Most rich countries besides the US have hit on a surprisingly simple approach to reducing child poverty: just giving parents money.
This idea, known as a child benefit or child allowance, exists in almost every EU country as well as in Canada and Australia. In many countries, the payments are truly universal; you get the money no matter how much you earn. In others, like Canada, the payments phase out for top earners but almost everyone else benefits. France has a weird scheme where only families with two or more children get benefits, as an incentive to have more kids.
But the core principle is the same in every system: Low and middle-income families are entitled to substantial cash benefits to help them raise their children.
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This helps explain why European countries are so much better at fighting child poverty than the US is. While about 11.8 percent of US children live in absolute poverty (as indicated by the US poverty line), only 6.2 percent of German children do, and only 3.6 percent of Swedish children. The numbers get even worse when you define poverty like most European countries do, as living under half the median income. By that standard, 20 percent of children in the US live in poverty, compared to only about 10.3 percent in Germany or 4.9 percent in the Netherlands. This isn’t exclusively due to child benefits, but they play a crucial role.
The US has only a patchwork system of subsidies for parents, and the major benefit, the Child Tax Credit, is limited in ways that make it unhelpful to the Americans who need cash assistance the most. During the 2016 campaign, Hillary Clinton proposed doubling the credit for young children and making it more generous to low earners. And some Republicans, including Sens. Mike Lee and Marco Rubio, have warmed to the idea of expanding the child tax credit, while still requiring parents to work for it.
A growing number of child poverty experts and think tankers in the US, though, are arguing that wouldn’t be enough. They, along with House Democrats like Nancy Pelosi, are embracing a more dramatic policy change: a fully refundable child benefit, which families could receive whether or not they’re earning money. Even in the limited form for young children that House Democrats are proposing, the policy could substantially cut child poverty and help wipe out extreme forms of poverty where families subsist without any cash income. It would certainly do vastly more than the weak child care proposals Ivanka Trump has put forward.
Child allowances are a hugely effective way to cut child poverty
Child poverty is both a tragedy and a huge drain on societal resources. One economic analysis of costs — increased crime, decreased earnings later in life, and poorer health — found that child poverty costs the US nearly 4 percent of GDP every year, or over $700 billion in 2016 alone.
So the best rationale for universal child benefits is that they substantially reduce child poverty.
In 1999, Tony Blair and the Labour Party introduced a universal 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 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 is still startling:
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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.
Canadian Prime Minister Justin Trudeau’s team says his plan to dramatically increase benefits — to $4,000 for children over 6, more for younger children and children with disabilities — will cut child poverty in Canada by 40 percent.
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 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.
That’s not the only benefit. 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 spend 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.
How a US child benefit would work
The Child Tax Credit, the main existing benefit for families in the US, falls short in several ways. Until the Bush tax cuts of 2001, it was non-refundable, meaning that the 44 percent of families who don’t earn enough to pay federal income taxes didn’t benefit at all. Today, it’s partially refundable, but only for families earning at least $3,000; full benefits don’t kick in until you’re making $9,667 a year.
This is particularly worrying given the rising number of extremely poor Americans who report having literally no cash income. Recent estimates suggest that nearly 1.2 million children were in families making under $2 a day per person in cash income in 2012, up from only 415,000 children in 1995. Giving out a child allowance could eliminate this kind of extreme child poverty at relatively little cost.
The easiest way to set up a child allowance would be to simply offer a fully refundable tax credit that doesn’t phase in with earnings at all. The Child Tax Credit Improvement Act from Congress member Rosa DeLauro, legislation backed by Nancy Pelosi and John Lewis, would create a new $3,600 fully refundable tax credit for kids under 6 and speed up the phase-in on the existing credit so it would be more generous to the poorest families. That’s not quite a child allowance for all kids under 18, but it’s a huge step in the right direction.
Think tanks and academics have, in the past few years, produced a bevy of plans that would offer families with children of any age a child benefit, not pegged to income. Rachel West, Melissa Boteach, and Rebecca Vallas at the Center for American Progress have a plan the makes the child tax credit fully refundable, eliminating the earnings requirement entirely, indexes the credit for inflation, and gives families with children under 3 a monthly Young Child Tax Credit benefit of $125 per month ($1,500 a year).
They estimated that the proposal, which influenced DeLauro’s bill, would cost under $30 billion a year (about what we spend on Pell Grants and less than half the cost of food stamps) and nearly double the credit's anti-poverty impact:
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A forthcoming proposal from a murderer’s row of poverty experts — including $2 a Day co-authors Kathryn Edin and Luke Shaefer, Columbia’s Jane Waldfogel, Christopher Wimer and Irwin Garfinkel, Wisconsin’s Timothy Smeeding, UC Irvine’s Greg Duncan, NYU’s Hiro Yoshikawa, and the Children’s Research and Education Institute's David Harris — similarly envisions a child allowance as an anti-poverty measure. The authors propose three different models a child allowance could take:
- A $3,000 per year per child benefit (paid out in increments of $250 a month). This plan would cut child poverty by 40 percent, and virtually eliminate extreme $2-a-day cash poverty. It would cost $93 billion a year on top of the existing costs of the Child Tax Credit and child tax exemption.
- A $3,600 per year per child benefit for children under 6; $3,000 per year per child for children 6 to 17. This would cut young child poverty more than the first proposal, and cost $105 billion a year on net.
- A $3,600 per child per year benefit for young kids, $3,000 for older kids, but the amounts decline as households have more kids to reflect the fact that, say, going from two kids to three doesn’t increase household expenses by as much as going from zero to one. This would “only” cut child poverty by 31 percent, and would be substantially cheaper at $66 billion a year.
But cutting poverty isn’t the only attraction of a child benefit. It’s also a worthwhile just as a tool for consolidating the dizzying array of current programs offered to parents. Samuel Hammond and Robert Orr at the libertarian Niskanen Center have proposed an annual child benefit of $2,000 per year, paid out monthly to households, and financed by eliminating several existing programs: the income tax's dependent exemption, the dependent care credit (which isn't refundable and does nothing for the poor), food stamp benefits for children, and five different school meal programs like free school lunches and breakfasts.
Those programs add up to $98 billion a year, almost exactly the cost of making the child tax credit fully refundable and doubling it to $2,000.
It’s not clear, though, how much this would end up helping low-income families. Annual food stamp benefits can total near $2,000 per child in a household, and when you add free school meals on top of that, it’s unclear how many families this would leave better off. Cash aid is better than a food voucher (you can’t pay rent with food stamps), but if the goal is to increase the amount of money going to poor families, cutting food stamps and school meals aren’t great options. Update: Hammond has a compelling argument that this actually would meaningfully raise benefits for the poorest Americans; see this Twitter thread.
A child benefit could also be part of a broader effort to reform the tax code, consolidate provisions, and avoid distortions that have been introduced over the years. The Tax Policy Center’s Jim Nunns, Elaine Maag, and Hang Nguyen have included a child benefit in a broader plan to rethink how the tax code treats work and children.
Currently, the Earned Income Tax Credit is both the primary work subsidy in the tax code and a form of child subsidy for workers with children; it offers little in the way of support for childless workers (a problem both President Barack Obama and Paul Ryan released proposals to address), but benefits ramp up substantially as households add more children. Meanwhile, the child and dependent care credit is nonrefundable and does basically nothing to help poor families afford child care services, and the dependent exemption is likewise only a benefit to families rich enough to pay income taxes.
Nunns, Maag, and Nguyen propose a new system to replace this. Everyone who works would get a Worker Credit (maxing out at $1,530) that doesn't vary with household size, to wipe out payroll taxes on poverty-level earnings. For every child, they’d get first a fully refundable credit of $2,013, and then, to replace the Earned Income Tax Credit’s benefits for children, a credit of up to $2,400 per kid that phases in with income.
The plan would result in a big tax cut for most Americans: the average low-income family with children would get $2,870 back. The plan is somewhat pricey (about $1 trillion over 10 years) but still much cheaper than the tax breaks that Paul Ryan and Donald Trump have proposed.
A state-level child benefit could come sooner
Getting any of these plans past a Republican Congress and president would be tough. Some Republicans like Sens. Mike Lee and Marco Rubio have warmed to the idea of expanding the child tax credit; Lee and Rubio want to add a new one to the tune of $2,500. But they don’t want it to be fully refundable. They only want it refundable against income and payroll taxes, as a way to avoid directing benefits to people out of the workforce.
Since payroll taxes start with the first dollar, that would be roughly equivalent to keeping the existing 15 percent phase-in rate but starting at $0 rather than $3,000. That’s an improvement for poor families, no doubt, as is the increased total amount of the credit, but it’s not nearly as good as a true child allowance. And even Lee and Rubio’s plan is hugely controversial among Republicans. It’s not part of either Trump or Paul Ryan’s tax proposals, and it’s probably not going to be a part of any tax legislation this year.
There’s nothing, however, stopping states like California or New York from imposing their own child allowances, maybe starting at a modest level like $1,000 and then ramping up. This is easily within the budgetary ability of a large state, if coupled with modest income tax increases for high earners, or maybe a hike in the alcohol and cigarette taxes. Given the emerging consensus among child poverty experts that parents need cash, states would be smart to make the first move here.
