This article appears in the Spring 2017 issue of The American Prospect magazine. Subscribe here.
Lately there has been growing interest in a simple and effective policy solution to weaknesses in the social safety net: making the Child Tax Credit (CTC) universal. The credit is also one of the rare social policies that bridges the left and right. In recent months, the case for transforming the CTC into a universal child allowance paid at monthly intervals had been made by both progressive and libertarian scholars.
Here’s how the credit works: Families with children get $1,000 back on their taxes for each child. But since eligibility for the Child Tax Credit is tied in part to federal income tax liability and in part to earnings, the CTC leaves out those families that need it the most—those with little or no earnings. The credit is partly refundable, meaning that for households with incomes above $3,000, if the value of the credit exceeds the tax you owe, the government sends you a check for part of the difference, depending on income and family size.
While it might seem that any conversation about expanding aid to the poor is off the table in today’s political climate, the CTC is exactly the sort of policy that Republicans in Congress and Donald Trump might support. As we’ve seen in a range of Republican policy ideas, from the proposed replacement of the Affordable Care Act, to state tax credits to support voucher schools, to tax-subsidized infrastructure investment, conservatives love tax credits. Some tax credits are bad policy. The CTC is a very good one.
Our existing safety net is far from perfect, but it plays a vital role in the lives of many children and families. The Census Bureau now tracks what’s called the “supplemental poverty measure,” which does better than the official measure in capturing the effects of many of our government programs for the poor. Using this updated measure, researchers estimate that child poverty has fallen by 35 percent since 1968, and virtually all of this is a result of our federal anti-poverty programs. That’s very good news.
But despite this progress, 16 percent of children still live in poverty and an additional 21 percent are in low-income families. What’s more, while aid to poor families who are working has increased in recent decades, help for the very poorest has plummeted, and what remains has shifted away from cash and toward in-kind support. In this way, aid to the poor has become stratified, just like the rest of society.
Much of the blame for this widening inequality among the poor and near-poor rests with the 1996 welfare law, which ended a guarantee of cash assistance to poor children and replaced it with Temporary Assistance for Needy Families (TANF), a fixed block grant for states. People often think of TANF as a welfare program with time limits and work requirements. However, today less than one in every four TANF dollars goes to cash aid, and only about 8 percent is used to help recipients find work. As Ron Haskins—one of the program’s chief architects—has recently noted, TANF gives states too much latitude to redirect federal dollars to plug budget holes in other existing systems such as foster care and college scholarships. The dramatic decline in cash assistance caseloads has been accompanied by a spike in the number of poor families living in extreme poverty—with virtually no cash support.
While TANF has declined dramatically, two tax credits, the Earned Income Tax Credit (EITC) and CTC, have become the backbone of financial support for low-income families. These credits reward work by providing refundable tax credits that increase as earnings rise, up to a point. And they are particularly important to rural families who on average are both poorer and farther away from services.
These tax credits have been shown to be effective on numerous fronts, but they are not a “safety net” per se. When a family’s earnings fall to zero—when they lose a job or experience a family crisis—their EITC and CTC fall to zero, too. These programs do nothing to help the poorest families who are unable to work at all, and who have seen their aid cut in the past two decades. What’s more, these benefits are collected only once a year, which means the resources are often not available when crisis strikes, even for those who work.
Most developed countries provide cash to families with children, recognizing that raising kids costs money and that society benefits as a whole when it is done well. The closest thing that the United States has to a child allowance is the CTC, which now provides up to $1,000 for every eligible child under the age of 17. In its current incarnation, families with earnings above $3,000 get a credit worth 15 percent of their earnings, up to the maximum. The credit phases out for single-parent families at $75,000 and for two-parent families at $110,000.
The child tax credit has a major impact on poverty, lifting nearly one of every eight children above the poverty line. For millions of other children in working families, it brings them much closer to the poverty line. Yet it could do significantly more.
Since eligibility is conditional on earnings, the CTC leaves out those families who need it the most: families with no or very low earnings. We know that the earliest years of life are critical to the development of children, and that additional income for young poor children can have lifelong impacts. The most vulnerable people in the country are infants and toddlers living in deep poverty. Yet because their parents earn so little, the young children who most need support get the smallest tax credits, or none at all.
All of these factors are why there are new proposals to expand the CTC for our poorest young children. Senator Michael Bennet of Colorado has proposed tripling the maximum CTC for children in the first six years of life and phasing in the credit starting with the first dollar earned (rather than the current $3,000 minimum). This proposal would decrease child poverty and deep poverty dramatically, and would clearly be a huge step forward.
Another approach—introduced this year in the House by Representative Rosa DeLauro of Connecticut, Minority Leader Nancy Pelosi of California, and Ways and Means Ranking Member Richard Neal of Massachusetts, and last year by Senator Sherrod Brown of Ohio in the Senate—would provide a CTC to all families with young children (except for the wealthiest), even those without earnings.
This bill would also help stabilize the financial lives of poor families—many of whom experience extreme swings in income over the course of the year—by paying the benefit monthly, rather than a lump sum at tax time. In doing so, it would be a constant support that families could count on to buy diapers, pay rent, and otherwise meet the needs of their children. With the stroke of a pen, such a program would end the most extreme kind of poverty among families with young children by providing a stable cash income floor that no family would fall below.
Interest in expanding the Child Tax Credit is bipartisan. Already in 2017, Senators Mike Lee and Marco Rubio have reiterated their call for an increase in the CTC. While their proposal doesn’t focus on those with the lowest incomes, their interest in expanding the policy suggests there could be room to come together.
In a recent academic paper, an interdisciplinary group of ten scholars (including the current authors) argues that transforming the child tax credit into a universal child allowance would recognize that all “families incur significant expenses when raising children,” while providing an income floor “for our most vulnerable families.” As a universal policy, it would not suffer from stigma, and it would complement the work-based safety net. Writing from a libertarian perspective, Samuel Hammond and Robert Orr argue that a universal child allowance would be a “huge improvement over” the current CTC, which “fails to reach families with the greatest need.” In addition, a universal CTC would provide essential help to families, without imposing burdens on businesses and giving equal benefits to stay-at-home parents.
There is little doubt that the social safety net as it exists today will come under scrutiny in the coming months and years. Most of the focus in these debates will be on stark differences of opinion about its effectiveness and cost, which all too often fall along party lines. But while defending the current set of safety-net programs for poor families is of the utmost importance, we at least believe that it is critical not to lose sight of the fact that scholars and policymakers with vastly different perspectives have recently advocated for the same type of simple policy reform, one that holds the promise to dramatically reduce child poverty while targeting the very poorest.
It might seem naive that a universal child allowance could be adopted this year. But with support from both sides of the aisle, it is now a viable policy alternative. And if changes to the tax code become a major focus of Congress in the months ahead, there’s no substantive reason the child allowance shouldn’t be part of the debate. That would be great news for all of America’s families.