The Need To Reform the Tax Code
All children deserve to live happy, fulfilling lives. This means that all children should have their immediate health and safety needs met, and no child should be denied the chance for a bright future based on their family’s hardship.
Our country is failing our children in this regard. Child poverty is on the rise in the United States as households with children struggle with the high cost of food, rent, and other household expenses. The tax code offers one of the strongest tools for improving the lives of children by providing credits, deductions, and asset-building tools that reduce child poverty and promote family economic mobility.
According to First Focus on Children’s annual budget analysis, the Child Tax Credit, the Earned Income Tax Credit (EITC), and the Child and Dependent Care Tax Credit (CDCTC) are among the top 20 programs contributing to children’s spending in the federal budget. In FY 2022, when tax filers had access to the EITC and a fully refundable CTC and CDCTC, mandatory spending for the three credits accounted for nearly 28% of the share of federal investments in children.
In 2023, the refundable portion of the Child Tax Credit kept 1.34 million children out of poverty. This impact is significant but would have been even greater if the improvements made to the CTC in 2021 under the American Rescue Plan Act (ARPA) were still in place. Columbia University’s Center on Poverty and Social Policy found that if the ARPA improvements had continued in 2023, an additional 3.6 million children would have been spared poverty.
Currently, one-quarter of children in the United States live in families that don’t earn enough to qualify for the full $2,000 Child Tax Credit. Significant percentages of these children live in large families or rural communities. Children of color are also disproportionately left out, as are babies, whose mothers are more likely to be in and out of the workforce because of complications in pregnancy, labor and delivery, postpartum health issues, lack of paid family medical leave, and other reasons. Other examples of children left behind are those whose parents have passed away or who are victims of natural disasters.
The majority of adults caring for children work outside the home but many still struggle to make ends meet because wages for low-wage workers have not kept up with inflation. Parents and caregivers need reliable income to provide nutritious food, health care, diapers, school supplies, and other resources that improve their children’s development and achievement. The high cost of raising young children makes it more likely that families with babies will slide into poverty. The cost of full-time, center-based care for infants — which exceeds the price of in-state college tuition in most states — means that families can spend more than 10% of their income on child care alone. The high cost of raising kids continues through childhood: On average it costs more than $300,000 to raise one child from birth to age 18 (not including college).
Enhancing tax credits such as the Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Tax Credit not only helps individual children and their families, but also benefits our country as a whole.
For example, improving the Child Tax Credit can strengthen local economies — the Niskanen Center found that extending the expanded Child Tax Credit for just one year would support the equivalent of 500,000 private-sector jobs.
The United States tax code is the government’s primary means of raising revenue to support a wide range of government functions, including the operation of numerous programs and services that benefit children and families throughout the country and abroad. Historically, the individual income tax has generated the most revenue. According to the Congressional Research Service, in FY 2021 the individual income tax contributed $2.0 trillion, or 50.5% of the federal government’s revenue. The corporate income tax contributed notably less, generating $212 billion in FY 2021, or 9.2% of total revenue.
Investing in children is one of the most cost-effective and impactful ways to shore up the nation’s future. Research shows that investments in children yield immense returns, not just for their lives but for the nation as a whole. Yet, our 2024 Children’s Budget finds that the share of U.S. federal spending on children fell to 8.87% in FY 2024, representing the third straight year of decline. Both mandatory and discretionary spending for children fell in FY 2024 as a share of the federal budget. Adjusted for inflation, U.S. investment in children declined nearly 6% from FY 2023. Our Babies in the Budget 2024 analysis shows that the federal share of spending on infants and toddlers is an alarmingly low 1.52%. This disinvestment in children isn’t just about numbers — it has realworld consequences for millions of young people. As federal support dwindles, children face increased risk to their health, well-being and future. Early in the 119th Congress, harmful cuts and policy changes have already been proposed to reduce our deficit and support tax reforms skewed toward the ultra-wealthy.
An approach to build a fairer tax code that includes revenue raisers could help to address our nation’s racial, gender, and economic inequities, which disproportionately affect children, and finance greater investment in our children and their families. In a report released in January 2025, the Treasury Department’s Office of Tax Analysis found that extending the expiring individual and estate tax provisions of the 2017 tax law would cost $4.2 trillion between 2026 and 2035, and the largest tax cuts would go to the highest-income families. More recently, an April 3, 2025, Joint Committee on Taxation analysis estimates the cost of extending the 2017 tax law at $5.5 trillion over ten years. This is money that research shows would be better spent on children. As lawmakers debate tax policy, they should raise more revenue from the wealthiest people and corporations to help support much-needed investments in our children, offset the extension or expansion of tax cuts under consideration, improve our fiscal outlook, and strengthen our economy.
The Opportunity
Reforming tax policies to better support families and children is critical to building a more equitable society. Through reforms outlined below, these tax credits, deductions, savings accounts and other opportunities in the tax code would provide financial stability for families and lift millions of children out of poverty. First Focus on Children supports comprehensive tax reform. The policy recommendations below are divided into three sections: (1) Strengthen Tax Credits and Deductions, (2) Savings Accounts and Asset Building, and (3) Internal Revenue Service (IRS) Funding and Customer Services. These recommended tax strategies should not replace existing programs that provide direct assistance to support children’s health and well-being, and we would be remiss if we didn’t acknowledge that tax deductions and savings accounts typically favor high-income families, while refundable tax credits and investments in direct-support programs better meet the needs of low-income families. We also acknowledge the provisions included in this paper are not an exhaustive list of the parts of the tax code that benefit children and their families. This paper mostly focuses on tax policies that go directly to households with children, which have the largest impact on improving the lives of lower-income children.
Reforms to the tax code are a powerful way to develop a comprehensive policy approach to provide the best outcomes for children and families, especially those who face the biggest barriers to economic mobility. As Congress heads toward intense debates around extending provisions of the 2017 tax law, lawmakers must prioritize reforms that help struggling families meet basic living expenses, reduce child poverty, and promote economic mobility. The Child Tax Credit and Earned Income Tax Credit have been shown to deliver a tremendous return on investment, helping improve near- and long-term outcomes for children and making our country stronger.