Congress faces a major “tax cliff” in 2025 with the expiration of the individual components of the 2017 Tax Cuts and Jobs Act, otherwise known as the Trump tax cuts. This year’s elections will largely determine the fate of trillions of dollars in tax cuts and the course of policy for years to come. At stake are individual tax rates, the doubled standard deduction, the enlarged child tax credit, the new tax break for businesses that file as individuals, and the increased exemptions for the estate tax. The Washington Examiner is featuring a series this week on key considerations for this major tax battle. The first entry explored how the corporate tax rate is likely to turn into a major item of negotiation. This second entry reports on the showdown over the child tax credit.
Next year will feature a renewed fight over the child tax credit , one that will likely feature pro-family Republicans and Democrats sharing common ground amid a broader debate over tax policy and the expiring Trump tax cuts .
The expiration of the individual portions of the 2017 Trump tax cuts at the end of 2025 has set up a big battle over tax policy next year that will be determined by the winners of the White House, the Senate, and the House of Representatives, and that, in turn, will shape tax policy for years to come. The future of the child tax credit is one of the most significant aspects of the debate.
“The child tax credit expansion will be a top priority, definitely on the Democratic side, but hopefully a priority on the Republican side as well,” Chuck Marr, the vice president for federal tax policy at the left-leaning Center on Budget and Policy Priorities, told the Washington Examiner.
“You know, the beauty of the upcoming debate is it pretty much puts the whole tax code on the table, right?” he added.
The child tax credit began with bipartisan support in 1997 under President Bill Clinton . Those with children who met certain criteria were allowed to subtract the amount of the tax credit from their federal income taxes. Then, the credit was nonrefundable, meaning that the filer's credit could not be higher than the amount of taxes owed. They would not receive a cash reimbursement.
Under President George W. Bush, the child tax credit increased from $500 to $1,000 and was made partially refundable for certain low-income taxpayers. Over the years and under subsequent administrations, the child tax credit was subtly changed and expanded, but notably, former President Donald Trump's Tax Cuts and Jobs Act, known as the Trump tax cuts, essentially doubled it for families.
To keep the total cost of the tax overhaul down, at least on paper, Republicans wrote the law so that the child tax credit expansion and other provisions relating to households expired at the end of 2025. Now a group of legislators is seeking not only to extend the credit at its current level but also to increase it. Some Republicans and Democrats want to see refundability tweaked and to index the credit to inflation. Inflation has made the benefit less valuable as households have grappled with the price increases over the past few years.
Democrats have long favored a bigger child tax credit and temporarily got that opportunity in 2021 as part of the partisan American Rescue Plan Act. The pandemic-era legislation championed by President Joe Biden made the credit even more valuable for just a year as part of the deal.
It raised the child tax credit to $3,600 for children under 6 and $3,000 for older children. But perhaps the biggest change was the removal of an income threshold for those who receive the funds. A family with no income or head of household working would also receive the full $3,600 or $3,000 payments. The boosted tax credit sunset at the end of 2021.
Democrats would largely support bringing the credit back to that 2021 threshold, although such a big change is a no-go for Republicans in large part because of the lack of work requirements. They argue that such a change would be akin to welfare without work and might lead parents to drop out of the labor force.
“So what we see is that there has been a lot of policy interest in this, and the main axis of disagreement, I would say, [is] related to the size of the benefit for the lowest-income families,” Tara Watson, a senior fellow at the Brookings Foundation and an economist focused on social policy, told the Washington Examiner.
Right now, recipients of the credit must have an earned income of more than $2,500. That is a guardrail that is important for Republicans, but the 2021 temporary revamp backed by Democrats did away with that qualification.
Extending the child tax credit in its current iteration would cost nearly $708 billion over the next decade or so, according to economic modeling by the Tax Foundation. If the 2021 expansion were to be reenacted, it would be much more expensive — to the tune of $220 billion per year.
Another feature that Democrats want to see in an enhanced child tax credit is full refundability, according to Josh McCabe, the director of social policy at the Niskanen Center. Refundability is the ability for households with no tax liability to receive a check from the government.
“Barring a Democratic trifecta, I don't see that happening,” McCabe told the Washington Examiner.
Republicans, though, could focus on indexing the credit to inflation and upping the base size of the credit.
“There’s some Republicans who see refundability as important so far as to help working-class families, but I think the default will be to index it or increase the size of the credit, mostly for middle-class families,” McCabe said.
Particularly right now, the issue of families has a political patina to it. Trump’s running mate, Sen. J.D. Vance (R-OH), has caught a lot of flak from Democrats and some Republicans for remarks he made to then-Fox News host Tucker Carlson.
“We are effectively run in this country, via the Democrats, via our corporate oligarchs, by a bunch of childless cat ladies who are miserable at their own lives and the choices that they’ve made, and so they want to make the rest of the country miserable, too,” he said.
In an interview on Fox News, Trump campaign adviser Chris LaCivita pushed back on critics of Vance’s statement and said that the remarks were "blatantly taken out of context," and he also said that it's "absurd" to say the campaign is against childless women. Vance has also said his remarks should be interpreted as sarcasm.
Vance has long supported family formation and has, like a growing number of Republican politicians recently, raised warnings about the country’s declining birth rate. The U.S. total fertility rate, or the average number of children a woman will have in her lifetime, plummeted to 1.62 in 2023, the lowest level in a century, according to the Centers for Disease Control and Prevention.
Those who want to improve the U.S. birth rate see family support, including the child tax credit, as a way to help incentivize family creation, joining a bit of an alliance with Democrats who generally support increasing welfare and government spending for those near the bottom of the socioeconomic spectrum.
But not everyone favors a bigger child tax credit. Chris Edwards, an economist with the libertarian-leaning Cato Institute, said that some Republicans are being “narrowminded” because boosting the credit doesn’t help the overall economy.
Edwards told the Washington Examiner that Republicans should be focused on lowering tax rates in order to boost employment and investment instead of pushing for a larger child tax credit. He said expanding the credit would be bad because it would use more budget space that could be used for supply-side tax cuts.
“The child tax credit has a big budget impact, and so the more of the bill, or the extension, is allocated toward the child tax credit, the less is going to be allocated to things that are better for economic growth like lowering tax rates,” Edwards said. “The child tax credit doesn’t do anything for economic growth because it doesn’t affect incentives to work and invest. It’s just sort of giving people money.”
This past year saw a failed attempt by both Republicans and Democrats to expand the child tax credit. Senate Finance Committee Chairman Ron Wyden (D-OR) worked closely with House Ways and Means Chairman Jason Smith (R-MO) to craft legislation that would have boosted the credit and restored some expired business tax provisions.
The bill passed the House in an overwhelming 357-70 vote, but Senate Republicans later tanked it, and it died with a procedural vote on the Senate floor. It wasn’t killed because GOP senators didn’t want an enhanced child tax credit but rather because of other concerns with the details of the plan and the politics of passing it in an election year.
Nonetheless, the Wyden-Smith proposal might give some insight into what an enhanced child tax credit could look like if Congress is divided in the spring, if Democrats held the House and Republicans the Senate, for instance.
The bipartisan negotiation would have changed the calculation of the credit on a per-child basis to make it more generous and would have increased the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in 2024, and $2,000 in 2025. Also of note, the bill would have indexed the credit to inflation so that it doesn’t decrease over time on a real basis.
But the biggest unknown with what will happen next to the child tax credit comes down to which party wins the presidency and whether Republicans or Democrats control the House and the Senate.
“A lot will depend on the political landscape,” Watson said.
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Nevertheless, there is an anticipation from both sides of the aisle that the 2025 tax battle could end with a bigger child tax credit — what that might look like though won’t be clear until next year.
“Both parties are in favor of expanding the CTC because it’s good politics for both parties,” McCabe said. “It’s really just haggling over the details of what exactly that looks like.”
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