The US has some of the highest child poverty levels in the developed world, closer to Bulgaria and Chile than the UK or Germany, and far behind leaders like Finland and Denmark.
That could change if a child allowance is included in the economic stimulus bill, leveraging the growing tolerance of direct cash payments by legislators and the public.
President Joe Biden has outlined a plan that would transform the Child Tax Credit into a monthly cash payment to parents of children for at least a year, a move that could reduce child poverty by a third, according to some estimates. Yesterday, the Senate voted to begin a legislative process to allow the bill to pass without a supermajority, since few Republican senators have expressed an interest in an expansive effort to boost the country’s economy in the wake of the pandemic.
There is a critical exception: Utah Republican senator Mitt Romney, who has released his own, largely complementary plan to increase cash aid to parents on a permanent basis. Romney’s proposal could help rally moderate politicians behind the idea, a fitting role for the politician who saw the healthcare plan he developed as Massachusetts’ governor adopted on a national scale through the Obama administration’s Affordable Care Act.
Both plans have earned praise from policy analysts, who see them embodying policies long seen as low-hanging fruit to improve the lives of poor children. The proposals would send between $250 and $350 each month to parents with children. They do this in part by making the existing Child Tax Credit “refundable”—that is, expanding the program to some 27 million children living in households that don’t earn enough money to pay income taxes—and available on monthly basis, rather than annually through a tax refund.
Romney’s plan has attracted plaudits for other elements—it would be run by the Social Security Administration, not the IRS; there is a pre-birth payment of $1,400 to expecting parents; and a higher phaseout of the benefits than contemplated by Democrats. The Romney plan ends benefits at $400,000 household income for two parents, while House Democrats have indicated a phaseout of $150,000. Romney’s allowance is slightly more generous over time, with a lifetime benefit of $62,600 per child, rather than $57,600 in the Biden plan, according to analysis by Matt Bruenig at the People’s Policy Project.
The Romney scheme’s generosity is driven in part by its pay-fors—what Congress would use to cover the cost of this cash allowance. It would end the deduction for state and local taxes that largely benefits wealthy households in high-tax states, a progressive move that would ding Democratic voters, along with some other tax benefits targeted at parents. More controversially, it would also reduce the generosity of the Earned Income Tax Credit (EITC) and eliminate Temporary Assistance to Needy Families (TANF), the cash benefit for families that replaced welfare in the 1990s.
Some advocates for poor families fear that this trade-off might result in a net cut to their benefits, particularly for unmarried parents. The cuts to the EITC in particular would put the burden of paying for the new benefit on the lowest income workers making less than $20,000 a year, according to the Center on Budget and Policy Priorities’ Chuck Marr, rather than on those who could more easily afford the sacrifice.
It seems clear that Romney’s pay-fors are driven in part by concerns that too much generosity overall could lead families receiving aid to avoid work. That hasn’t stopped some conservatives from arguing Romney’s plan is too generous. Yet it’s hard to imagine an extra $250 a month leading parents to abandon the workforce en masse—an intuition backed up by empirical research. A comprehensive recent study by the National Academy of Sciences simulated a similar child allowance and found it would lift some 4 million children out of poverty, while potentially reducing employment by about 100,000 jobs—a tiny fraction of the 252 million strong US workforce.
But if the child care tax credit does allow parents to work less outside the home and perform the work of caring for their children, isn’t that the point? The logic of paying families a monthly allowance is that children are important to a flourishing society. Studies consistently show that bringing children out of poverty improves their potential across an array of measurables—from income and health to education and savings. As the cost of raising children continues to rise, the US needs population growth to maintain its economic status.
But, while the US has hinted at this with welfare policies that privilege families with children, they have typically been means-tested within an inch of their lives or rendered inaccessible through poor administration or gradual phase-ins that leave the neediest out. The switch envisioned by Romney and Biden would move the US much closer to a universal child benefit—if lawmakers can close the gap between their two proposals.