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1 1 (October 2017)

handle is hein.amenin/aeiabpz0001 and id is 1 raw text is: Tax Reform and the Income Distribution: The Child Tax Credit vs. the Earned Income Tax Credit Aparna Mathur, Cody Kallen I October 5, 2017 1 AEI Tax Brief Series 1 Current Policy The child tax credit allows households with children to reduce their federal income tax liability by up to $1,000 per qualifying child. The credit phases out as modified adjusted gross income ex- ceeds $110,000 for married taxpayers filing jointly and exceeds $75,000 for unmarried taxpayers. If income tax liability is less than the tax credit, the remaining portion of the credit is partially re- fundable through the additional child tax credit. The EITC is available for low- to moderate-income households that have work income. The credit is larger for households with children, and it is fully refundable to households that owe no income taxes. Whereas the child tax credit is broadly available to the middle class and partially refundable for the poor, the EITC targets low-income and lower middle class households. The proposed Re- publican tax reform leaves open the possibility of expanding the Child Tax Credit, but it does not mention the EITC. 2 Distributional Impact Using the open-source Tax-Calculator, we compare the distributional impacts of doubling the child tax credit or expanding the Earned Income Tax Credit by 31 percent. The EITC expansion of 31 percent was determined so that it has the same static cost as doubling the child tax credit, with total costs through 2026 of $430 billion. The table below shows the percent change in after-tax income for each decile resulting from the reforms. For details on the implementation of these re- forms, see the Modeling Notes section. Percent Change in After-Tax Income by Decile Income Decile Double the CTC Expand the EITC Bottom 0.07% 0.25% Second 0.06% 0.45% Third 0.60% 1.45% Fourth 0.87% 2.02% Fifth 1.14% 2.20% Sixth 0.98% 1.58% Seventh 0.72% 0.40% Eighth 0.64% 0.00% Ninth 0.58% 0.00% Top 0.07% 0.00%

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