The Child Tax Credit Is a Failed Experiment

Scott Hodge:

Since the child tax credit was enacted in 1997, it has become one of the largest federal income transfer programs. It is one of the leading reasons that more than 40% of all filers pay no income tax. The beleaguered Internal Revenue Service isn’t the right agency to play such a big role in addressing poverty.

The child tax credit made its debut in my February 1993 Heritage Foundation paper titled “Putting Families First: A Deficit Reduction and Tax Relief Strategy.” The strategy called for a cap on the growth of federal spending, which would not only reduce the deficit but also fund pro-growth and pro-family tax relief. The pro-growth elements were faster expensing for capital purchases and a reduction in the tax rate on capital gains. 

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The pro-family component was a $500-a-child tax credit. The tax code wasn’t sheltering as much income of families with children as it did during the 1950s, and the credit was a simple way of remedying that problem. A credit reduces a family’s tax bill dollar for dollar, while a deduction does so indirectly by reducing taxable income.