The tax credit for children has long had wide bipartisan support, reflecting its popularity with the public. There are multiple reasons for having some such government policy. We have long sought to exempt the basic cost of living from the income tax, and that cost rises with the number of children in a household. Our entitlement programs do not account for their financial dependence on parental investments in children. Many Americans also worry about our below-replacement birth rates, and average family sizes are lower than surveys consistently find that American women want.
When he was president, Donald Trump signed the Tax Cuts and Jobs Act, which doubled the child tax credit to $2,000 per eligible child. His running mate, Senator J. D. Vance (R., Ohio), has spoken of making it $5,000. Kamala Harris proposes a credit of $6,000 for newborns, $3,600 for children aged one to six, and $3,000 for children older than that. Our friends at the Wall Street Journal are not wrong to detect a “bidding war” in this campaign — or to see some dangers in it, both to the federal budget and to households’ incentives to work.
But an increase in the credit is overdue. It has steadily lost value to inflation since the tax reform of 2017. That tax reform itself was more modest than is often remembered, since the expansion of the credit was partially offset by the elimination of the dependent tax exemption. In inflation-adjusted terms, parents receive less tax relief than they did even before that reform.
The Journal’s valid concerns can be answered even as the credit is expanded — and held harmless against future inflation. Democratic proposals would allow households to claim the credit without having to work. They should to that extent be resisted. Capping the credit at a household’s total tax liability (including both direct and indirect payroll taxes) would protect work incentives. And the credit should be expanded alongside budget and tax reforms that reduce future deficits. That should mean slowdowns in the growth of entitlements, above all; but also further reductions in the deductions for mortgage interest and for state and local tax payments; an end to the deduction for commercial child care; and similar changes.
Many of the details can wait until 2025. It is enough for now to set the broad strokes of policy. To wit: Parents should receive tax relief in a way that rewards work and promotes fiscal responsibility.