Rebecca joined Greg Duncan and Sam Hammond for a panel discussion about the prospects for a U.S. child allowance — and why it’s needed now more than ever — hosted by the American Constitution Society’s New York Chapter. Subscribe to Off-Kilter on iTunes.
Earlier this week, Rebecca participated in a panel discussion on the prospects for converting the U.S.’s Child Tax Credit — which currently leaves behind the poorest third of American children — into a child allowance, similar to what most other wealthy nations provide to protect children and families from poverty. The panel, which was hosted by the American Constitution Society’s New York chapter, focused on both President Biden’s proposal for a child allowance, which is included on a short-term basis as part of his American Rescue Plan, as well as Republican Senator Mitt Romney’s child allowance proposal released earlier this month, which lent bipartisan support to the idea, albeit with some less than ideal pay-fors.
As the debate around a U.S. child allowance continues, we at Off-Kilter are excited to bring you that panel discussion for this week’s podcast, with thanks to our friends at ACS for hosting it and letting us share it with our listeners. The discussion was moderated by Joel Dodge, co-chair of the ACS New York chapter, and the other panelists were Greg Duncan, Distinguished Professor at the University of California-Irvine and one of the leading researchers on child poverty in the U.S, and Sam Hammond, director of poverty and welfare policy at the conservative Niskanen Center and one of the leading conservative champions for a U.S. child allowance.
♪ I work and get paid like minimum wage
Sights to hit the clock by the end of the day
Hot from downtown into the hood where I slave
The only place I can afford ’cause my block ain’t safe
I spend most of my time working, tryna bring in the dough…. ♪
REBECCA VALLAS (HOST): Welcome to Off-Kilter, the show about poverty, inequality, and everything they intersect with, powered by the Center for American Progress Action Fund. I’m Rebecca Vallas.
Earlier this week, I participated in a panel discussion on the prospects for converting the U.S.’s Child Tax Credit — which currently leaves behind the poorest third of American children — into a child allowance, similar to what most other wealthy nations provide to protect children from poverty. The panel, which was hosted by the American Constitution Society’s New York chapter, focused on both President Biden’s proposal for a child allowance, which is included on a short-term basis as part of his American Rescue Plan, as well as Republican Senator Mitt Romney’s child allowance proposal released earlier this month, which lent bipartisan support to the idea, albeit with some less than ideal pay-fors.
As the debate around a U.S. child allowance continues, we at Off-Kilter are excited to bring you that panel discussion for this week’s podcast with thanks to our friends at the American Constitution Society for hosting it and for letting us share it with our listeners. The discussion was moderated by Joel Dodge, co-chair of the ACS New York chapter, and the other panelists were Greg Duncan, Distinguished Professor at the University of California, Irvine, and one of the leading researchers on child poverty in the U.S., and Sam Hammond, Director of Poverty and Welfare Policy at the conservative Niskanen Center and one of the leading conservative champions for a U.S. child allowance. Let’s take a listen.
JOEL DODGE: Hi, everybody. Thank you for joining us. My name is Joel Dodge, and I am Co-Chair of the American Constitution Society’s New York Lawyer Chapter. We are thrilled to be putting on today’s panel, A Basic Income for Families: Prospects for an American Child Allowance. I’d like to thank our co-sponsors from across the country today. It’s the lawyers chapters in Austin, in Georgia, Los Angeles, Madison, Oregon, San Diego, Washington, D.C., the Bay Area, and Western New York. Thank you very much for your support for today’s events.
Before we kick things off, I just wanted to note that we will be reserving time for questions at the end. So, please submit those at any period during the program today using the Q&A function in Zoom. You can follow our chapter to find out more about our upcoming events. We’re on Facebook. You can search American Constitution Society, New York Lawyer Chapter. We’re on Twitter @ACSU_NY. And I’d also encourage you to sign up for email updates through the ACS website to keep on top of what we have going on.
Nd just as a disclaimer, we are going to be talking about policy and legislation today. But ACS is a 501(c)(3) organization. It does not support political parties or candidates, and it does not take stances on pending legislation. So, these are our views only.
Okay. So, to kick things off, back in 2009, I was in college getting ready to visit the Netherlands to study Dutch social welfare policy, and I came across an article by the writer Russell Shorto, who was an American expat living in Amsterdam. He wrote about getting acclimated to his new country’s welfare supports. He said, “Logging into my bank account, I noted with fleeting but pleasant confusion the arrival of two mysterious payments of €316 each.” The remarks line said, “accommodation: schoolbooks.” Every quarter, the Dutch social insurance quietly dropped $665 into my account with the explanation, “Child Benefit.” As the bank’s website cheerily informed me when I went there in bewilderment after the first deposit said, “Babies are expensive. Nappies, clothes, the stroller, all these things cost money. The Dutch government provides for child benefit to help you with the costs of bringing up your child. Any parents living in the country receive quarterly payments until their children turn 18. And thanks to a recently passed law (at the time), the state now gives parents a hand in paying for school materials.”
And I was blown away when I learned this: that the government could have that kind of relationship with its people and providing support and a helping hand as they raise families. And for years, what’s known as a child allowance abroad was sort of a pipe dream in the United States. And then recently, it’s been overshadowed by other higher-profile progressive reforms and ideas. But quietly, momentum has been building up around the child allowance concept in the United States. And thanks to the hard work of many people, including several of our panelists here today, it may just be on the verge of becoming a reality in the U.S.
So, we have three great panelists joining us today to discuss this idea and this concept. Greg Duncan is a Distinguished Professor of Education at University of California, Irvine, Sam Hammond is the director of policy and welfare, sorry, the Director of Poverty and Welfare Policy at the Niskanen Center, and Rebecca Vallas is a Senior Fellow at the Center for American Progress.
So first, let’s set the stage for why we need a child allowance at all. So, Greg, what is the state of child poverty in the United States, and what are its consequences and impacts?
I think you’re on mute, Greg.
GREG DUNCAN: Thank you. [chuckles] Thank you for having me. I appreciate this opportunity.
A couple years ago, I chaired a committee of the National Academy of Sciences that produced a report on pathways for reducing child poverty in the United States by 50 percent. That was the mandate. It was a congressionally-mandated study. And one of the things that we did was to review the state of child poverty in the U.S., but also to review the literature of what we know about the impacts of poverty on child well-being. So, with the proper calculations, when you add in income from non-cash sources as well as cash sources and do a bunch of other corrections, the estimate is about 13 percent of kids in the United States live in families with incomes below the poverty line, roughly speaking, about $25,000 a year for a family of four. And about three percent of kids live in families that might be characterized as in deep poverty, which is less than 50 percent of the official poverty line, in other words, less than $12,000 a year. And so, we used that as a benchmark and then tried to come up with ideas for reducing that 13 percent figure by 50 percent.
But in this review of the literature, we tried to distinguish between the thousands of studies that have correlated low family income with all sorts of child outcomes. Invariably, you find strong correlations: Poor kids are doing worse across a whole range of health and achievement and attainment and behavioral kind of outcomes. But we tried to concentrate on the literature that was more academically rigorous, that really tried to isolate the causal impact of poverty on kids.
When you get into discussions of poverty, people will say, “Well, it’s not really the money. It’s single-parent family structure, right? It’s culture. It’s any one of a number of other things that are correlated with poverty that could be causing these worse child outcomes and not income itself.” So, we really tried to concentrate on the studies that tried to isolate the effect, the extent to which income itself was kind of the basic ingredient behind worse child outcomes. It’s a huge literature, and we ended up — and not every study agrees with every other study — but the committee ended up with a weight of the evidence kind of conclusion that indeed, child poverty was detrimental for child development, that the duration of poverty mattered — longer stretches of poverty produced worse child outcomes — and that early child poverty probably was the worst of all, because in early childhood, you’ve got children developing very rapidly. Things get wired up, various biological and cognitive systems. So, we were pretty confident after that review that, I think what a lot of people suspect, that child poverty was indeed detrimental.
Moreover, when we did a review of social net safety programs, most of them, when they came on board, like the Food Stamp program in the ’60s and ’70s, expansion of the Medicaid program, expansions of the Earned Income Tax Credit program, careful studies trying to see what the impacts of the either expansion or initial rollout of those studies found that they also were related to child well-being. So, with Medicaid, you find lower incidence of low birth weight, better child health. With Earned Income Tax Credit expansions, they were linked with child achievement. And with the rollout of the Food Stamp program, there’s one study that linked being in a county that had Food Stamps when the kids were in utero and early childhood, and those kids did better three or four decades later in terms of their health. So, both income itself, as well as many social programs, not all social programs, appeared to have these strong linkages to child well-being. So, that was kind of the impetus and the motivation for wanting to know what kind of policies we could come up with that would reduce child poverty dramatically in the United States.
DODGE: And we have studies on, research showing what actual positive income shocks, income boosts mean for kids at a young age in their lives, is that right?
DUNCAN: Yes, we have. You know, it’s hard to really isolate because with an income shock, right, there’s usually something else that happens: an unemployment shock or something else. And it’s hard to isolate what the income effect is. I am involved, people might be interested, in a real experiment that is testing out the extent to which providing low-income mothers who’ve just given birth with either a steady child allowance equal to $4,000 a year, paid monthly for the first 14 months of children’s lives, to what extent those kids are growing up in their early years to have better cognitive development, behavioral development, better health than kids in the comparison group families where the mothers were receiving income, but it was only $20 a month for 40 months. So, it’s a project called Baby’s First Years. I would encourage people to look at the website BabysFirstYears.com. We are soon to start talking about the results, but I’m sworn to secrecy at this point.
DODGE: All right. We’ll look forward to seeing those when they come out, Greg. Thank you. Rebecca, what kinds of policy tools do we have right now to address child poverty?
VALLAS: Well, first off, Joel, thanks so much for putting this on and for inviting me to be part of the discussion, incredibly timely discussion, perhaps even more timely than folks realized when they were pulling this together. So, to answer your question, recognizing that Sam will be talking shortly in greater detail about how child allowances have worked abroad, I really appreciated your opening remarks because I find it extraordinarily useful to start a conversation like this by situating the U.S. and its policy landscape in the broader global context. So, where yet again, the sort of upshot is we’re an outlier among wealthy nations, right? And that’s because nearly all wealthy nations, aside from the U.S., as many, I should add, as well as many less wealthy nations, have some type of child allowance or child benefit to help families meet the cost of raising children. And it’s in recognition of all of what Greg was just sharing, right? The moral case, as well as the economic case for wanting to protect children from poverty, particularly early in life.
So, what we have instead in the U.S. — we don’t have a child allowance, we don’t have a child benefit — what we have instead is something called the Child Tax Credit. There are other programs as well. But I’m going to focus on this one given the focus of our time today. Now, the Child Tax Credit, critically important but extremely limited as a policy solution for addressing child poverty is the way that I think of it. It provides, sort of the CliffsNotes: here are $2,000 per child for families with kids under 17. But it’s designed in such a way that it leaves out the poorest third of kids, basically the kids who need it most, right, if this is about child poverty. And it does nothing to help families meet the ongoing costs of caring for kids because it’s something you get at tax time. So, what does that end up leaving us with? About 27 million kids in low-income families, the families we most want to be getting this benefit to, who don’t currently receive the full credit.
So, let’s take a look at why. And this takes us back to the international context. Greg was just mentioning the National Academy of Sciences report that was so instrumental, I think, in shaping a lot of people’s thinking and understanding about child poverty. And that report is also really instructive in offering a look at how the U.S.’s Child Tax Credit measures up, and I would say falls short to, compared with other countries’ child allowances and child benefits. And I would actually use even stronger language. I think the U.S. kind of stands out like a black sheep in several ways.
So, for starters, we’re the only country to deliver a child-related payment at just one point during the year rather than sensibly doing it in regular installments. Because families need to know that they can count on assistance as part of their household budgets, as opposed to a one-time expense. We’re the only country to require a minimum level of earnings to access the benefit that’s about reducing child poverty, such that those with lower incomes, as I mentioned, often receive less than those with higher incomes. Not the outcome I think we would be looking for. We’re the only country that doesn’t offer the full benefit in cash. We have a complicated system that is a partially-refundable tax credit, which the short version of that is not fully available for the kids who need it most. So basically, to sum it up, I would say the largest expenditure that the U.S. federal government makes right now specifically directed to children, the Child Tax Credit, currently operates — and I’m not the only one who’s observed this — basically like a child allowance for middle- and higher-income earners while excluding the one third of children who need it the most.
So, I’ll note that, of course, it is very much important to be clear that the child allowances that we’re talking about in other countries are also part of other countries’ broader social policy frameworks. The U.S. also is a black sheep on a lot of those other fronts as well, which we’re not talking about as much today, like child care and paid leave. But it really was, I think, in thinking about those shortcomings and also the lessons from international successes in child benefits, such as Canada’s, which I know Sam is going to get into, that really were a model for those of us at the Center for American Progress years ago when we were originally publishing recommendations on how to harness the Child Tax Credit as a tool that could become a child allowance, which now we’re extremely excited to see actually being debated today. So, I’ll leave it there, but that, to me, is really where the conversation needs to start.
DODGE: Yeah, thanks for that, Rebecca. Sam, why don’t you tell us a bit about how child allowances have worked in countries like Canada and the UK and what they’ve been able to accomplish abroad.
SAM HAMMOND: Yeah, I’d be happy to. And thanks again for having me and this entire panel today. Yeah, so, I work in D.C. I work in public policy, but I’m originally born and raised in Canada. And I like to say one of my subterranean mission statements is to make America more like Canada. So, naturally, when I first started at my current position back in 2016, our first paper was Towards a Universal Child Benefit, because as Rebecca was mentioning, Canada has had, Canada’s really had some form of a family benefit for decades. But I was coming at it from a center-right perspective and was really inspired by the fact that in 2006, the Conservative Party in Canada enacted a universal child allowance, essentially taking a series of these sort of non-refundable tax benefits and rolling it into something flat and universal, and seeing that as a potential way forward for conservatives in the U.S. who have been stuck in a more anti-government mentality for at least 30, 40 years now.
And so, the way it works in Canada, and the way it works in 20 other countries, is that about 20 other countries have something that’s truly what you could consider a truly universal child allowance. Then another 30-odd countries have benefits that are identical to a child allowance if you’re at the low end, but phase out or are means tested at the high end. And in Canada’s case, we do it through the Canadian Revenue Agency, but other other countries do it through their equivalent of Social Security. And in essence, they all sort of function the same. It doesn’t really matter when you look at your bank statement what agency the deposit comes from, that you have the same experience you had in the Netherlands, Joel, where you had monthly, quarterly payments to support you and your family.
And the real key idea behind a child allowance, and where it sort of originates in the Great Depression in other countries. And in the U.K., it originates with the Beveridge Report — a famous report behind the construction of the United Kingdom’s welfare state — is this idea that in a capitalist economy, families do not by nature get paid more just because they have kids. You’re sort of paid a market wage, and therefore, a capitalist kind of by nature does not guarantee subsistence for families, much less sort of provide a parenting wage. So, many countries adopt child allowances in that context. The U.S. story’s a little bit different because, again, the Child Tax Credit, which we’ve been talking about, emerges out of the Contract for America and the kind of Reagan-era conservative coalition where cutting taxes is good, but giving people money for nothing is not.
So, ever since then, we’ve sort of been excluding the poorest families out of this sort of rhetorical sleight of hand because we want to support families. We want to send them some kind of credit, but we don’t want to think of it as welfare or some kind of handout. So instead, we sort of, again, to the rhetorical sleight of hand where we get to talk about it as if it’s a tax cut. And that’s sort of been running on fumes because since Trump’s sort of disrupted everything, say what you will about his own policies, he at least opened up the window for new thinking in this area. And people are starting to realize that doing a token increase to the Child Tax Credit is not really breaking with zombie Reagan. If you really want to do something big and bold, we should learn from Canada, learn from other countries, and do something like a child allowance, particularly now where we have schools shut down, child care facilities shut down, an enormous number of families, including many middle-class families who’ve lost their job, lost their income and are struggling to deal with child care in a way that is extremely diverse and dependent on their particular circumstances.
One of the hopes behind why someone like Senator Mitt Romney — will get into some of the details of these plans — have broken with the mold and introduced a universal child allowance proposal is because they’re hearing both the poverty arguments, but also the family stability arguments, right? So, when Canada expanded their child benefit in 2006, there was a study looking at how the benefit was used in terms of consumption expenditures. One of the striking things, there’s a famous story in Canada. I think it really shaped a lot of this politics where a Conservative Party member said that, “Don’t do a child allowance because they’re just going to spend it on beer and popcorn.” And that is attributed to a huge backlash [chuckles] and made them reassess their views on this stuff. And when you actually looked at how parents spent their child allowance, there were two main channels the money went to. One’s called the resource channel, the increased spending on direct inputs like education, child health care. But then there’s a secondary channel, which are sometimes called household stability items, which are sort of just like the regular day-to-day things like rent, like transportation, that just simply reduce household stress, lead to less sort of internal domestic drama, and therefore create longer-term, stronger families, which are really important for kids.
You know, we were talking about some of the studies on the effect of an income shock, positive or negative for a family. There was a study that looked at the Great Recession that found for every percentage point increase in the unemployment rate, there was a 25 percent increase in child neglect and abuse. And so, we don’t really know what’s going on with this pandemic. There’s been an awful big increase in the unemployment rate. But at the same time, places are reporting lower rates of abuse and neglect, but not because it hasn’t happened, but because people aren’t reporting it, because everyone is stuck at home.
DODGE: Yeah, that makes sense. Rebecca, Sam was starting to get into this, I think, but we’re talking about a child allowance in the context of a pandemic, of a recession. So, why should we do it now? What is the case for doing this now?
VALLAS: Well, it’s a great question. And I think the first thing to say is that it’s really important to be clear that this is one of many policies that we sorely needed before the pandemic, and that it didn’t take a pandemic to need. Advocates and researchers have been pushing for this idea long before the pandemic in ways that Greg and Sam were both describing, in large part because economic instability had already become the norm for, frankly, a wide swath of U.S. families who had been getting increasingly squeezed by rising costs and flat wages, right? And a big part of that is the poverty-level minimum wage. So, I think we’ve laid out a lot of the case for a child allowance, even absent a pandemic. But I’m going to add on a little bit more of that pandemic layer. And a few of the points that I think are worth noting really…. Actually, before I get into the pandemic layer, actually, let me back up for just a second.
I think there are a couple of points that haven’t been made yet that I want to get to before we get to the pandemic later, one of which is just as we categorize some of these arguments, right? There’s on the one hand, the moral case. I think we’ve all been talking a little bit about the moral case in parts that alleviating the hardship and the stress and the suffering that accompany child poverty is reason enough to do this. But there’s also the economic case. And I wanted to be discreet about those. That case is one of the ones Greg was really talking about before, that there’s long-term positive health and education and even employment effects of investing in kids that go far beyond mitigating near-term deprivation and suffering.
And so, as we think about those as kind of some of the categories of arguments, even without the pandemic, right, when you also start to think about which families we’re talking about here, right, I think there’s another layer that I want to inject. And that has to do with the fact that the birth of a child is actually itself one of the leading triggers of poverty spells in the United States, right? And so, families face significantly higher rates of poverty and economic insecurity during those early years of their child’s life in ways that show up with the consequences that are long-term, as Greg was describing.
But a big part of what’s going on there is not just the fact that we don’t have paid family leave and child care in this country. It’s also that parents of infants and toddlers are often younger parents who are still in the process of establishing their careers, building savings, economic security and stability. They’re also more likely to be paying student loans, something we’re talking about now as a country in a really big way, and to have high rent and mortgage payments relative to their incomes.
So, all these things going on, right, for families, particularly in the early years of life for their children. And that’s, you know, a large part of that is because the average age of first childbirth comes a quarter of a century before a woman’s peak earning years, for example, right? And also because of the economic precarity that younger people are also more likely to face. And all of these things were true before the pandemic. I think this is really important as we situate some of this, because it helps to tell the story, not just about why we are talking about a child allowance, but why we’re also talking about the need for a child allowance that includes a young child boost, which is a really important piece here that’s really driven by the research.
So, now enter the pandemic, right? It’s close to becoming a cliché, if it hasn’t already since we’re all saying it so often, but we have to say it so often. But in so many ways, the pandemic and the recession really haven’t just laid bare the urgent gaps in our existing public policy landscape, they’ve also thrown the pre-existing poverty and inequality crisis that we knew we were facing before the pandemic on steroids. And add in the disproportionate impact of the economic recession on women in particular. Many people have been calling this the “she-cession.” In particular, Black women have really taken the brunt of a lot of the labor market impacts here and jobs lost. And all of this, of course, comes on top of the immense job loss and economic crisis facing millions upon millions of families.
Broadly, one of the statistics that I can’t get out of my mind is that the share of children living with at least one unemployed parent reached historic heights actually back in April: one in five children living with at least one unemployed parent. And then you start to look forward, right, and think about the current projections that we’re seeing from researchers looking at what poverty rates are likely to be in the years to come and thinking about how much poverty is set to rise further still in the coming years. Some of the scenarios, I would say, range from terrifying to worse, depending on the scale of economic relief and the pace of labor market recovery. But you think about all of this, right, and a monthly child allowance that actually reaches the poorest families and especially folks with young kids really does start to emerge as one of the single most important forms of relief that policymakers could possibly be seeking to provide right now, morally as well as economically.
And now I’m going to get into the economic side just briefly. The evidence that we have of what has worked to protect families from poverty during the pandemic itself actually also further bolsters the case for exactly this kind of policymaking. And that’s because it’s really shined a light on the effectiveness of giving families direct cash, to Greg’s point before, and of expanding programs that boost incomes. Remember the CARES Act, right? I think we all do. Well, when you actually look at what the CARES Act did, according to a group of Columbia researchers that’ve been tracking poverty rates in real time during the pandemic, despite millions of job losses, the poverty rate in this country actually fell during the summer of 2020 because of the CARES Act and the payments that it made.
And so, a couple of other economic points that I think folks are really needing to pay attention to right now, expanding the Child Tax Credit. It would be an incredibly effective form of economic stimulus. Research tells us that during recessions, including during the Great Recession, expanding the Child Tax Credit can generate as much as $1.50 in economic activity for every dollar spent. That’s often called a multiplier effect. I could go on and on, but Joel will get mad at me. So, I’m going to stop there and just offer one final lesson from the pandemic, which is how cruel and ineffective it is to tie basics like health insurance or income support to employment status. And that’s another important piece of really what’s being debated here.
The proposals currently being debated, both Biden’s and Romney’s, would very sensibly, I would say, decouple the Child Tax Credit, a credit that was in its original state created to quote, “better recognize the financial responsibilities of raising dependent children.” That’s what Congress said it was about. Decouple the Child Tax Credit from parents’ employment patterns, that’s really what part of this is. And, you know, why does that matter? Well, kids themselves can’t work. They can’t control their parents’ employment status. And here we have an opportunity to actually provide something decoupled from parental employment status in a way that insulates the assistance from the hazards of the labor market. Which we’ve been reminded and beaten over the head by this pandemic about its unpredictability, its uncontrollability.
Unstable conditions for low-wage workers exist, even absent the pandemic, even if the pandemic is what it’s taken, I think, to understand and really think about the need to decouple assistance forms like this from a volatile employment status. So, all of those, I think, start to build a really, really strong case for why this is something we needed long before the pandemic. But, boy, do we need it now more than ever.
DODGE: Thanks, Rebecca. So, we’ve been kind of dancing around the plans on the table today. So, let’s actually dive into those. We’ve got the American Rescue Plan from President Biden being developed in consultation with congressional Democrats, based this, at least, piece of it is based on an existing bill called the American Family Act. We’ve got that. And then on the other hand, we’ve got Senator Romney’s Family Security Act. So, Sam, could you just kind of walk us through in broad strokes how these plans work, what they have in common? We’ll get to the distinctions a later, but what would they in general mean for American families?
HAMMOND: Be happy to. So, starting with the American Family Act, it sort of starts with the existing Child Tax Credit that we have, which is, as mentioned, $2,000, depending on your earnings and tax liability and makes it fully refundable, meaning it would no longer be tied to earnings. And then, in addition, increases the credit levels to $3,600 for young preschool kids and $3,000 for older kids. And they’re aspiring to do this monthly or quarterly, depending on the IRS’s ability to get it up and running. The credit would phase out above $75K or $150K for single and married households back down to the existing $2,000 credit and then back out until $200,000, $400,000. Then it begins phasing down again. I think that’s partly a bit of a kluge because President Biden promised not to raise taxes on anyone making under $400K, so they’re kind of stuck with the face, I would say, that they have.
Interestingly, Senator Romney has sort of come over the top in some ways and proposed an even larger young child benefits of $4,200, $350 a month, and the same $3,000 benefit for older kids delivered monthly by the Social Security Administration. And under Romney’s proposal, the entire thing would be universal up front with only households making above $200 or $400K paying it back on their annual taxes. So, in terms of dollar values, the Romney benefit is larger for young kids and administered by the Social Security administration, rather than the IRS. In addition, the Biden proposal is only for one year. But people anticipate that this is sort of the low start-up cost version, and then they’ll come back a year from now and figure out how to make this more permanent.
DODGE: Sam, can you tell us a bit about the impacts of a child allowance? What would a child allowance do in terms of reducing poverty under these plans?
DUNCAN: Okay. So, I think you directed it to me. Your voice is a little bit weak right now. One of the policies that we simulated in our National Academy Commission was a $3,000 child allowance. It didn’t have the extra $600 a month or a year for families with young kids, but it was just a straight up $3,000. You know, the way we count poverty is by comparing income to some poverty threshold based on family size. So, almost in a mechanical way, providing more income to low-income families is going to bring some number above the poverty line. And indeed, that was the case. And for the $3,000 child allowance, the estimate was about 40 percent reduction in child poverty from this 13 percent base rate. All of our calculations were pre-pandemic, I should say.
So, our goal was to try to find ways of cutting child poverty in half in 10 years, and the child allowance was by far the most potent in terms of reducing child poverty. We also came up with some packages that combined a child allowance with expansions of the Earned Income Tax Credit, for example, that can get you down to the full 50 percent. So, we also looked at deep poverty, as I said, which is defined as incomes below half the poverty line. And that, too, was cut about in half by a $3,000 child allowance. So, there’s no doubt that child poverty would be dramatically reduced with this $3,000 child allowance.
DODGE: Okay, thank you for that. Rebecca, what do we know about which populations would benefit the most from a child allowance, and how do we make sure that the benefits reach kind of hard-to-reach groups?
VALLAS: Yeah, it’s a great question. In a lot of ways, I think it’s actually kind of one of the million-dollar questions here, or maybe we’ll call it the $3,000 question, I guess. Because I realize we’ve talked about it a little bit already, but it it does feel like it’s worth repeating. The biggest problem with the current Child Tax Credit and the hard-to-reach group is actually one that is sort of baked into the design. It misses the families who need it most because of how it’s structured. So, we’ve already talked a little bit about the limitations of partial refundability and the minimum earnings test and phase-in. I realize this stuff gets really wonky, and people’s eyes start to glaze over at some point. But since Senators Rubio and Lee do appear to be clutching their pearls at the prospect of addressing some of these limitations so that the kids who need the income boost actually get it, it does seem to bear repeating.
So, we talked before about how 27 million kids in low-income families, roughly, don’t receive the full $2,000 credit because their parents lack earnings or because their earnings are too low, right? So, even if you don’t want to get into the weeds of like all the numbers we’re talking about, that is really the top-line thing to take away. Now, the vast majority of kids in households with incomes in the bottom decile, so we’re talking about the very poorest kids and families in this country, are completely ineligible for the credit. Most in the bottom 30 percent are eligible only for a partial credit. A different way to put this is that just 15 percent of the total benefits of the Child Tax Credit were claimed by families making less than $30,000 in 2020. So, hopefully that helps people kind of capture the broad architecture of what we’re talking about in who the hard-to-reach folks are. It’s baked into the design.
It’s critical to note that it’s not just income disparities that we see with the Child Tax Credit that are both perverse and that need to be addressed. There are also striking racial disparities as well in which kids and families are currently helped by the Child Tax Credit. There’s a really helpful, on-point NBER working paper published last fall in October, looking at this from Goldin and Michelmore, and they find that three quarters of white and Asian kids are eligible for the full Child Tax Credit. And then that compares with about half of Black and Hispanic kids. Black kids are especially unlikely to be eligible for the Child Tax Credit. They actually constitute one in four ineligible kids across the board, despite the fact that Black kids make up only 14 percent of all children in this country. And full refundability, as we’ve been talking about, removing that earnings test and the cap on refundability is really especially going to help these kids. And it’s a feature of both Biden’s and Romney’s proposals.
I know we’re going to get into more details, but it’s the part that’s really important to understand, because it’s the part that makes these proposals more akin to a child allowance. And it’s the part that is going to ensure that this investment, this investment in our kids, that the Child Tax Credit is and should be, really will actually reach the groups who most need the income boost. And also it will take steps towards addressing those racial disparities.
Another critical element of it, and this goes back to the hard-to-reach groups, right, is that extra boost to families with very young kids under age six. It’s actually worth noting that the other features of the policy as well, so full of availability as we’ve been talking about, will especially also help those families. Because as I was talking about before, families with young kids are especially likely to be poor, and thus, in this kind of negative feedback loop that it all sets up, less likely to benefit from the full credit.
And of course, the monthly piece is especially critical in its own right, because ongoing expenses for raising kids like diapers and clothes and other basics don’t wait for tax time. But that’s, I know we’re going to start to sound like a broken record at some point talking about some of these features and why they’re so important, but it really is part and parcel of the conversation about who those hard-to-reach groups are and why we’re missing them right now. It’s a feature, not a bug, of the current Child Tax Credit.
DODGE: Yeah. So, let’s talk a bit about the distinctions between the Biden and the Romney plans. Sam, I know one of the key bones of contention with the Romney plan is how it’s paid for. It eliminates the Temporary Aid for Needy Families program, and it reduces the Earned Income Tax Credit. There’ve been some, some pointed out that TANF lifts 300,000 people out of poverty every year, and it’s one of the few ways that we subsidize child care. Catherine Rampell and The Washington Post claim that under Romney’s plan, many low-income families are likely to end up not much better off than they are now, since a large chunk of their new benefits would be offset by losses of old benefits, and a lot of low-income single parents might be left substantially worse off. So, what’s your response on those points?
HAMMOND: Well, I guess the first response is the single biggest pay-for in the Romney plan is a tax increase on high-income families. So, that generates about $20 billion of the $66 billion in new revenue that they need. The other $16.5 billion, as you mentioned, the ending of TANF, one of the sort of conceptual ideas behind the Romney plan is to step back and say, you know, we haven’t taken a real comprehensive look at our family benefit system in a long time.
TANF, the program that was created after welfare reform, you know, it’s a program that kind of cuts itself every year anyway because it’s not been indexed to inflation. And so, in real terms, it’s already shrunk by 40 percent. Meanwhile, in that same period, the amount of money within TANF that goes with cash assistance is now below $3 billion of that $16 billion. Instead, many states use it to fill budget gaps because when Clinton signed welfare reform into law, the mandate that the TANF block grant had went from including child poverty to including things like support for two-parent families. So, suddenly, you have Georgia funding marriage counseling for upper-income households.
And so, and on top of that, the TANF program is incredibly tilted towards California and New York because it was sort of based on this old matching formula allocation that was been frozen in time since 1996. And so, when you’re looking at the red states where they often have very draconian, punitive work requirements, drug tests, etc., to be eligible for TANF, one of the reasons is they’re rationing the benefit because they get very little money per child. So, California gets about $400 per child from TANF. Texas gets about $65. And one of the aspirations of universal child benefit is both to put a massive dent in child poverty, but also to come over the top of the state discretion that’s behind a lot of these programs and say, you know, we have a per-child benefit at this point. All these fiscal disparities disappear.
The other bone of contention is by far the modifications to the Earned Income Tax Credit. There, I think you have to be a little bit careful. So, the EITC is a very successful anti-poverty program, but it sort of has this hybrid mission where it’s both an earnings credit — it’s supposed to pull people into work — but it also has a ton of child variation. So, if you have a kid, your EITC jumps from a little over $500 to over $3,000. And so, it really is a family benefit in disguise. And it’s an incredibly complicated credit to claim: Only 78 percent of families who are eligible for EITC even claim it year over year because of the complexity. And much of it gets eaten up in the form of fees to tax prep agencies and stuff like that.
So, to simplify the credit, what Romney proposes is removing that per-child variation, putting into the child allowance, and having the EITC be a more straightforward wage subsidy. If you isolate the people who are receiving the peak EITC right now and look at the before and after of this reform, you’ll find that there are people who come off slightly worse or about break even. But that’s, in my view, very much offset by the enormous impact on deep poverty that the program has, because it’s larger for young kids.
In addition, one of the, I think, fallacies or mental model problems that we have when we talk about poverty is that we’re always looking at point-in-time and thinking of these deciles as if they’re fixed. When in reality, going to a point Rebecca Vallas earlier, you know, that mom who has her first kid when she’s 26, maybe she’s fresh out of school. She doesn’t have a lot of earnings. At that point in time, she is in those lower quintiles of income, even though she may, because she has an education and career prospects, be expected to go on to make tons of money when she’s older.
And so, the fact that people move in and out of poverty and these sort of arbitrary lines we draw is an important reason for making the benefit fully refundable and fully available. Because otherwise, you have people who have lost a job, had their hours cut back, etc., and they’re taking an income shock or a temporary shock that puts them under the poverty line. And if at the same time, we begin clawing back benefits because we’re thinking that they’re sort of a static population, then they face a double whammy. And to have the kind of insurance aspect of a child allowance, it really has to be there for you in good times and times that are bad.
DODGE: Rebecca, did you have any response in terms of the Romney pay-fors, how his bill’s funded?
VALLAS: Yeah, I won’t say a ton, but I do feel like it needs to be talked about just a little bit. There’s a lot to like in the Romney proposal. The pay-fors are one of the aspects that I think a lot of folks, progressive folks, really do take issue with. I’m one of them. A lot of folks have been crunching the numbers, as Sam was describing and as you were describing, to look at whether kids will be worse or better off with the Romney proposal because it’s paid for through eliminating TANF, and it’s also in part, the EITC and some other components.
To me, and this is sort of where I come back to, the test really shouldn’t just be are kids the same or better off with even a small group that maybe is worse off, particularly considering how much so many families with kids are already struggling. And a related point is that I don’t think that the measure of success should just be cutting child poverty in half. I recognize that that is an ambitious goal that is relative to our starting point that we’re talking about here. And it’s more ambitious than where we have been as a country having serious debate in quite some time. But I would hope that we can start to push the conversation towards eliminating child poverty, eliminating poverty in the U.S. more broadly. We can get to that in another roundtable.
But particularly if we’re using austere measures of poverty, like the official poverty measure or even the supplemental poverty measure, which bear very little resemblance to the actual cost of living in the U.S., right, I think it’s important that we not set up metrics of success that we then start to think of as ceilings rather than as floors or benchmarks on a longer arc. So, I think with all of that as context, a little bit of what’s in my brain as I say this next piece, I realize I may not have full support on this panel, but I don’t think we should be in the business of paying for needed expansions of income support like the Child Tax Credit with cuts to or elimination of other programs that provide income support, even if they aren’t perfect programs.
And I think the other place my brain goes to is where was the obsession with pay-fors when the GOP was passing their $2 trillion in tax cuts for the ultra-rich and wealthy corporations? I’m waiting, listening. Oh, right. There were crickets back in 2017. And somehow pay-fors end up only being a compulsion that comes up when it comes to measures to boost low-income families’ economic security. And I think that’s something we really need to sort of reckon with as a society, but also as people who care about discourse.
So, to me, I like to turn the question on its head, and I would urge folks to look at the cost of doing nothing. And child poverty is a great example of a place where, when you start to think about the cost of doing nothing, the cost of doing something about it starts to look a lot more reasonable and modest in comparison. One way of thinking about this comes, again, from that National Academy of Sciences report that Greg was mentioning before. And that group found that the cost of child poverty was around $1.1 trillion a year expressed in lost gross domestic product, GDP, as of 2019. Fully 5.4 percent of GDP lost because we allow the levels of child poverty that other developed countries find abhorrent.
And so, if you want to be utilitarian about it, right, we’re talking about today’s kids being our future workforce. There really is, I think, a much stronger argument for thinking about this as an investment that honestly is one that makes economic sense just as much as it makes moral sense. And I think that that starts to put pay-for conversations in a slightly different light.
HAMMOND: Can I quickly respond to that? So, I don’t blame progressives for being skeptical of a Republican who comes bearing gifts, right? After 40 years of Reaganites or anti-government mentality, you’re fair to be suspicious. But over that time, I think there’s also been this other problem, which is the degree to which we’ve taken a defensive posture against any reform to do something more comprehensive and clean up the system. And it’s not just in the poverty space.
You know, the federal government has 40-odd distinct employment and training programs. Do we need 40 different programs? But anytime you try to approach and take a more comprehensive picture, you get into arguments about committees and jurisdiction. You get into arguments about specific-issue advocacy groups that’s their one raison d’être. And that’s both bad, I think, from not just the fiscal side, but also sort of the good government side.
I think one of the underrated benefits of a child allowance vis-à-vis other programs is just how simple and legible and straightforward it is. And there’s an awful lot in the U.S. system here and in other parts, other domains that simplicity would be enormously valued, right? And so, I would just say we can’t take an approach that’s purely additive because at some point, the logical conclusion to that is just sclerosis. And I also agree that Republicans are hypocrites on paying for tax cuts. On the other hand, they did have a big pay-for called the Border Adjustment Tax. But a massive lobbying effort killed that. So, you know, I would say there’s a lot of political economy at play on both sides of the aisle.
DUNCAN: Could I add just one other point that really hasn’t been brought up? I think an advantage of a child allowance is its universality. Our history is one of demonizing cash assistance programs for low-income families. It was true with the old AFDC program. It’s true with the TANF program now. And I fully take the points about Romney’s mix of additions and subtractions. But in the longer run, I think, coming out of this with a universal approach to supporting low-income families will offer a tremendous number of advantages because it won’t be a program that will be stigmatized, cordoned off, and and attacked every few years.
DODGE: I have so many more questions, but we should open it up for Q&A shortly. So, if there are questions from the audience, again, please do feel free to submit those through the Q&A function. Before we do that, though, we talked about the kind of pay-for debate that’s happening kind of on the left side of this discussion. The child allowance plans have also been attacked from the right in terms of what impact they may have on work incentives. So, Sam and then Greg, I think you’d wanted to add to that, too. But, Sam, let’s start with you. What is your response to those who worry about diminishing work incentives from a child allowance?
HAMMOND: Yeah. So, you know, a lot of the poverty advocates in D.C. on the left and the right cut their teeth during the welfare reform debates of the ’90s. And they see a child allowance proposal through that lens. The American Enterprise Institute has been saying that this is bringing back the old AFDC program, which it just couldn’t be further from the truth, right? So, one of the reasons why AFDC, the old welfare program, had this reputation for creating dependency was because often, benefits or the cash assistance would phase out dollar for dollar. So, that’s an implied marginal tax rate of 100 percent. And why would we be surprised that that promotes dependency? It sort of disincentives work by design.
And so, regardless of what you think of the program that replaced AFDC, TANF, it did make a big impact in moving parents, particularly single moms, into the labor force. They needed a lot more support above and beyond that. But we shouldn’t expect a flat, universal benefit to produce the same kind of work disincentive precisely because it’s flat, which means a dollar earned is a dollar kept. And there is a big literature on what’s called the pure income effect, which is not looking at the tax incentive, but just the effect of just giving someone money. Maybe Greg can speak to this more, but when you look at the kind of big picture meta-analysis, it turns out that we’re sort of in the ballpark of an hour loss per 40-hour work week. And that’s sort of the aggregation of some people working a little bit more part-time, some moms staying home a little bit longer after childbirth, and all that adds up to about an hour.
And if you go to the conservative side, they will say, “Well, that’s 275 million hours a year” [laughs] or something like that, because it sounds like a bigger number. But I think any objective analysts would look at that and say, “Well, that’s a very small price to pay for cutting child poverty in half.” And indeed, it’s questionable whether making a mom return to work after six months rather than giving her year off or what have you, is even really producing value. It may increase the GDP statistics because now her labor is being counted in the monetary figures, but has it really increased well-being? I think that’s debatable.
DUNCAN: One of the things that we simulated at the National Academy was the employment effects of these various policies. And the $3,000 child allowance was estimated to reduce employment among low-income adults by about one half of one percent. So, you can multiply that out and be shocked or think of it just as one half of one percent. But the other thing to note is that there were also expansions to work incentive programs like the Earned Income Tax Credit, right? And if you were to couple a child allowance with a very modest increase in the Earned Income Tax Credit, you could have a net increase in employment that was really quite substantial. So, if the goal is not reducing work, there are easy ways of getting there that also include a child allowance.
DODGE: Great. So, let’s talk a bit about the kind of politics here. We’ve got a 50–50 Senate. The filibuster still exists. So, Rebecca, is this going to, could this actually happen? Can this get through the Senate? Does it need to overcome the filibuster?
VALLAS: So, I’m not going to say whether it will happen, because even though I may have a crystal ball, I don’t want to use it for this. I try to keep that more in my personal life and not in my Zooms. But what I will say is the short answer is, yes, it could happen. It could happen. And it could happen with just 50 votes. And the reason is something called budget reconciliation. I scanned the list of participants that we have, and I think that most of the folks who are actually participating in this event today and listening to us know plenty about budget reconciliation. So, I’m not going to go on at great length. But suffice to say that even though the filibuster is still in play, budget reconciliation is a Senate process that allows the movement of certain types of legislation, not all kinds of legislation; you can’t do everything with reconciliation. But you can do some things. And particularly, you can do things that have to do with spending money, right, and with the budget. And there is, I think, a pretty clear opinion from folks who have looked into this that not only can the Child Tax Credit be enhanced in the ways we’ve been talking about through reconciliation, but that that also is part of why we’re seeing it in the package that Democrats are looking to move, that is economic relief through the reconciliation process.
Now, would I love to be seeing this through a bipartisan process? Totally. Does there appear to be some level of bipartisan support for these ideas? Yes, I think that’s clear from Romney’s plan. And I would also just note that I think the Child Tax Credit/child allowance proposal that’s currently in the American Rescue Plan is really among the most popular components in it. And that’s saying something, considering that it’s got a lot to like in it and a lot of that’s very popular with the American people, including highly-popular policies like raising the minimum wage. The American Family Act, which has been referenced a few times and is one of the pieces of legislation that has sort of gotten taken off the shelf and rolled into this recovery package, gained the support of nearly every Democratic member of Congress, including the endorsement of every single Democratic presidential candidate in the past cycle, right? Which is kind of one piece of evidence for its popularity.
But I think in addition to the fact that it can be done, right, Democrats are on the precipice of actually having a chance to cut child poverty in half with just Democratic votes. And I’m really hoping that that does indeed happen. I also just want to give a nod to something Sam said before, which is that this is exactly the kind of policymaking that our leaders should be embracing right now, not just on the merits when it comes to policy, but also thinking about Democrats caring about whether they still have control of either of the chambers of Congress after two years from now, a little less than two years. You know, it’s also really good politics. And I think we’ve learned that, especially following the Great Recession, that when the benefits that are provided to people who are desperately in need of economic relief are tangible ones, right, are ones that people can actually see versus the submerged state the get your government hands off my Medicare kind of stuff that we hear about sometimes that people don’t see, don’t understand, don’t really see solving their kitchen-table problems. That’s the kind of policymaking that Americans aren’t just screaming out for right now, but it’s the kind of policy delivery, this child allowance we’re talking about delivered monthly, the kind of policy delivery that families will see, that they’ll understand, that they’ll feel, it has that kind of transparency and concreteness that Sam was talking about before.
And it would also, frankly, have the benefit of making the credit more understandable and predictable to parents right now as they’re planning out their budgets and filing their taxes. And I hope that Sam is right, and this ends up being the kind of policymaking that Republicans in Congress do end up supporting, in large part because the CTC has historically had bipartisan support. But also because I would wager Republican voters would like to see their leaders embracing this kind of policy as well. And so, hopefully this is the kind of area we can start to see some unity around. But if not, it can be done through reconciliation.
DODGE: On that point, Rebecca, on reconciliation, we have a good question that came in from the audience noting that the Biden plan is good for only one year, and whether that’s deliberate or if that is a product of reconciliation constraints. And then the question is how could that plan be made permanent beyond just a single year?
VALLAS: And I think all of us are probably going to want to speak to this. So, it is one of the most important things to know about the proposal that we’re all saying we really think should happen in some form: It is only for one year. That is how it is shaped in the current American Rescue Plan. It’s a one-year boost. And you know what? Let’s get that one-year boost done because families need it yesterday, honestly. But that being said, the next step is going to need to be making those improvements permanent, or at the very least, extending them substantially. And I will note that that is not something that I have heard anyone say cannot be done through reconciliation. But at a time where the politics are very much wrapped up in price tags and we’re talking about a $1.9 trillion package that 80 percent of the American people agree is either the right size, if not too small, right, and yet, is still going to be a challenge to get through. I think people are paying attention to price tags and putting down payments down in places where they want to come back and make permanence the next step.
DODGE: We’re out at time, but if anybody else wanted to weigh in on that question, I don’t see the participants dropping off yet, so.
HAMMOND: I would just say Mitt Romney’s proposal’s paid for not just because he’s a cold-hearted former private equity guy, [laughs] but also because in the reconciliation process, paying for it, the whole pretext of reconciliation is budget deficit reduction. So, you really need to a pay-for if you want to make this thing permanent. And for that reason, the Romney proposal is paid for through to 2025. It could be made even longer than that. So, at some point we’re going to have to figure out how to pay for permanent expansion to the Child Tax Credit. And I think that things like the whole deduction need to be on the table, as well as cleaning up the existing system.
DUNCAN: I have nothing to add other than thanking you for running this wonderful panel.
DODGE: Well, thank you to all of you, to the panelists, and for everybody for joining. This has been a fascinating discussion and a really critical issue. So, thank you for spending an hour with us, discussing it and learning about it. And as I think we’ve alluded to, it’s a really critical time. These are actively discussed policies and bills that are being shaped and formed right now. So, it’ll be fascinating to see where they go. So, thank you all for tuning in with us, and have a great and safe rest of your day. Thank you.
VALLAS: Thanks so much, Joel.
And that does it for this episode of Off-Kilter, the show about poverty, inequality, and everything they intersect with, powered by the Center for American Progress Action Fund. I’m Rebecca Vallas. The show is produced by Will Urquhart. Find us on the airwaves on the We Act Radio Network and the Progressive Voices Network, and say hi and send us your show pitches on Twitter @OffKilterShow. And of course, find us anytime on iTunes or wherever you get your podcasts. See you next time.
♪ I want freedom (freedom)
Now, I don’t know where it’s at
But it’s calling me back
I feel my spirit is revealing,
And now we just tryna get freedom (freedom)
What we talkin’ bout….