On Thursday, the Joe Biden campaign made official the most significant antipoverty proposal of his candidacy: making the child tax credit much bigger, and available to all parents as a monthly check.
This plan, posted in an update to the tax proposals on Biden’s website, comes with a catch, though: Biden will only support the plan “for the duration of the crisis,” referring to Covid-19 and the associated economic downturn. In that respect, Biden is cribbing from the HEROES Act, House Democrats’ stimulus measure that proposed an identical expansion of the CTC but only for the year 2020. The HEROES Act has passed the House, but the Republican-run Senate and the White House have not acted on it.
While it was announced with little fanfare, this proposal is among the most important that Biden has endorsed. The policy he’s endorsing would cut child poverty in the United States by at least a third, possibly more, and would give an average of $2,260 more to American families with children, per the Urban Institute’s Elaine Maag.
Biden isn’t going around telling families with kids that he’s offering them a $3,000 check every year for every kid — but that’s what he’s offering, and it’s a policy move worth taking very seriously.
Biden’s child tax credit policy, explained
The CTC expansion is based on a bill called the American Family Act, which grew out of Sens. Michael Bennet (D-CO) and Sherrod Brown’s (D-OH) offices in 2017 amid the fight over Trump’s tax proposal. The AFA was reintroduced in 2019 by Bennet, Brown, and Reps. Rosa DeLauro (D-CT) and Suzan DelBene (D-WA), with substantial support within the Democratic party: 38 of 47 Senate Democrats have sponsored or cosponsored it, as have 187 of 232 House Democrats.
The AFA, and Biden’s temporary version of it, would dramatically expand the child tax credit (CTC), which currently offers up to $2,000 a year for families with significant earnings but little or nothing for many poor people. That’s because households have to earn at least $2,500 per year for the credit to be “refundable,” or for it to count for households that don’t have a positive tax liability. An American without any taxable income — say, a single mom with a kid who lives with family but doesn’t have a job because of the recession or some other barrier — won’t owe any taxes, but because their income falls below that $2,500 a year threshold, they don’t get any benefit from the current CTC.
The problem is more severe than that, though, because even above $2,500 per year the credit phases in slowly, at a rate of 15 percent. A parent has to earn at least $11,833.33 to qualify for the full refundable credit, a bar that the poorest households can’t meet.
The Biden proposal would expand the size of the child credit and make it fully available for all poor people regardless of earnings. The benefits would be:
- $3,000 per year, or $250 per month, per child ages 6 to 17 (changing the current law which excludes 17-year-olds)
- $3,600 per year, or $300 per month, per child ages 0 to 5
The benefits would be available monthly, in advance, the Biden campaign says, so families could pace out their spending and smooth their incomes. Because the CTC 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 AFA would also reduce eligibility for the credit for high-income households, but the HEROES Act and thus Biden’s plan would not.
For middle-class and upper-middle-class families, 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, and often need paid child care before kindergarten starts.
But arguably the most important effect would be on child poverty. In 2019, when the latest version of the AFA was released, a team of researchers at Columbia University’s Center on Poverty and Social Policy — Christopher Wimer, Sophie Collyer, Robert Paul Hartley, and Sara Kimberlin — estimated how the plan would affect the child poverty rate (measured using the Census Bureau’s Supplemental Poverty Measure, or SPM). The results were remarkable.
Poverty among children would fall from 14.8 percent to 9.5 percent, meaning 4 million kids would escape poverty. Deep poverty — the share of kids living on half the poverty line or less — would fall almost by half, from 4.6 percent to 2.4 percent. The effects might be larger in 2020, when baseline poverty is likely to be higher in the absence of additional government relief measures to combat the recession.
What passing the CTC measures entails
As its congressional supporters are eager to tell reporters, the American Family Act can be passed through the budget reconciliation process. That process enables certain legislation to bypass a Senate filibuster and pass with only 51 votes (or 50 plus bill cosponsor Kamala Harris, who’d be vice president in this scenario).
Given that Democrats are highly unlikely to gain the 60 Senate seats needed to break filibusters, and that Senate Republicans are highly unlikely to support any legislation creating a set cash benefit for every child in America, budget reconciliation is by far the most plausible way this policy could be enacted. Most likely it would be passed as Nancy Pelosi wanted it to be through the HEROES Act: as part of a broader package of post-Covid-19 relief measures.
Budget reconciliation requires that legislation not increase the deficit outside a 10-year budget window (though Senators could tweak the rules to change that to 20 or 50 years if they really wanted to). In the past, Republican presidents like George W. Bush and Donald Trump have gotten around that limitation by having their tax cuts expire. A costly measure like CTC expansion might also have to expire, either soon (per Biden’s wish to limit it “for the duration of the crisis”) or in 10 years for the reconciliation math to work.
But there’s reason for supporters of the measures to hope. In 2009, a handful of major changes to the CTC and its sister policy, the Earned Income Tax Credit (EITC), were included in the American Recovery and Reinvestment Act (ARRA), better known as the Obama stimulus bill. Originally temporary, they were continually extended until in 2015 they were made permanent. The temporary CTC expansion Biden has endorsed could easily turn into a permanent expansion, even if it isn’t permanent in its initial incarnation.
Child allowances are common abroad, and they work
A child allowance — the catch-all term for policies like Biden’s proposed CTC that offer a set cash subsidy to all or most parents — or similar policy 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 (this is what Biden’s proposing). France has an unusual scheme in which 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.
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 do. (This absolute poverty data isn’t updated regularly and is a bit out of date.)
The numbers get even worse when you define poverty the way 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 about 10.3 percent in Germany and 4.9 percent in the Netherlands.
This isn’t exclusively due to child benefits, but they play a crucial role.
For instance, in 1999, Tony Blair and the Labour Party dramatically increased cash benefits for families with children in the UK. But it wasn’t a stand-alone initiative. 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 took office in 1997, the child poverty rate in Britain began to plummet and just kept plummeting as the reforms were implemented through 2001. Then it continued to gradually decline. In the US, by contrast, child poverty fell with the late-’90s boom, and then rose in the 2000s.
The UK 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 the specter of “welfare queens” living high on the hog and misspending benefits has often stopped the US from expanding safety net programs, there’s no evidence that child benefits would be used this way. 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 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, according to UC Irvine economist Greg Duncan, 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:
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. Endicott College sociologist Josh McCabe has argued for a universal child benefit in pieces for the conservative National Review on exactly these grounds.
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