Child poverty is a moral scourge in the United States. Nearly 20 percent of all children live in households below the poverty line. Poverty is most prevalent among young children, as 25 percent of children under the age of 3 live in poverty during some of their most developmentally formative years. These numbers are uniquely high among developed nations, most of which provide far greater government transfers to support families and children.
This has disastrous consequences for these young Americans. Poverty impedes physical and mental development; it impairs the ability to learn in school; and it even alters children’s brain composition. Years later, the effects of poverty in childhood continue to reverberate, from depressing the value of a college degree through diminishing adulthood earnings. To be raised in poverty is nothing short of a lifetime affliction.
New legislation introduced in Congress would begin to ease our child poverty crisis. Representative Rosa DeLauro (D-CT) has introduced a proposal for a Young Child Tax Credit—a fully refundable $1,500 tax credit for each child under 3 years old. Importantly, DeLauro’s tax credit would not have a minimum income threshold, meaning it would be available to all low-income families. These features make the YCTC distinct from our current Child Tax Credit, which is available to families with children of all ages, but is only partially refundable and cuts out the lowest earners entirely.
DeLauro’s proposal would be a big step toward curtailing child poverty in the earliest years of life. Consistent with the practices in other countries, it provides a supplemental child benefit for families with young children in recognition that a new child reflects a substantial economic burden on families.
DeLauro’s legislation is modeled off of a report released by the Center for American Progress last year. And while her proposal is an important progressive reform, it deviates from CAP’s version of the young child tax credit it one significant way. CAP structured their tax credit as a periodic advance tax credit—that is, families with young children would have the option of receiving a $125 payment per child every month via direct deposit or a government-issued debit card. DeLauro’s plan provides families with a lump sum of extra support through a tax refund; CAP’s provides families with regular year-round support.
By structuring the YCTC as a traditional tax credit, DeLauro continues our habit of submerging important social benefits in the tax code. This forces families to navigate the tax system and incur preparation and filing costs to claim these benefits. Some benefits thus go unclaimed, and others are squandered on tax prep fees.
The CAP proposal, on the other hand, is essentially a European child allowance dressed up in kludgy American nomenclature. It’s a “tax credit” in the same way that the Affordable Care Act’s subsidies for purchasing insurance are advance “tax credits.” These direct payments are common across the OECD, and there are proposals percolating to convert several important American tax credits into periodic direct benefits, including the earned income credit for low-income workers, the American Opportunity credit for families with children in college, and the Child Tax Credit itself.
Direct payment of social benefits has its obvious advantages. It’s simple, and the benefits are timed to meet family needs throughout the year. American journalist Russell Shorto discovered the refreshing simplicity of the child allowance upon relocating to the Netherlands: “Every quarter,” he explained, “the [Dutch Social Insurance Bank] quietly drops $665 into my account with the one-word explanation kinderbijslag, or child benefit.”
But direct payment is also a more efficient and fiscally responsible way to reduce poverty. Last week, the Century Foundation released an important report on the merits of a child allowance for the United States. TCF found that a child allowance that provides $2,500 per child annually for all families would lift 5.5 million kids out of poverty and reduce the child poverty rate by more than a third.
Importantly, TCF also found that a child allowance would have more anti-poverty impact than an equivalent increase in spending on our current Child Tax Credit. “A dollar invested in a universal child allowance,” the report finds, “would do more to reduce child poverty than a dollar spent on an expanded child tax credit.” For instance, TCF found that a $2,500 child allowance would cost an additional $109 billion per year and would cut child poverty by 5.1 percent. On the other hand, a $4,000 Child Tax Credit would cost an additional $101 billion per year while cutting child poverty by only 1.2 percent. This is because a child allowance would reach all families, including those with little or no income, and would thus rescue more children from deep poverty.
While child allowances are common overseas, they have not been widely debated in the United States. Nonetheless, the TCF report joins a small but growing chorus of adherents pushing for such a policy to combat insidious American childhood poverty.
Increasingly, policy thinkers are recognizing not just the damage done by child poverty, but also the merits of cash aid to families. Studies of children in families receiving the Earned Income Tax Credit, Cherokee casino payments, and other external or governmental windfalls all show clear benefits accruing to children when their households receive a boost in income.
Cash assistance helps relieve the deprivation of children in poverty. This is a moral imperative, and our policy must act to address this deprivation. But child poverty also amounts to an annual $672 billion drag on the economy (nearly 4 percent of GDP) so relieving this poverty has positive effects for the broader economy as well. Investments in young children are thought to save massive sums of money over the long run, which makes the fiscal case for cash assistance to these children today look even better. (Note that TCF did not rely on the macroeconomic effects of a child allowance to offset the projected cost in its report.)
The United States currently tolerates an unconscionable level of hardship and suffering among children. We must act to protect children from poverty and the lifelong ravages it inflicts. Rep. DeLauro’s proposal is a bold step in the right direction. Though it falls short of a regularly timed child allowance, it does reach the poorest and most vulnerable families, and may be the best policy that our political system can bear right now.
Ultimately, we should consider a universal cash allowance for all American children. But providing urgently needed support for our youngest citizens is a good place to start.