Growth and Decline in Tax Credits For Families With Children

Under current law, there are three major tax credits that affect families with children: the earned income tax credit, the child and dependent care tax credit (CDCTC), and the child tax credit (CTC). The EITC was enacted in 1975 to provide a credit to low-income working taxpayers with qualifying children (beginning in tax year 1994, taxpayers without a qualifying child became eligible to claim a small EITC). The CDCTC, also enacted in 1975, replaced the dependent care tax deduction, allowing taxpayers to claim a nonrefundable credit against their income tax. As seen in the chart below, the revenue loss from the CDCTC has slowly declined since 1980, partly because it was not indexed for inflation. In contrast, expenditures on the EITC have grown because of expansions passed in 1986, 1990, 1993, and 2001, have been indexed for inflation since 1986, and are expected to plateau at around $40 billion through 2011. Since the EITC is fully refundable, much of this growth comes from outlays to taxpayers rather than revenue loss.