AEI Tax Brief: Child tax credit options

AEI Tax Briefs bring clear and balanced insights from open source models to policymakers, journalists, students and the general public. Tax reform is inherently quantitative. Policy makers must consider revenue, distribution, growth, deadweight loss, and more. In this AEI Tax Brief, Alex Brill explores the child tax credit, by the numbers.

1. Current policy
Under current law, a taxpayer can claim a Child Tax Credit (CTC) of up to $1,000 for each qualified child under 17 years of age. The credit amount is dependent on the tax unit’s modified adjusted gross income. If the CTC is greater than the amount of taxes owed, taxpayers may be eligible for the partially refundable Additional Child Tax Credit.

2. Reform options
I use the open source Tax-Calculator to simulate the effect of changes to the CTC. I simulate increasing the CTC to $1,500, decreasing the CTC to $500, and eliminating the CTC.

Tax briefs child tax credit chart


  • Under current law, we expect 22.9 million taxpayers to claim the CTC in 2017.
  • The number of tax units claiming the CTC increases by 3 percent when the credit is increased to $1,500. When the CTC is reduced to $500, the number of tax units claiming it decreases by 4 percent.
  • Increasing the CTC to $1,500 is base-narrowing, increases the number of tax units paying no income tax by 2 percent. When the CTC is decreased to $500, the number of tax units paying no income tax decreases by 2 percent. If repealed, the number of tax units paying no income tax decreases by 5 percent.
  • When the CTC is increased to $1,500, 30.1 million people receive tax cuts. When the CTC is decreased to $500, 32.1 million people receive a tax increase.
  • Increasing the CTC by $500 to $1,500 costs $263.3 billion over ten years, while decreasing the CTC to $500 will save $282.4 billion.

4. Modeling notes
4.1 Tax calculator
Tax-Calculator is an open source microsimulation tax model that computes federal individual income taxes and Federal Insurance Contribution Act (FICA) taxes for a sample of tax filing units for years beginning with 2013. The model can be used to simulate changes to federal tax policy to conduct revenue scoring, distributional impacts, and reform analysis. As an open source model, Tax-Calculator is under constant development and improvement. Therefore, the results reported in this paper will change as imporvements are made. The model relies on data from the 2009 IRS Public Use File (PUF). These results were generated using of Tax-Calculator Version 0.8.3.

4.2 Modeling assumptions
The simulation is a partial equalibrium analysis that uses an elasticity of taxable income of 0.4. The baseline is adjusted by changing the CTC cap.

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