It was one solid social victory amid the communal disintegration of the COVID-19 pandemic: With the congressional passage of the 2021 American Rescue Plan Act, an estimated 3.7 million U.S. children were lifted out of poverty when the maximum federal child tax credit was raised -- and, more importantly, when it was made "fully refundable."
That meant that -- for the first time -- this federal tax credit was available to all children and families, even with low or no earnings.
Previously, an estimated 27 million children -- approximately one in three nationwide -- received less than the full federal child tax credit because of minimal family incomes. Unsurprisingly, those millions were disproportionately represented by minority groups.
For children under 6, the credit in 2021 was raised to $3,600 from $2,000; for children ages 6-17, it was $3,000. There was no cap on the total credit amount a tax filer with multiple children could claim -- and if credit exceeded taxes owed, families could receive a tax refund.
And then, despite the obvious and measurable impact upon child poverty -- estimated by Columbia University Center on Poverty and Social Policy to have been lowered to 5.2% -- the brief experiment of increased federal child tax credits expired.
After 2025, the federal tax credit is scheduled to drop to just $1,000 per qualifying child.
Parents could easily be forgiven for feeling that all of this is moving in the wrong direction -- especially given current economic pressures.
So could state child tax credits be an additional lifeline for cash-strapped families?
The answer is, it depends upon where you live.
State child tax credits are -- according to the National Conference of State Legislatures -- available in 16 states and the District of Columbia.
"After the 2017 tax changes, we saw a few states convert exemptions into nonrefundable child tax credits; after 2021, we saw more states introducing fully refundable child tax credits at the state level," said Josh McCabe, director of Social Policy at the Niskanen Center in Washington.
"I think with 2025, there's a lot of talk about the child tax credits at the federal level -- and we're seeing more, particularly red states, decide that they don't have to do the 2021 route," McCabe added, "but they're finding their own way to different sorts of child tax credit proposals."
Some examples, McCabe said, include more politically conservative "red states."
In Ohio, Gov. Mike DeWine has spearheaded one; in Michigan, some Republicans have spearheaded one that builds off the federal one; and in Indiana, there's a baby bonus or newborn credit that has just passed the senate unanimously there.
Also, McCabe continued, "in Montana, there is a tax credit for young children that didn't make it last time around because it got caught up in some child care issues -- but it's been reintroduced by the same sponsor and you've got the same governor. So I'm bullish that this time around, they'll find a way forward with that one."
A Niskanen report co-written by McCabe in October 2024 notes, "For families with no earnings, total benefits from social assistance and refundable tax credits ranged from $12,288 in New Mexico to $18,661 in California for a single parent with one child and $20,832 to $29,737 for married parents with two children."
Nonetheless, the report observed, "These incomes put them between about 2/3 (two-thirds) and just short of the federal poverty threshold in 2023."
Megan Curran -- policy director at Columbia University's Center on Poverty and Social Policy, in New York City -- also noted mixed progress.
"There's been a lot of growth in state-level child tax credits, since the 2021 federal expansion. Coming into the pandemic, you only had a couple of states that had state child tax credits," she explained. "And you have actually proposals for some in another, perhaps 10 states, at the moment. Some are closer to the finish line than others -- but taken all together, that's actually about half the states in the country that would either have new credits, or proposals to try to have one."
"That's a huge policy shift," Curran indicated. "Really an area to watch."
Curran's enthusiasm, however, came with a caution.
"I think one of the most important things to look at when you see new state credits being proposed is to try and understand: Is the policy design of the state level credits sort of replicating the problems and the shortcomings that the federal credit currently is?" said Curran. "The kids who were left out from the federal CTC -- are they going to be left out again at the state levels, and be doubly disadvantaged?"
"Or," Curran said, "are the states actually trying to intentionally say, 'We're going to try and fill this gap with our credit?'"
State child tax credits, Curran noted, "may not be as generous or as big as a federal one because states have different budget capacities. But are they structuring them in a way where they're going to say, 'Actually, no, we're making sure it's going to reach kids with low to moderate incomes; we're going to make sure that there's at least some sort of form of support.'"
Child tax credits not only aid struggling families; there are also indications that -- when a life hangs in the balance -- they are a pro-life asset.
"Creating or expanding a child tax credit is one of the most pro-family things a state government can do," said Patrick T. Brown, a fellow at the Washington-based Ethics and Public Policy Center. "It recognizes the added expenses that parents face, and celebrates the importance of family life by devoting real resources to helping parents afford the cost of living."
Abortion in the U.S. is heavily correlated with poverty and low incomes. The abortion research firm Guttmacher Institute reported 75% of women seeking abortion were low-income, with 50% below the federal poverty line. About six out of 10 women seeking abortion were already mothers. The top concerns reported included not being able to afford another child, losing the ability to work or continue education, or having to care for dependents or other family responsibilities.
In an article for Public Discourse, demographer and Institute for Family Studies research fellow Lyman Stone predicted the U.S. could reduce the abortion rate by 5% -- potentially saving 50,000 babies a year -- if it provided direct cash transfers to parents, by spending an additional $3,500 annually on top of the child tax credit per child. He pointed to a similar initiative in spending, where direct cash support to parents reduced the abortion ratio in Spain.
"Seeing states like Indiana, which has extremely robust legal protections for the unborn, contemplate creating a state-level newborn child credit is a genuinely hopeful sign that more states will support parents in this important way," Brown said.
McCabe agreed.
"There is some evidence that supports for new parents -- if someone is thinking about abortion or something else -- this can tilt the scales toward having the child. It's not going to revolutionize things," he said, "but on the margin, we know it does have an impact."
