New Analysis Finds Expanded Child Tax Credit Reduces Work and Growth

Vanessa Brown CalderNew analysis produced by the Joint Committee on Taxation (JCT) finds that extending the American Rescue Plan ’s (ARP) Child Tax Credit (CTC) expansion would result in costly economic consequences.Last year ’s CTCexpansion increased the credit up to $3,600 per qualifying child (from $2,000), including a bonus for children under six years old. The expansion also eliminated the income (read: work) requirement and allowed the full value of the credit to be refunded. This ensures that the tax “credit” functions more like a welfare program administered through the tax code.Combining two different macroeconomic models, the Joint Committee on Taxation (JCT)estimates the effect of extending the CTC expansion and finds a number of negative effects. The proposal is estimated to both discourage labor supply and capital investment. Because it changes the incentives for labor supply and capital, and these changes are larger than the effects on household consumption, JCT finds GDP declines by 0.1-0.3 percent.An important caveat with macroeconomic models like the ones used by JCT is that economic outcomes of the model rest heavily on their assumptions. For instance, with lower labor supply elasticities, the effects would be muted. However, the negative effects that the JCT model finds seem, at minimum, directionallysound.This is not the first study of the CTC expansion to find costly consequences for workers. A2021 study by Kevin Corinth and Bruce Meyer et al esti...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs