Analysis of JD Vance’s Suggested $5,000 Child Tax Credit Expansion

Impacts of the vice presidential nominee’s reform depend largely on its uncertain refundability.

Senator and vice presidential nominee JD Vance (R-OH) has suggested expanding the Child Tax Credit (CTC) to $5,000 per child. His statements suggest he’d also like to remove income limits, while leaving the question of refundability uncertain. Using PolicyEngine, we’ve analyzed two versions of this idea: one maintaining current refundability rules and another making the credit fully refundable.

The version maintaining current refundability would cost $106 billion in 2025 and reduce child poverty by 1%, assuming no behavioral responses. The fully refundable version would cost $241 billion and reduce child poverty by 41%. Applying labor supply assumptions from the Congressional Budget Office lowers the cost of the partially refundable by 8%, while increasing the cost of the fully refundable version by 2%. Both versions would increase disposable income across all income deciles and reduce income inequality.

In a 2021 interview with Charlie Kirk, Vance expressed support for a tax policy favoring families with children: "If you are making $100,000, $400,000 a year and you’ve got three kids, you should pay a different, lower tax rate than if you are making the same amount of money and you don’t have any kids."

Vance spoke about this with Margaret Brennan of Face the Nation in an interview that aired today, including the CTC as an instantiation of his 2021 idea. He then suggested expanding it: "I’d love to see a child tax credit that’s $5,000 per child."

When asked about income limits, Vance added: "I’d like to have a broad-based family policy and a broad-based child tax credit. […] I think you want it to apply to all families. I don’t think that you want this massive cutoff for lower income families, which you have today, you don’t want a different policy for higher income families, you just want to have a pro-family child tax credit."

While not a formal policy proposal, these statements provide insight into his thinking on family tax policy.

The current CTC provides up to $2,000 per child, with a partial refundability structure, as our CTC explainer details. Low-income parents who don’t benefit from the $2,000 non-refundable credit can receive the Additional Child Tax Credit, a refundable credit that phases in with earnings above $2,500. The credit then begins to phase out at incomes of $200,000 for single filers and $400,000 for joint filers. PolicyEngine projects that this phase-out structure will reduce the program’s cost by $5 billion in 2025, or $4 billion accounting for behavioral responses.

The most recent attempt to expand the CTC came in the Tax Relief for American Families and Workers Act (TRAFWA). The House passed this bill 357–70 in January. However, on August 1, the Senate fell short of the votes needed to pass it, with a 48–44 vote; Vance was absent for this vote. We analyzed the potential impacts of TRAFWA in March.

Vance’s suggested policy would provide up to $5,000 per child, though specific amounts vary with marital status, income, number of children, and the policy’s refundability.¹

Regardless of refundability, parents with income above certain levels would gain $5,000 per child; for example, a married family with . For low-income parents, the fully refundable version could provide up to $5,000 per child in additional benefits. Otherwise, both versions provide an additional $3,000 per child for most families currently receiving the full $2,000 credit, except those in the phase-in region of the partially-refundable version.

For personalized calculations, you can use our calculators for the version with current refundability and full refundability.

Applying the PolicyEngine US 1.45.2 microsimulation model and Enhanced CPS data, we project that the CTC expansion would cost $106 billion and $241 billion in 2025 if maintaining or expanding refundability, respectively, while reducing poverty and inequality (we display the Gini index below, though other measures also fall).² You can view the full results in PolicyEngine for the current and full refundability versions. The below table summarizes these impacts:

Maintaining current refundability, one in three Americans would benefit from the reform, and one in five would gain at least 5% of their net income. Less than five percent of people in the bottom two deciles would benefit, however, as most do not have income tax for the non-refundable credit to offset.

Making the credit fully refundable increases the share of Americans who would benefit by 40%, from 33% to 47%. Two in five would also benefit by at least 5% of their net income. All who gain in the bottom seven income deciles would benefit by at least 5%, including 22% in the bottom two deciles (they are less likely to benefit because of lower-income households having fewer children).

The incorporation of labor supply responses based on CBO elasticities reveals differing impacts between the non-refundable and fully refundable versions of the expanded Child Tax Credit. These elasticities capture two mechanisms by which people might work less: they have more money and can purchase leisure (“income effect”) and they take home less for a marginal hour of work (“substitution effect”).

Without changing refundability, income effects reduce labor supply, but substitution effects from removing the additional 5 percentage point marginal tax rate in the CTC phase-out region dominate, resulting in a net increase in labor supply. See the full results in PolicyEngine.

With full refundability, income effects lower labor supply, and substitution effects operate in both directions: lower marginal tax rates from removing the phase-out, but higher marginal tax rates from removing the phase-in. The net effect is lower labor supply from both income and substitution effects, with income effects having a larger impact. See the full results in PolicyEngine.

JD Vance’s suggestion to expand the Child Tax Credit to $5,000 per child and remove income limits would significantly alter current family tax policy. The impacts vary substantially based on refundability: the fully refundable version would cost 2 to 2.5x as much as the partially refundable version, but would reduce child poverty by 41% compared to 1%.

Both versions would increase disposable income for most families with children and reduce income inequality, with the refundable version providing more substantial benefits to lower-income households.

Labor supply effects differ as well, with the partially refundable version slightly increasing work hours and the fully refundable version slightly decreasing them.

Key areas of uncertainty in this analysis include:

• Take-up rates, especially for the fully refundable version

• Extent of labor supply responses

• Macroeconomic feedback effects beyond labor supply responses, such as deficit impacts

As policymakers consider this and other proposals, tools like PolicyEngine can provide valuable insights into the potential impacts on different households and the overall economy. However, these projections should be considered alongside other evidence and potential long-term consequences to form a comprehensive understanding of the policy’s effects.

max ghenis
PolicyEngine's Co-founder and CEO



pavel makarchuk
Economist at PolicyEngine

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