Children and Families

Childcare subsidies can raise the economy's productive capacity by helping parents work and earn more, but the size of the gain depends on how the policies are financed. Building on our earlier analysis of five federal early childhood education and care policies, we find that a paid-for universal subsidy raises potential GDP by about 0.12% in 2055, with career effects accounting for about 42% of the gain. If the subsidy is instead deficit financed, borrowing leaves potential GDP about 0.33% below baseline. Once every working-age adult has grown up under the policy, children's higher adult earnings could contribute about as much as or more than parents' work.

All CTC expansions benefit parents and children. But key design details determine which families benefit the most.

Most of the 2017 Tax Cuts and Jobs Act’s (TCJA’s) individual tax provisions, including its CTC expansion, are scheduled to sunset at the end of 2025. Beginning in 2026, the maximum CTC value will fall from $2,000 to $1,000 and be limited to a narrower set of taxpayers. This expiration may renew discussion of reform options for the CTC.