A UNIVERSAL CHILD ALLOWANCE: A plan to reduce poverty and income instability among children in the United States

H. Luke Shaefer, University of Michigan

Sophie Collyer, Columbia University

Greg Duncan, University of California Irvine

Kathryn Edin, Johns Hopkins University

Irwin Garfinkel, Columbia University

David Harris, Children’s Research and Education Institute

Timothy Smeeding, University of Wisconsin Madison

Jane Waldfogel, Columbia University

Christopher Wimer, Columbia University

Hiro Yoshikawa, New York University

Acknowledgements

Authors thank the Annie E. Casey Foundation, Century Foundation, IRP, The JPB Foundation, NICHD, Russell Sage Foundation, and Washington Center for Equitable Growth for support. The views expressed in this paper represent those of the authors alone.

SUMMARY ¤  Child poverty in the U.S. remains stubbornly high

¤  Much of the benefit from the Child Tax Credit and Child Tax Exemption goes to families with incomes above poverty

¤  The work-based social safety net has expanded significantly

¤  Yet our most vulnerable families—who cannot maintain regular employment—can fall through the cracks, especially in terms of cash aid

¤  A stable source of income could reduce material hardship and improve child health and development

¤  We propose a universal, monthly child allowance to provide all children with a dependable cash income floor

CHILD POVERTY IN THE U.S.

CHANGES IN THE SAFETY NET ¤  The U.S. has increased its financial commitment to fighting

poverty substantially over the past half century through refundable tax credits and in-kind aid

¤  More aid is now directed to low-income working families, when they are working

¤  Less aid to families who are unable to maintain stable employment

¤  One quarter of TANF dollars goes toward basic assistance

¤  Other uses include child care subsidies and state EITCs. Very little is spent on helping recipients find work

¤  Also college scholarships for high income students without children, and ”supplantation” for state funds in the child welfare and other system

¤  TANF was not responsive to the rise of poverty and unemployment during the Great Recession

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Special thanks to Elaine Maag for estimates of the total expense of the child tax exemption and child tax credit

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This Is >

Than These combined

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Figure 2 Child income poverty rates, 2012a

Share (%) of children (0-17) that live in households with an equivalised post-tax and transfer income of less than 50 percent of the national annual median equivalised post-tax and

transfer household income

a) Data for Canada refer to 2011

b) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

c) Footnote by Turkey: The information in this document with reference to « Cyprus » relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognizes the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of United Nations, Turkey shall preserve its position concerning the “Cyprus issue”

d) Footnote by all the European Union Member States of the OECD and the European Commission: The Republic of Cyprus is recognized by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus

Sources:

OECD Income Distribution Database

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5

10

15

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Poverty rate (%)

Children (0-17) (ա) Total population

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Figure 2 Child income poverty rates, 2012a

Share (%) of children (0-17) that live in households with an equivalised post-tax and transfer income of less than 50 percent of the national annual median equivalised post-tax and

transfer household income

a) Data for Canada refer to 2011

b) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

c) Footnote by Turkey: The information in this document with reference to « Cyprus » relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognizes the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of United Nations, Turkey shall preserve its position concerning the “Cyprus issue”

d) Footnote by all the European Union Member States of the OECD and the European Commission: The Republic of Cyprus is recognized by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus

Sources:

OECD Income Distribution Database

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5

10

15

20

25

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Poverty rate (%)

Children (0-17) (ա) Total population

Countries with some form of a child allowance: Austria, Belgium, Canada, Denmark, Finland, France, Germany, Iceland, Ireland, Luxembourg, the Netherlands, Norway, Sweden, Switzerland and the U.K.

WHY A MONTHLY CHILD ALLOWANCE?

¤  Increased income may allow parents to increase investments in their children, improving child health and development

¤  Increased income may reduce family and environmental stress, which can improve child health and development

¤  Poverty can compromise parents’ cognitive “bandwidth,” with detrimental consequences for cognitive tasks and decision-making

¤  Emerging evidence finds that families well up the economic ladder face substantial intra-year volatility in income and expenses

¤  Conceptual linkages between income and the child development are strongly suggestive that a form of dependable monthly income support would have substantial benefits

BASING POLICY ON PRINCIPLES

¤  The child allowance should be universal, recognizing that all families incur substantial expenses when raising children

¤  The allowance should be accessible and of sufficient frequency to meet short-term cash needs. We propose monthly distribution

¤  Payments should be adequate for a family to address basic needs of children—we recommend $250/ month

¤  Families with younger children should be eligible for larger payments

¤  Per-child payments should decline with additional children

CONSENSUS

IMPORTANT CONSIDERATIONS

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Today’s children are tomorrow’s citizens. The better children in our country do, the

more they can contribute economically, socially, and culturally to our country throughout their

lifetimes. Providing a universal public child benefit is a material and symbolic expression of our

common interest in their welfare. Local and state governments in the United States recognized

this common interest by leading the world throughout most of the 19th and 20th centuries in the

public provision of universal elementary and secondary education. These investments in the

education of all of our nation’s children are one reason why the United States is now the richest

large nation on earth (Garfinkel, Rainwater and Smeeding 2010; Goldin and Katz, 2009).

Recognizing that raising children is a costly endeavor for families, the U.S. federal

income tax system already allows parents—except for those with the lowest and highest

incomes—to receive a credit of $1,000 per child from their taxes owed. Families may further

deduct up to $4,000 per child from their taxable

income, but again families with very low incomes do

not benefit. For recipient families, this tax credit and

exemption are economically equivalent to a child

allowance consisting of a single annual payment. Our

proposed child allowance payments would be more

generous, would be paid monthly and would include

families from both the poorest and the wealthiest

families.

Some argue that benefits should be focused

only on children in poor families, excluding those with higher incomes. The poorest families are

clearly the neediest. Programs limited to the poor, like SNAP and TANF, relieve poverty and

Three proposed versions of a child allowance

Simple: Monthly payments of $250 per child per month for all children under age 18.

Tiered: Monthly payments of $300 per child under age 6, $250 per child age 6-17.

Tiered and Equivalized: Monthly payments of $300 for the first child under age 6 and $250 for the first child age 6-17, with a reduction in these benefit levels as the number of children in the household increases.

In each case, payments would be taxed at the marginal tax rate of the unit claiming the child.

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Table 1: Cost Estimates of Universal Child Allowance Proposals (in billions)

Total Direct

Cost Cost

Savings* Net Cost of CA: Universal $250/mo. CA $192 $96 $96 Tiered $250/$300/mo. CA $204 $96 $108 Tiered and equivalized CA $165 $96 $69

* Cost savings are the estimated results of eliminating the CTC, ACTC, and also the child exemption under federal tax law. Estimates provided by Elaine Maag at the Urban Institute’s Tax Policy Center, 2016.

DISTRIBUTIONAL EFFECTS 0

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PAYING FOR IT

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Table 1: Cost Estimates of Universal Child Allowance Proposals (in billions)

Total Direct

Cost Cost

Savings* Net Cost of CA: Universal $250/mo. CA $192 $96 $96 Tiered $250/$300/mo. CA $204 $96 $108 Tiered and equivalized CA $165 $96 $69

* Cost savings are the estimated results of eliminating the CTC, ACTC, and also the child exemption under federal tax law. Estimates provided by Elaine Maag at the Urban Institute’s Tax Policy Center, 2016.

CONCLUDING REMARKS

¤  Through the child tax exemption and child tax credit, our nation recognizes the societal benefit to supporting parents in raising children

¤  But our biggest policies exclude the lowest (and highest) income families, and are not equitable

¤  Our universal child allowance would recognize that raising children is expensive

¤  It would provide a stable cash income flow for families struggling with intra-year income/expense volatility

¤  It would complement our work-based safety net

¤  And would dramatically reduce poverty

¤  Costs are not inconsequential, but so may be the benefits

DISTRIBUTIONAL EFFECTS -2

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with Child Allowance at $125 per month