on Budget and Policy Priorities, July 17, 2017, https://www.cbpp.org/research/poverty-and-inequality/economic-security-programs-help-low-income-children-succeed-over.

Congressional leaders and the Trump Administration have made clear their plans to seek large budget cuts after the tax bill is completed. Congressional leaders have pointed to existing budget deficits — even before any new tax cuts are enacted — to justify proposed steep cuts in basic assistance programs on which struggling families rely to obtain health care and help make ends meet, as well as cuts in a broad set of programs important to children’s future prospects, such as education and job training. If such cuts were made to offset the cost of the tax cuts, most families with children would likely end up worse, rather than better, off. [14]

APPENDIX TABLE 1 Children Under 17 in Working Families Fully or Partially Left Out of House Child Tax Credit Proposal Due to Low Income, by State Fully Left Out Receive Only Partial Benefit Fully or Partially Left Out Number Percent Number Percent Number Percent US Total 10.3 million 16 12.5 million 20 22.7 million 36 Alabama 181,000 19 194,000 21 375,000 40 Alaska 22,000 13 20,000 12 43,000 26 Arizona 264,000 19 310,000 22 574,000 41 Arkansas 119,000 20 145,000 24 264,000 44 California 1,336,000 17 1,719,000 22 3,055,000 39 Colorado 134,000 12 203,000 18 337,000 30 Connecticut 67,000 10 88,000 13 156,000 23 Delaware 29,000 16 28,000 16 57,000 32 Dist. of Columbia 14,000 16 16,000 17 30,000 33 Florida 586,000 17 818,000 23 1,404,000 40 Georgia 422,000 20 453,000 21 874,000 41 Hawaii 31,000 11 49,000 18 81,000 29 Idaho 56,000 15 93,000 24 149,000 39 Illinois 388,000 15 483,000 18 870,000 33 Indiana 230,000 17 281,000 20 511,000 37 Iowa 86,000 13 109,000 17 195,000 30 Kansas 90,000 14 126,000 19 216,000 33 Kentucky 150,000 18 169,000 20 319,000 38 Louisiana 194,000 21 186,000 20 380,000 41 Maine 29,000 13 39,000 17 69,000 31 Maryland 129,000 11 172,000 14 302,000 25 Massachusetts 121,000 10 148,000 12 269,000 22 Michigan 325,000 17 344,000 18 669,000 35 Minnesota 134,000 12 169,000 15 303,000 26 Mississippi 133,000 22 141,000 24 275,000 46 Missouri 198,000 16 220,000 18 418,000 34 Montana 31,000 16 36,000 18 67,000 34 Nebraska 61,000 14 77,000 18 138,000 32 Nevada 98,000 17 139,000 24 238,000 41 New Hampshire 20,000 8 31,000 13 51,000 21 New Jersey 209,000 12 252,000 14 461,000 26 New Mexico 91,000 21 105,000 25 196,000 46 New York 569,000 16 664,000 18 1,233,000 34 North Carolina 355,000 18 437,000 22 792,000 40 North Dakota 17,000 11 18,000 12 36,000 23 Ohio 389,000 17 409,000 18 798,000 35 Oklahoma 142,000 17 184,000 22 326,000 39 Oregon 125,000 17 143,000 19 268,000 36 Pennsylvania 313,000 14 385,000 17 699,000 30 Rhode Island 24,000 13 32,000 17 55,000 30 South Carolina 176,000 19 197,000 21 373,000 41 South Dakota 24,000 13 34,000 18 59,000 31 Tennessee 248,000 19 269,000 21 518,000 41 Texas 1,184,000 19 1,383,000 22 2,567,000 41 Utah 99,000 12 153,000 18 252,000 30 Vermont 12,000 12 16,000 15 28,000 27 Virginia 194,000 12 257,000 16 451,000 27 Washington 179,000 13 251,000 18 430,000 30 West Virginia 57,000 18 59,000 19 116,000 37 Wisconsin 158,000 14 197,000 17 355,000 31 Wyoming 13,000 11 19,000 15 32,000 26

Technical Appendix

This analysis examines families (that is, tax filing units), children, and parents left behind by the Child Tax Credit (CTC) proposal introduced by House Republicans in November 2017.[15] We assess the CTC proposal (namely, increasing the credit’s non-refundable portion to $1,600 per child, while limiting the refundable portion to $1,000 per child adjusted annually for inflation and set at $1,100 in 2018) alone, without regard to the bill’s other tax changes.[16]

The analysis is based on data from the Tax Policy Center (TPC) and the Census Bureau. CBPP used TPC data for the nationwide number of working families and children fully left out of the CTC expansion because their earnings are too low to benefit at all from the proposal.[17] We used the Census Bureau’s March 2017 Current Population Survey (CPS) public-use file to estimate the nationwide number of working families and children partially left out of the expansion because their incomes are too low to receive the full $600-per-child benefit.[18] Family incomes (and corresponding tax liabilities) are adjusted for inflation to approximate 2018 levels.

Characteristics of children left out are estimated using the CPS-based share of children left out in each demographic group, applied to the national totals. Those fully left out and those partially left out are calculated separately.

Numbers and characteristics of working parents left out are estimated using CPS-based average numbers of parents per 100 left-out families, applied to the national family totals.[19] (Again, those fully left out and partially left out are calculated separately.)

For state-by-state figures, CBPP used public-use files from the larger American Community Survey (ACS) for 2013 through 2015. We averaged three years of ACS data to further increase the reliability of the state estimates. We used the ACS data to assign each state its estimated share of TPC’s total 10.3 million children fully left out[20] and the number of children partially left out, based on the CPS-derived totals.[21]

In the state table, totals for children in working families include children under age 17 (the age eligible for the CTC) in tax filing units in which the filer or spouse worked one or more weeks. Elsewhere in this analysis, “working” generally refers to tax units with earnings.