Improving the Child Tax Credit Would Benefit More than 700,000 Marylanders

Refundable tax credits like the Earned Income Tax Credit and the Child Tax Credit make an important difference for working families, together bringing more than 100,000 Marylanders’ family incomes above the federal poverty line each year. Maryland has built on these successful policies by supplementing the federal Earned Income Tax Credit with a state credit and extending it to previously ineligible young workers. We can build economic security and opportunity for hundreds of thousands of children if we also act to strengthen the Child Tax Credit.

The federal Child Tax Credit (CTC) provides families an income boost of up to $2,000 per child at tax time. More than 500,000 Maryland households claimed the CTC in 2016, most of whom had between $10,000 and $75,000 in annual income. Research shows that this income boost can bring lifetime benefits—improving children’s health, helping them succeed in school, and ultimately enabling many to get better jobs in adulthood. Yet for many children who would gain the most from increased family income, the CTC currently provides only small benefits or leaves them out entirely:

• Families whose income is less than $2,500 per year are not eligible to claim the CTC at all.
• Families with slightly higher incomes—up to $24,300 for a single parent with one child, or higher for larger families—can claim a partial credit, but are not eligible for the full $2,000 per child.
• The 2017 tax overhaul expanded the maximum value of the credit from $1,000 to $2,000 per child, but capped the refundable portion that is most helpful to low-income families at a lower amount. This choice shut struggling families out of the biggest benefits, even as the law handed a windfall to corporations and wealthy individuals.

Fixing these shortcomings would bring enormous benefits. Members of Congress have introduced two bills to improve the federal CTC by extending its full value to families the credit currently locks out. One bill goes further by increasing the credit’s value, which would make it a more powerful tool to ensure all children have the chance to thrive. Strengthening the federal CTC would benefit millions of families across the country, and could ultimately serve as a bridge toward a universal child allowance that would guarantee all children a decent living standard.

In the meantime, Maryland can take action on its own. The simplest state-level fix would be to “fill the gap” by making the credit fully refundable and extending the full $2,000 credit to all low-income families with children. To do this, lawmakers can create a state tax credit equal to the difference between a family’s federal CTC (if any) and $2,000. For example, a family with a $1,400 federal CTC could claim a $600 state credit, bringing their combined credit up to $2,000. For a family with income less than $2,500 (or no income), the state credit would be the full $2,000.

This simple reform would benefit 728,000 Maryland residents, including 441,000 children. It would also bring 57,000 Marylanders’ family incomes above the federal poverty line (about $21,000 for a family of three), including one-fifth of children experiencing poverty.

Improving the CTC would also make the credit a more effective tool to build opportunity for Marylanders of color. Nationwide, the CTC reduces the number of white children with family incomes below the federal poverty line by 20 percent — significantly more than the reduction in poverty the CTC brings to Black or Latinx children. Allowing all low-income families to access the full $2,000 credit would benefit children of all racial and ethnic backgrounds, with the largest gains for children of color. For example, this reform would more than double the CTC’s impact on the number of Black children living in poverty nationwide.

In a state as wealthy as Maryland, there is no reason why more than 60,000 families with children should struggle every day to put food on the table and keep a roof over their heads. Improving the Child Tax Credit to benefit the thousands of families it currently leaves out would directly benefit hundreds of thousands of children and ultimately strengthen our entire economy.