The Pronatal Benefits of Expanding the Child Tax Credit

In a recent Wall Street Journal article, economist Leonard Lopoo surveyed the international evidence on pronatalist policies, arguing that baby bonuses and other fiscal supports for parents “have proved costly and ineffective.” He concluded that such policies “may convince a couple to have a child earlier than originally planned.… But that’s it.… The government ends up paying for children who were already going to be born.” 

This view—that financial incentives do not greatly alter fertility behavior—is common among many policymakers and experts. However, this view is not only wrong but important to contradict, as it directly impacts current policy debates. As America’s fertility rate plunges to new lows (recent revisions to population estimates suggest rates are below 1.6 per woman), policymakers are justifiably concerned about the demographic future of the country. That’s one reason Congress is presently considering an expansion of the Child Tax Credit, which would essentially increase the monetary benefit, per child, granted by the U.S. government to American parents. Both President Donald Trump and Vice President J.D. Vance have expressed a desire to increase American birth rates, and this expansion would be at least partly based on such hopes. Thus, the question of whether or not “cash for kids” pronatalist policies—such as a boost to the child tax credit—can actually alter birth rates is extremely important.

So, what would happen to American fertility if the child tax credit were appreciably increased? Many are skeptical of the influence of cash transfers on fertility, but that skepticism is misplaced. Cash-for-kids works. It is relatively cost-effective, and its fertility effects help families achieve their own stated family goals. The pronatal outcomes of an increased child tax credit are a good reason to support such an investment, as we explain in a new Institute for Family Studies research brief. 

Key Findings:

• Financial incentives—such as child tax credits—can indeed boost fertility by a demographically significant degree, and have done so in many contexts around the world.
• We suggest raising the nonrefundable Child Tax Credit (CTC) to $2,000 and making it claimable against payroll taxes, raising the refundable additional child tax credit (ACTC) to $2,500, and indexing both values to keep up with inflation.
• This reform to the CTC could plausibly boost fertility by 3–10%, raising U.S. population in 2100 by at least 5 and perhaps as much as 35 million people.
• This plan would also increase incentives for parents to marry and increase incentives for parents to work, creating not only more births, but stronger families.

Download the full research brief here.