On the Progressivity of the Child Care Tax Credit: Snapshot Versus Time-Exposure Incidence

Schwartz, A.E. & Altshuler, R.
National Tax Journal, March, pp 55-71.

We evaluate the progressivity of the federal Child Care Tax Credit using the Ernst and Young/ University of Michigan panel of tax return data. Incidence measures are calculated using both annual and "time-exposure" income to measure ability to pay. Both indicate that the benefits of the credit are progressively distributed. Replacing annual with time-exposure income dramatically increases the proportion of the credit received by lower-income taxpayers and yields a more even distribution of benefits across middle- and upper-income taxpayers. Our results suggest that policymakers should use both income measures to evaluate the credit.