The Potential Long-Run Impact of a Permanently Expanded Child Tax Credit

Abstract

Inclusion of the expanded Child Tax Credit (CTC) in the 2021 American Rescue Plan was, for many, a feasibility test of the impact of a permanent child allowance in the U.S. The CTC expansion was short-lived, however, so evaluations of its effects cannot provide complete evidence on the long-run impacts of a permanent expansion of the benefit. Here, we predict the long-term effects of a permanently expanded, refundable CTC. We use theory from standard economic models, frameworks from behavioral science and child development, and empirical evidence from literature that has evaluated previous long-term cash and quasi-cash transfers to families with children. We find that provision of the benefit would lead to increased future adult earnings and tax payments; improved child health and longevity; and reduced costs in health care, crime, and child protection. We predict that benefits to society would outweigh costs nearly 10 to 1, with most benefits due to the tax credit’s refundability.