Targeted Child Tax Credit: An affordable option for state governments to reduce child poverty rates

Abstract The federal expansion of the Child Tax Credit (CTC) in 2021 contributed to a record low child poverty rate for the United States; however, the expansion expired after 1 year and Congress is unlikely to reinstate the expansion in the near future. State governments are increasingly interested in implementing their own fully‐refundable CTCs, yet face strict budgetary constraints relative to the federal government. This policy report proposes a state‐level, fully‐refundable CTC that is affordable, strongly targeted at low‐income families, and complementary to federal tax credits, yet would make meaningful reductions in states' child poverty rates. Specifically, I demonstrate that the average state government can use existing spending within the Temporary Assistance for Needy Families program to fund 61% of a targeted CTC, and all states could fund the proposal with less than 2% of their total tax revenues. The targeted CTC could reduce child poverty by 10%, and deep child poverty by 21%, for the average state, with a level of spending efficiency that exceeds other income‐transfer programs.