States advance child tax credits as Congress deliberates

States take a new look at a tax break that lifted millions out of poverty.
Montana Gov. Greg Gianforte (R) has proposed offering up to $1,200 in tax credits for children under 6. (AP Photo/Phelan M. Ebenhack)

Lawmakers in Connecticut, New York and several other states want to expand tax breaks for families with children next year, inspired by a 2021 federal tax credit that dramatically reduced child poverty. 

Congress is unlikely to make the enhanced federal Child Tax Credit permanent, so legislators say their states should step in. 

“I think the proof of concept is pretty obvious at this point,” said New York Sen. Andrew Gounardes (D). “And reflecting on all of that, and then just recognizing the reality that Congress would probably not act to renew it — I thought, why can’t we do something here, within the state?”

Gounardes and other child tax credit supporters say state credits also can lift children out of poverty. But such proposals can be expensive, which may give some lawmakers pause given the risk of a recession and reduced tax collections next year. 

The proposals are also up against competing ideas for helping state residents. Connecticut Rep. Holly Cheeseman (R), a ranking member of the Finance, Revenue and Bonding Committee, noted during a meeting on child tax credits Monday that only about a third of Connecticut households have children. 

“I’m hearing constantly from particularly seniors on fixed incomes and others who are looking for similar help,” she said.

Congress authorized a temporary expansion of the federal tax credit under the American Rescue Plan Act. The federal credit increased from $2,000 per child to $3,000 per child aged 6 to 17 and to $3,600 per child under 6. The poorest families, who don’t owe income tax, could qualify for the first time. And half the money was paid early, in monthly installments. 

The temporary expansion to the credit cut child poverty almost in half in 2021, to about 5%, the lowest level on record, according to the U.S. Census Bureau. 

Researchers have found that families used the money to pay down debt and buy food and other necessities, according to the Center on Poverty and Social Policy at Columbia University. Studies also have shown that receiving the cash did not inspire parents to quit their jobs. 

Democratic lawmakers in New York and Connecticut are pointing to those findings as they push to expand child tax credits in their states next year. Massachusetts Gov-elect Maura Healey (D) campaigned on expanding child tax credits, as did Arizona Gov-elect Katie Hobbs (D).

Republicans are backing child tax credits too as they seek to make family life more affordable. Montana Gov. Greg Gianforte (R) has proposed making families eligible for a $1,200 credit per child under age 6, for instance.

Ten states — including Connecticut and New York — offered child tax credits in 2022, according to the Institute on Taxation and Economic Policy, a Washington, D.C.-based think tank that advocates for equitable tax policies. The maximum credits ranged from about $100 per child in Oklahoma to $1,000 per child in Vermont.

Most states target the credits at low and middle-income families, according to ITEP. Some states only offer credits to families with children under age 6. Oklahoma, Maine and Idaho only offer credits to families who owe income taxes. 

Supporters of state credits say even small amounts can have an impact.

“Every little bit helps,” said Emily Byrne, executive director of Connecticut Voices for Children, a think tank advocating for child tax credits in the state. “And we are trying to figure out ways where we can build and then weave together a series of policies that can create true affordability for families in the state.”

Connecticut Gov. Ned Lamont (D) approved a one-time, $250 per child tax rebate for low- and middle-income families earlier this year. Bryne’s group and other anti-poverty advocates are now encouraging lawmakers there to create a permanent credit of as much as $600 per child.

Gounardes, who chairs the New York Senate’s Budget and Revenue committee, has proposed expanding and combining New York’s child tax credit and earned income tax credit. Under his plan, the two tax breaks would become one $1,500 credit and more families would become eligible, including those that earn too little to owe income taxes.   

The cost of the new, combined credit would be about $4 billion, double what New York is spending on the two credits now, Gounardes said. He said a family with 1-3 children would see an increased tax credit of about $1,000 under his plan. 

Convincing his colleagues to increase the funding may not be easy. New York will likely have a $2.3 billion surplus for its fiscal 23, which ends March 31, Gov. Kathy Hochul’s (D) administration said in August. But the state faces budget gaps in fiscal 24 and beyond due to the sluggish stock market and slowing economy. 

Gounardes and his co-sponsors say tax breaks for families with children could save the state money over time, by reducing the need for food and housing assistance and other services. 

“We can actually save a lot of money in the long run,” he said. “That’s the argument we’re going to be making moving forward.”