You’ve heard of the proposed “baby bonus,” in which Uncle Sam cuts a check to new parents upon the birth of their child.
You’ve heard of the “Trump Accounts,” in which the Treasury puts $1,000 into a tax-preferred savings account for each American child born.
Both ideas have their supporters and detractors, and they both have their positives and negatives.
Here’s another idea, from a new policy hub published by the Center for Opportunity and Social Mobility housed at the American Enterprise Institute, where I am a senior fellow: Matt Weidinger and Katharine Stevens propose allowing parents to move forward some of their child tax credit into those first years.
“Parents are often most economically vulnerable when their children are young and dependent on outside childcare or in need of a stay-at-home parent,” the scholars note. “The decision to have a child is a difficult one, and it comes with high costs. In light of decreasing birth rates, high costs that new parents face are a major problem.”
This isn’t a new proposal. Weidinger and Stevens first proposed this in 2021. They weren’t responding to baby bonus proposals so much as Democrats’ proposed daycare subsidies:
“Most federal funding designed to address” the difficulty of a child’s first years “is focused on subsidizing nonparental, out-of-home childcare,” they wrote during the Biden years. “But many lower- and middle-income families still lack access to high-quality childcare because they do not qualify for subsidies or because available subsidies are insufficient. At the same time, federal funding provides no help to parents who would prefer to care for their children at home but cannot financially do so.”
Here’s another reason to allow parents to front-load the CTC: Incomes tend to rise through one’s 20s, 30s, and 40s, so young parents often are more in economic need than older parents.
The current child tax credit is $2,200. Not counting the future inflation adjustments, that’s $37,400 over the course of a child’s life. Weidinger and Stevens argued that almost all of that should be portable to the early years. This is a way of helping families afford either day care or offset lost income if Mom or Dad stays at home. It will also have a very small budget impact because money taken today is money not taken 10 years from now.
Personally, I would also increase the CTC amount to match its value when the Tax Cuts and Jobs Act was passed in 2017. I also think it’s wrong that it ends when your kid is 16. The CTC should extend until the child is 18. I’d offset the cost of this by folding in the entire child portion of the child and dependent care tax credit.