September 18, 2020, 19:26

Senate Democrats have a plan that would cut child poverty nearly in half

Senate Democrats have a plan that would cut child poverty nearly in half

The US is one of the only developed countries in the world without a child allowance — a government program giving every family a set amount of money per child, no strings attached.

A new proposal by Democratic Sens. Michael Bennet (CO) and Sherrod Brown (OH) would change that. The American Family Act of 2017 would dramatically expand the child tax credit, which currently offers up to $1,000 a year for families with significant earnings but little or nothing for many poor people, to pay:

  • $3,000 per year, or $250 per month, per child ages 6 to 18
  • $3,600 per year, or $300 per month, per child ages 0 to 5

The benefits would be distributed monthly, in advance, so that families can pace out their spending and smooth their incomes. Because the CTC, like the earned income tax credit, is currently paid out through tax refunds, it sometimes leads to a perverse situation in which families use it to pay down debt they never would’ve had to incur if they’d gotten the money earlier.

The value of the new credits would be indexed to inflation, unlike the current $1,000 credit, which loses value every year.

The credits would phase out for high-income individuals, just like the child tax credit today does, with phaseout beginning at $75,000 a year in income for single parents and $110,000 for married couples. For a married couple with two young kids, to give one example, the credits would totally phase out if the couple makes $150,000 a year or more; for families with more kids, that figure is higher.

While other Democrats have proposed major expansions to the child credit, with Rep. Rosa DeLauro (D-CT) being the most public champion of a refundable credit for young kids, this is by far the most ambitious child allowance plan any major US politician has put forward in recent memory. And it comes at a time when Republicans are considering a major expansion of the child tax credit, setting up an arms race for the parties to try to outdo each other on expanding benefits for families with kids.

For middle-class families earning $40,000 to $100,000 a year, the plan would result in a huge increase in monthly income, especially when kids are young and need diapers, cribs, strollers, and new clothes to replace quickly outgrown old ones.

But arguably the most important effect of the plan would be to cut child poverty in the United States almost in half. Bennet and Brown enlisted Columbia University poverty researchers Christopher Wimer and Sophie Collyer to estimate how their plan would affect poverty rates. The results are astonishing:

Measured accurately using the Census Bureau’s Supplemental Poverty Measure (SPM), poverty among children would fall from 16.1 percent to 8.9 percent — a 45 percent reduction, nearly halving the child poverty rate in America.

The deep child poverty rate (the share of children living on less than half the poverty threshold) would also be cut in half. And almost no children would be left living on less than $2 a day in cash income, a situation that affects millions of children today according to research by Princeton’s Kathryn Edin and University of Michigan’s Luke Shaefer.

In raw numbers, Bennet-Brown would lift 5.3 million children out of poverty and 1.9 million out of deep poverty.

While the biggest effects are reserved for children, overall, deep, and extreme poverty for the US population as a whole would all fall substantially too. Another 4.2 million adults would be lifted out of poverty and 1.2 million out of deep poverty, Wimer and Collyer told me in an email. The overall poverty rate would be 20 percent lower.

The plan would be expensive. A group of leading poverty experts have offered a very similar proposal and estimated its cost at $108 billion a year on top of existing child tax benefits; that plan doesn’t phase out for high earners, so the cost of Bennet-Brown is likely significantly lower. And in any case, $1 trillion over 10 years is smaller than the deficit increase that Republicans are accepting for their tax cut bill.

Giving cash to parents cuts poverty and pays big dividends for kids

Wimer and Collyer’s numbers are estimates — highly credible estimates from respected experts in the field, but estimates nonetheless. Fortunately we have real-world examples of similar policies being enacted and causing massive reductions in child poverty.

In 1999, Tony Blair and the Labour Party introduced a universal child benefit in the UK. The measure was part of a broader set of proposals meant to tackle child poverty, including tax credits, means-tested programs, a national minimum wage, a workers’ tax credit, universal pre-K, expanded child care, and much longer parental leave.

The result was that absolute child poverty fell by more than half from 1999 to 2009, while relative poverty (the share of children under 60 percent of the median income) fell by 15 percent. The decrease in relative poverty was smaller because while things got dramatically better for the poor, the middle class gained too.

While child poverty in the US declined slightly over the same period, a comparison of the two trend lines put together by Columbia professor of social work Jane Waldfogel is still startling:

After Blair takes office in 1997, the child poverty rate in Britain begins to plummet and just keep plummeting as the reforms are implemented through 2001. Then it continues to gradually decline. In the US, by contrast, child poverty falls with the late-’90s boom, then rises in the 2000s.

The benefit and tax credit increases from 1997 to 2005 caused incomes for the bottom 10 percent of households to grow 20 percent, according to researchers Tom Sefton, John Hills, and Holly Sutherland.

While concerns over “welfare queens” living high on the hog and misspending benefits have often stopped the US from expanding safety net programs, there’s no evidence that child benefits would be used this way. The benefits aren’t misspent, either. Sam Houston State University’s Christian Raschke has found that Kindergeld, the delightfully named German child benefit program, leads families to spend more on food but not to drink more alcohol.

One study of the US’s earned income tax credit, a government benefit for working low-income families, found that receiving cash actually makes mothers more likely to get prenatal care, which in turn reduces the amount they smoke and drink. A Canadian study found that each dollar spent on child benefits reduced spending on tobacco by 6 cents and spending on alcohol by 7 cents.

What’s more, a growing body of evidence suggests that investments in early childhood development can pay off in lower crime, higher earnings, and greater educational attainment later on.

Programs that give families cash, UC Irvine economist Greg Duncan has found, result in better learning outcomes and higher earnings for their kids. One study found a $3,000 annual income increase for poor parents is associated with 19 percent higher earnings for their child once he or she grows up. That implies that a child allowance of that size could dramatically improve the lives of children decades later.

There’s plenty of other research where that came from:

  • When the Eastern Band of Cherokee Indians’ casino began paying dividends to its members, psychological problems among children decreased, crime rates dropped, and on-time high school graduation rates increased, according to Duke’s Jane Costello.
  • Canada’s child benefit expansions boosted test scores and health outcomes, the University of British Columbia’s Kevin Milligan and University of Toronto’s Mark Stabile found.
  • A short-lived universal child benefit program in Spain increased the time mothers spent with children in the first year of life, a study by Libertad González at Pompeu Fabra University in Barcelona found, and reduced the risk of couples with newborn babies breaking up.

Cash subsidies can even extend lives. Brown’s Anna Aizer, University of Toronto’s Shari Eli, Northwestern’s Joseph Ferrie, and UCLA’s Adriana Lleras-Muney looked at the Mothers’ Pension program, the first federal welfare program in American history, which ran from 1911 to 1935. They found that male children of mothers who were accepted for the program lived one year longer, got more schooling, and had incomes 14 percent greater than children of mothers who were rejected.

A child benefit would even have some effects that social conservatives might like. It encourages having more kids, and would likely reduce abortion rates by making it less costly to raise children. Money troubles are also a leading cause of marital strife, family instability, and divorce. Wellesley College sociologist Josh McCabe has argued for a universal child benefit in pieces for National Review on exactly these grounds.

What this plan means for tax reform

The Bennet-Brown proposal comes as congressional Republicans work on a tax reform package that’s likely to include a significant expansion of the child tax credit. The tax reform “framework” released by the Big Six figures in the House, Senate, and administration doesn’t specify the scale of the expansion but envisions a larger CTC replacing personal exemptions in the tax code.

Other Republicans want more. Sens. Marco Rubio (R-FL) and Mike Lee (R-UT) have for years pushed for a big expansion of the child tax credit that would make it somewhat more accessible to poor people. Currently, the credit is only refundable for families who make at least $3,000, and phases in at 15 cents on the dollar: so if you make $4,000, say, you only get $150 (15 percent of the $1,000 you are over the limit). A family with two kids has to be making at least $16,333 to get the full benefit on their refund.

Rubio and Lee originally envisioned a new $2,500 credit on top of the existing $1,000 credit, for up to $3,500 per child in total tax benefits. The $2,500 credit would be “refundable against payroll taxes,” which means in practice that the credit would phase in for poor people starting at $0 with a 15.3-cents-per-dollar phase-in rate (because total employer-employee Social Security and Medicare payroll taxes come to 15.3 percent and start at the first dollar of earnings).

That’s a far cry from the fully refundable $3,000- and $3,600-per-child credits that Bennet and Brown are envisioning, which would do far more to help very poor families who have little or no earnings because work is hard to come by. But it’s still a big boost relative to the current law. Currently, a single mom earning $8,000 a year while working part time and raising her two children could get, at most, $750 total from the child tax credit. Under Rubio-Lee, she’d get another $1,224 on top of that.

There’s little chance that a full $2,500 new credit will make it into the tax reform bill. But Rubio and Lee are actively pushing to expand the credit’s size and offer more refundability. They’ve won over Ivanka Trump, who has abandoned her much-maligned proposal for a child care tax deduction (which would’ve basically only helped rich people) in favor of expanding the child tax credit.

On Wednesday, Rubio told reporters he’s insisting on payroll tax refundability and is not willing to support a credit smaller than $1,800, which is just enough to make up for the credit’s decreased value since 2003, when it was set at $1,000 and not indexed for inflation. He preferred a credit of at least $2,000.

When the Rubio-Lee push started in August and September, the initial Democratic response was to focus on expanding access to child care, offering a major bill in both houses to dramatically expand subsidies. But unlike an expansion to the child tax credit, child care proposals proposal didn’t have bipartisan buy-in. Social conservatives argue that merely subsidizing child care or leave rather than offering a child credit favors families getting center-based child care over stay-at-home parents or family caregivers like grandparents, aunts and uncles, or cousins, and libertarian analysts resented the paternalism of requiring families to use money on child care.

For instance, McCabe, the conservative sociologist who supports a child allowance, decried the Democratic child care subsidy plan for threatening “a transpartisan coalition between conservative pro-family groups and liberal anti-poverty groups” supporting an increased child tax credit.

The Bennet-Brown bill is a sign that the Democratic focus is shifting toward boosting the child tax credit. It comes, tellingly, as DeLauro, the Connecticut House Democrat who’s traditionally led the party in pushing for increased child benefits, has begun meeting with Ivanka Trump on the issue. This doesn’t mean that Democrats will support a tax reform package that’s primarily designed to slash taxes on rich people and corporations. But they could help move an expanded child tax credit on the side.

Samuel Hammond, a poverty policy expert at the left-libertarian Niskanen Center think tank and a prominent advocate for expanding the child tax credit and implementing a child allowance, is very encouraged. “My hope is that we’ve created a kind of arms race for pro-family and -children cash-based policy,” he says.

He continues: “With the Patty Murray bill, and Democrats in general pushing child care, there was a version of this narrative shaping up: Republicans want to help families by letting them keep more of their paycheck, Democrats want to subsidize their interest group. I think the Bennet-Brown proposal breaks that narrative. It says, ‘No, we care about families too. But we go big.’ I mean, to call it a one-up is an understatement. Both Brown and Bennet have supported CTC expansions before, but this is a step up even for them.”

Hammond also notes that this is a big break from the Democratic Party’s history on welfare policy. Brown is a famous populist, but Bennet is known as a relatively moderate Democrat from a swing state. And here he is, supporting a cash benefit to poor families without any work requirement at all. That’s a far cry from the position of Bill Clinton’s Democratic Party in the mid-1990s, which oversaw the destruction of cash welfare and its replacement with a work requirement scheme.

“It shows that even more moderate Democratic senators are finally beginning to think about social policy outside the long shadow of welfare reform, and go where the evidence takes them,” Hammond says.

Source: vox.com

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