Why the Design of a Larger Child Tax Credit Matters for Inequality Among Children

Why the Design of a Larger Child Tax Credit Matters for Inequality Among Children

The 2025 tax debate saw a number of proposals from Democratic and Republican policymakers to increase the value of the Child Tax Credit and reform a number of its central elements. Various Republican policymakers, who held control of both chambers of Congress during this debate, proposed a maximum credit of close to $5,000 per child, but with wide variations in credit design. Despite these proposals, the 2025 tax debate culminated with the passage of H.R.1, or the “One Big Beautiful Bill Act” (OBBBA), in July 2025, which only modestly changed the Child Tax Credit. OBBBA raised the maximum credit from $2,000 to $2,200 per child and permanently indexed it to inflation. However, it left untouched the elements that tie a family’s credit amount to their income, with children in low-income families continuing to benefit less from this policy than those in middle- and higher-income families. 

Calls for a more meaningful expansion of the Child Tax Credit are likely to resurface and policy design decisions will determine who benefits and to what degree. This brief draws on proposals that emerged in the recent tax debate to examine how different credit designs could either narrow or exacerbate inequities in the value of the Child Tax Credit between children in families with low incomes and children in families with more. We first look at differences in the OBBBA Child Tax Credit for children across the family income distribution. We then estimate how a larger maximum credit of $5,000 with elements of recently proposed designs—from universal access to different adjustments to the minimum earnings requirement, phase-in structure, and refundability cap—affects who would benefit. We also identify differences in the share of children who would be “left behind” from receiving the full credit under various designs.

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Key Findings

  • The 2025 OBBBA Child Tax Credit provides a maximum benefit of $2,200 per child to families with incomes high enough to qualify fully. However, on average, children close to the poverty line receive half this amount ($1,000 per child) and children in deep poverty receive just one-tenth ($200 per child).
     
  • Various proposals for a larger maximum credit of close to $5,000 per child emerged in the 2025 tax debate. The actual gains from such an increase for children in poverty, though, depend on the credit design.
     
  • A universal $5,000 Child Tax Credit for all children would deliver average gains of up to $4,000 per child close to the poverty line and $4,800 per child in deep poverty.
     
  • Credit designs that continue to tie a family’s credit amount to family income and tax liability, such as the proposals to increase the credit phase-in rate to 25% per child or to have the credit offset payroll taxes, substantially reduce the gains from a $5,000 Child Tax Credit for children in poverty and deliver gains primarily to children above the poverty line.

Suggested Citation:

Yera, Christopher, Anastasia Koutavas, Sophie Collyer, Megan Curran, David Harris, Jane Waldfogel, and Christopher Wimer. 2025. Why the design of a larger Child Tax Credit matters for inequality among children: Examining design features that emerged during the 2025 tax policy debate. Poverty and Social Policy Brief, vol. 9, no. 19. New York: Center on Poverty and Social Policy, Columbia University. 

Published on December 12, 2025