Child tax credits are becoming increasingly popular across the country, with more than a dozen states offering them as financial relief from the costs of raising children.
But new research suggests that cities can significantly reduce child poverty by offering their own child tax credit programs.
A analysis of Columbia University’s Center on Poverty and Social Policy and the left-leaning Institute on Taxation and Economic Policy found that municipal programs can go a long way with relatively small amounts of money: Offering $1,000 or less a year to low- and middle-income families could reduce child poverty rates by 25 percent in several cities.
Researchers say this kind of new aid would not only boost household finances, but would likely create more demand for local businesses, stabilize housing markets and increase local tax revenues.
The study focused on 14 cities: Baltimore; Charlotte, North Carolina; Chicago; Denver; Houston; Jacksonville, FL; Los Angeles; Minneapolis; New York; Oakland, California; Philadelphia; Phoenix; Seattle; and the District of Columbia. The analysis found that most of these cities could see significant gains by spending less than 15 percent of municipal revenues on new child loan programs.
In Minneapolis, for example, researchers said a new program costing less than $30 million a year would cut the city’s poverty level in half when existing state and federal credits are taken into account. (The mayor there has recommended spending about $2.03 billion in the 2026 budget budget.)
The prospect of creating new tax credit programs would likely pose financial and logistical challenges. Cities are already juggling many other priorities, including public safety and housing affordability, while simultaneously facing what some experts have characterized as a “fiscal crisis” of the rising costs of climate change, cuts in federal funding and declining downtown activity.
Some cities, including Baltimore, New York and Philadelphia, have city income taxes that can include a child tax credit. But, the study noted, cities without that tax managed to distribute pandemic recovery funds through basic income programs. From that experience, cities can create their own standalone applications, leverage IRS data-sharing agreements, or collaborate with third-party administrators.
“So you could use a similar kind of outreach approach, which wouldn’t necessarily be as comprehensive or systematic as a city that already has its own income tax system, but it is a possible option,” said Ryan Vinh, author of the study and research analyst at the Center on Poverty and Social Policy.
State interest in creating or expanding child tax credits soared after pandemic-era expansion of federal child tax credits directly raised money for millions during the pandemic. This step has quickly lifted millions of children out of poverty, researchers found. But the expanded tax credit expired in 2021, leading to a doubling in the country’s child poverty rate in 2022.
Advocates favor refundable tax credits that provide money directly to families. While parents still have to file tax returns to receive the benefits, refundable credits give parents money even if they earn too little to pay income taxes, providing financial help for groceries, medical care or rent.
This year, several conservative-led states have explored new tax credit programs for children, though proposals offer the biggest benefits to families buzzing in Indiana and Ohio. So far, no city has introduced its own credit.
While many cities and states face tight budget constraints, Vinh says a reduction in federal support will likely put more pressure on local governments to tackle challenges like poverty. The federal government did that cuts in funding for safety net programs, including Medicaid and the nation’s largest food assistance program, the Supplemental Nutrition Assistance Program.
“A lot of these things over time will lead to an erosion of benefits, a loss of benefits, or some kind of decrease in what families can receive,” Vinh said. “We don’t know the total number yet, but we do know that child poverty will most likely increase as these program restrictions increase.”
Stateline reporter Kevin Hardy can be reached at [email protected]
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