Child tax credit proposal would strengthen state’s pro-family standing

State budge writers should adopt Baker proposal to double size of benefit

THE EXPIRATION OF last year’s temporary expansion of the federal Child Tax Credit (CTC) has caused millions of children to fall into poverty. Congress’s inability to come to any agreement to revive the CTC has created unnecessary hardship for families struggling with record-high inflation levels. Fortunately, recent changes in the Massachusetts tax code have offered some reprieve to Bay State families.  

Historically, Massachusetts families have been eligible for two tax benefits aimed at families with younger children. The first was a $3,600 deduction (worth $180) for dependents under 12 years old. The second was a $4,800 deduction (worth $240) for business-related childcare expenses for children under 13 years old.  

Both of these tax benefits came with a major limitation: namely, that families needed to earn a specific income to qualify for a partial or full benefit. In some cases, families earning as little as $10,800 annually were excluded from the benefits of these deductions altogether.  

Thankfully, this limitation was recently addressed and rectified. Massachusetts became a state leader in family policy when the legislature and Gov. Charlie Baker converted these two deductions into fully refundable credits—renamed the Household Dependent Tax Credit (HDTC) and the Dependent Care Tax Credit (DCTC) —as part of the 2021 budget. Similar to the now-expired federal credit, the new state tax credits benefit ranges from $180-$240 per child for the first two children in all families, regardless of household income. 

The Baker administration recently proposed building on last year’s changes by doubling the value of both credits as part of a broader tax package to provide relief to families and businesses dealing with rising costs. In an issue brief for the Niskanen Center, Robert Orr and I estimate the impact of Baker’s proposal on families and several additional reforms.   

As you might expect, Baker’s proposal provides substantial relief to families with young children. Families with younger children tend to have higher poverty rates and lower incomes since parents are younger and still early in their careers. Baker’s plan doubles the average benefit—from $266 to $532—for families with age-eligible children. We find these benefits are distributed in a progressive and racially equitable manner.  

The proposed expansion is a step in the right direction. Still, the existing tax credits’ structure leaves room for improvement. Current law limits the number of eligible children to a maximum of two per family, penalizing families with three or more children. On average married couples, and Black and Latino parents are more likely to have larger families. One option for removing the penalty against these families is to lift the cap on the number of eligible children. The necessary cost of $25 million is a drop in the bucket in a $48.5 billion budget. 

A growing body of social science research suggests that tax benefits like the HDTC and DCTC often provide the most bang for the buck when investing in families. More generous family benefits are associated with increased educational attainment and higher wages when children grow up. We see improved maternal health and a reduction in child maltreatment, and increased economic self-sufficiency among women. The return on investment is staggering. Researchers at Columbia University recently estimated that every dollar invested in child benefits results in eight times that amount in social benefits.  

Unfortunately, the House declined to include any changes to the HDTC and DCTC in its recently passed budget bill. It is unclear whether the Senate will attempt to add the Baker provisions back into its version of the bill and push the House to do so. If not, the Legislature risks making the same mistake as Congress. Another opportunity for pro-family policy reform would slip away because legislators could not get their priorities in order— and families will be worse off for it again. 

Meet the Author

Joshua McCabe

Assistant dean of social sciences/Senior fellow, Endicott College/Niskanen Center
That would be a shame. Massachusetts has the chance to solidify its reputation as a leader in pro-family policy. The Legislature and Baker administration should take the necessary steps to improve the HDTC and DCTC so that the Commonwealth can solidify its standing as one of the best places in the nation to raise a family.  

Joshua McCabe is a senior analyst at the Niskanen Center, a Washington-based market-oriented think tank.