Analysis of the DC Financial Support for Families with Children Amendment Act
Evaluating Councilmember Zachary Parker’s second Child Tax Credit proposal of 2023.
We thank the Mother’s Outreach Network for supporting this research. PolicyEngine conducts all research independently of our funders.
We recently examined the District Child Tax Credit (DCTC), a proposed bill from DC Councilmember Zachary Parker. Today, we will examine another proposal from Councilmember Parker called the Financial Support for Families with Children Amendment Act (FSFC) and its potential economic impact on Washington, D.C. residents.
The Financial Support for Families with Children Amendment Act
Beginning in the 2024 tax year, the FSFC would provide up to $1,000 per year to children eligible for the federal Child Tax Credit (those below age 17). It reduces the credit by $100 per $1,000 (10% marginal tax rate) of adjusted gross income (AGI) exceeding specific thresholds: $10,000, or $20,000 for joint filers.
Example household
Consider a married household with two children, ages 10 and 16, and an adjusted gross income of $25,000. The FSFCA would make them eligible for a maximum credit of $2,000 ($1,000 per child). However, since their income exceeds the $20,000 threshold amount for joint filers by $5,000, the credit falls by $500 ($100 for each $1,000, or 10%). Therefore, the household will receive a final credit of $1,500.
For a joint filer with two children, the credit fully phases out if their income reaches $40,000 ($20,000 phase-out threshold + $2,000 credit / 10% phase-out rate = $20,000 + $20,000).
To see how the FSFC would affect your own household, enter your information into our personalized calculator.
Note that our calculator assumes that your household files taxes together, not married filing separately on the same return.
Scenario analysis
A filer’s FSFC depends on their marital status, number of children, and income, as illustrated in the following chart. Applying similar math to the previous section, the credit fully phases out for single filers with one child at $20,000 income, two children at $30,000, and three children at $40,000. For married joint filers, the credit fully phases out at $10,000 higher income: $30,000 for one child, $40,000 for two children, and $50,000 for three children.
DC-wide impacts
We estimate DC-wide impacts by pairing our 2023 rules engine with the 2021 Current Population Survey March Supplement (CPS), which contains 1,135 DC households. As we have not yet modeled DC income taxes, we also assume that filers apply the same filing status as on their federal return, rather than married couples filing separately on the same return, as DC allows.
PolicyEngine estimates that the FSFA would cost about $27 million in 2023. This equates to $84 per household, or 0.1% of net income, disproportionately to households in the second income decile (households in the bottom income decile have fewer children). Overall, the policy would reduce income inequality by 0.0–0.3%, depending on the metric.
The FSFC would benefit one in ten Washingtonians, and one in twelve would see their net income rise by at least five percent.
14.0% of Washingtonians have resources below their Supplemental Poverty Measure threshold. We estimate that the FSFC would affect poverty rates identically to the DCTC: lowering the rate 1.3% to 13.8%, child poverty by 5.2%, larger poverty reductions among men, and no deep poverty impact. In reality, the policies would have different effects, but given the small sample sizes, similar surveyed households fall near the poverty line and would be pushed above it by both the DCTC and FSFC.
According to our data, the FSFC’s poverty reduction would be entirely felt by Black non-Hispanic Washingtonians, reducing their poverty rate from 22.9% to 22.5%.
To contextualize our results in DC, which carry noise due to the small sample size, we can compare poverty impacts to the FSFC’s if it were enacted nationwide. Across the US, the FSFC would reduce deep poverty by 60% more than it reduces poverty, including 31% deep child poverty reductions. It would have similar poverty impacts by sex, but reduce deep poverty more among women. Its impact on Black and Hispanic poverty rates would be about double the impact on White non-Hispanic poverty rates.
FSFC poverty reduction by population subset and geography
Comparing Financial Support for Families with Children to the District Child Tax Credit
Councilmember Parker proposed the FSFC on March 23, three weeks after proposing the DCTC. Councilmembers George, Allen, Pinto, and Robert White joined Parker by co-introducing both bills (Chair Mendelson and Councilmembers Henderson, Trayon White Sr., and Nadeau additionally co-introduced the DCTC). While the proposals share common features as tax credits for families with children, and PolicyEngine projects similar impacts, they also differ in important respects.
FSFC provides larger benefits to a lower-income population and phases out faster; however, the DCTC targets in some ways that FSFC does not, by enacting a child cap and residency requirement. FSFC would also take effect two years before the DCTC.
PolicyEngine estimates that FSFC has identical impacts to the DCTC on the budget and poverty rates, though more comprehensive data would likely identify differences. FSFC would reduce inequality about 50% more by targeting transfers to a population about half the size of the DCTC.
Context of other DC programs for low-income families
Like the DCTC, the FSFC would be available to families that don’t have to otherwise file taxes. To complement the background we provided in the DCTC report on TANF and the EITC, we provide some relevant statistics on Temporary Assistance for Needy Families and the Homeowner and Renter Property Tax Credit.
The DC Department of Health and Human Services administers DC’s Temporary Assistance for Needy Families (TANF) program, which targets similarly low-income families with children. The federal Department of Health and Human Services reports that 4,288 families participated in DC’s TANF program in an average month in 2022.
DC residents can claim the Homeowner and Renter Property Tax Credit (HRPTC) on the Schedule H tax form. Residents that pay rent or property tax can claim the HRPTC, unless they live in one of the District’s roughly 10,000 public housing units, or exceed the income limits. Roughly 250,000 individuals are in tax filing units with income below the $57,600 main HRPTC income limit (higher-income filers can qualify if they are age 70 or above).
FSFC, meanwhile, would be available to about 70,000 individuals.
Conclusion
The Financial Support for Families with Children Amendment Act of 2023 proposes a refundable credit of up to $1,000 per child for low-income families. The program would take effect for the 2024 tax year, issuing its first refunds in early 2025.
Given full take-up, PolicyEngine estimates that it would cost about $27 million, reach 10% of the DC population, reduce child poverty by about 5%, and reduce a broad measure of income inequality by 0.3%.
Beyond data limitations, a dynamic macroeconomic model may project different results than we do. Standard labor supply models consider the extent to which a program affects net income (“income effect”) and the extent to which it affects one’s marginal tax rate (“substitution effect”). Compared to the District Child Tax Credit, the FSFC would create both effects in larger magnitudes, since it increases income more on a relative basis for those affected (by targeting low income households) and phases out at a faster rate (adding ten rather than two percentage points to marginal tax rates).
As policymakers and stakeholders evaluate the FSFC in the context of existing programs like TANF, the DCTC, and the HRPTC, a comprehensive understanding of each proposal’s unique aspects will be essential for informed decision-making. This analysis serves as a basis for further discussion and evaluation of the potential effects of the FSFC on families and children across various income levels in Washington, D.C.
