Both progressives and some conservatives have argued in favor of making permanent the expanded child tax credit, claiming that its work disincentives are minimal and the long-run economic and social benefits to children exceed the cost. But is this true? The American Action Forum commissioned EY’s Quantitative Economics and Statistics Group to examine the macroeconomic impacts of permanently expanding the CTC, paid for by raising the corporate tax rate.

The findings:

• EY’s detailed budgetary and economic analysis yielded two headline conclusions:
  • Making permanent the American Rescue Plan version of the CTC would cost approximately $1.4 trillion over the 2025–2034 budget window.
  • Financing the expanded CTC with a hike in the corporate tax rate would require a full 10-percentage-point increase.
• Combined, a permanently expanded CTC and 10-percentage-point increase in the corporate tax rate would have negative impacts on investment and overall gross domestic product. In the first years, the CTC would support some additional household consumption spending. Over time, however, even in the best-case scenario for the CTC, labor supply would fall by 0.4 percent, after-tax wages by 0.3 percent, consumption by 0.1 percent, investment by 1.2 percent, and GDP by 0.4 percent.
• In sum, EY finds that the negative economic impact of raising the corporate rate vastly outweighs any economic returns of expanding the CTC.

Read the analysis