The team quietly building a child allowance

I have a new post up at Medium based on a conversation with professor Hiro Yoshikawa, and work he and others are doing to build out the theoretical and empirical case for a child allowance in the United States:

It’s a distant thought now, but someday liberals will again get the chance to advance a progressive agenda on the national stage. And in the grim shadow of November’s electoral defeat, the future of progressive thought is already being hatched. Academics and researchers are quietly building the case for a bold new policy to support American families in cities across the United States: a universal child allowance.

Read the rest here.

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Remembering Congress’s 46-year-old hearings on basic income and child allowance

In the spring of 1970, Congress had dueling basic income proposals to consider: a basic income for needy families from President Richard Nixon, and a basic income for children from Senator George McGovern.  The congressional debate over these plans provides an intriguing historical evaluation as we once again explore ways to provide income security to more Americans in the twenty-first century.

During March of 1970, the Senate Select Committee on Nutrition and Human Needs held hearings ostensibly on “Hunger and the Income Gap.”  Instead, the hearings quickly veered into the merits of the basic income proposals on the policy table.  The committee, which was chaired by McGovern and included Republican senators Bob Dole and Jacob Javits, elicited testimony from prominent witnesses like Rev. Jesse Jackson and New York mayor John Lindsay.

As McGovern eyed a run against Nixon two years later, he was eager to elicit testimony contrasting his child allowance plan from Nixon’s basic income proposal.  Several participants found Nixon’s $1,600 basic income for needy families to be unduly stingy.  Others took issue with the failure of Nixon’s plan, which included a work requirement, to specify exactly what kind of work beneficiaries would be required to perform.

But much of the testimony centered on how to fund McGovern’s child allowance plan.  There was near-unanimous agreement that the policy could be paid for by repealing the dependent tax exemption.  During his testimony, Jackson asked, “Don’t the rich people have a $600 allowance tax write-off for their children?”  McGovern answered, “[T]here is, as a matter of fact, a children’s allowance in the United States today written into our income tax laws, as $600 exemption. [. . .]  [I]t is really a children’s allowance for the rich.”

A child allowance was seen as an equitable way of expanding the tax system’s child subsidy to all.  In Lindsay’s record testimony, he said, “Of course, an essential step in creating a children’s allowance system would be to eliminate the $600 per dependent exemption . . . .  Only those who earn enough to pay taxes now benefit from this form of a children’s allowance.  Those who are poor receive no benefits at all.”

McGovern himself fleshed out the distributional impact of his child allowance, which he thought should be taxable for higher earners.  “[I]f you repealed the existing income tax exemption and made the children’s allowance taxable, 79-80 percent of the benefits . . . would go to families of $10,000 income or less,” he explained.  “Under the present system, the income tax exemption is just the reverse.  Most of the benefits of the income tax allowance go to families above $10,000.”

(McGovern’s explanation was a response to Senator Javits, the Republican senator from New York.  Javits proclaimed himself “very favorable to children’s allowances.  In my last campaign I advocated it.”  Lindsay was also still a Republican until switching parties in 1971 and challenging McGovern for the Democratic presidential nomination.  The child allowance was thus a bipartisan idea at the time.)

The senators and witnesses were right.  We do have a child allowance in the United States—it’s just baked into the tax system.  But tax exemptions inherently favor the wealthy.  These reductions exempt a certain amount of income from taxation.  Because the wealthy are in a higher tax bracket, they receive disproportionate benefits from the exemption.

Today, the dependent tax exemption remains a regressive tax-based child allowance.  Families can exclude up to $4,000 per child in taxable income.  This tax benefit costs the government more than $38 billion annually, but only 1.5 percent of the benefits accrue to the poorest 20 percent of households, while 57.1 percent accrues to the top 40 percent.

Since 1997, the United States has also had a Child Tax Credit, another $1,000 per child tax credit child allowance.  The CTC lifts millions out of poverty, and is structured to be a somewhat fairer and less regressive child subsidy because a portion of it is refundable for low-income families who owe no federal income taxes.

Still, because it is not fully refundable, the CTC too tends to favor better-off families.  The CTC costs the government some $60 billion per year, with the largest subsidies flowing to middle- and upper-middle class families rather than to the poor.

Each of these child tax subsidies are tilted toward the middle- and upper-ends of the income spectrum.  Not only is this inequitable, but it means that public benefits aren’t being efficiently directed toward those who need them the most.

One solution is to convert all tax reductions into refundable tax credits.  This would equalize the value of the subsidy across all classes of taxpayers.

But a better option is to disgorge child subsidies from the tax code entirely and use the funds spent on the CTC, the dependent exemption, and other smaller child tax credit subsidies to create a true child allowance, deposited into families’ bank accounts every month.

Researchers at The Century Foundation have calculated that the direct spending of a child allowance is a more cost effective way of slashing poverty than the CTC’s submerged tax spending.  For instance, 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.

So the insights of McGovern, Lindsay, and Jackson remain true today.  The most direct and equitable way to subsidize children is to scrap our tax reductions and create a simple child allowance.

What’s perhaps most foreign about the Senate hearings is how cavalier and casual the participants were about trashing the dependent tax exemption.  Today, such a suggestion would be a virtual death knell—a nonstarter quickly blasted as a tax hike, even if the net effect of a child allowance would expand relief to many more families.  In 1970, though, the right hadn’t yet succumbed to taxphobia, and no anti-tax pledge had yet gained hegemony over Republicans in Congress.  There was more political space to imagine different and more efficient ways of doing things.

Instead, in looking back at these hearings forty-six years later, it’s striking to see senators and witnesses alike honestly searching for the best solution.  We might face different resistances today, but we’d be wise to relearn what we knew then.  A child allowance is needed just as urgently today as it was in 1970.

When basic income was almost an American reality

Note: This post has been cross-posted at Medium.

Lately I’ve been writing about the relative virtues of basic income and child allowance proposals  to counteract poverty and inequality.  These seem like novel ideas on the American scene today.  But in fact, there was a time when both of these ideas were seriously proposed on Capitol Hill.  After forty-five years of lost faith in government, we are simply rediscovering the ambitions we once held.

In August 1969, President Richard Nixon unveiled a basic income scheme for needy families with children called the “Family Assistance Plan.” (FAP)  Under Nixon’s FAP, a family of four would receive $1,600 annually from the federal government, or about $10,500 in 2016 dollars.  For families deriving income from work, the FAP would gradually phase out above a certain level.  Indeed, FAP included a work requirement for most “employable” individuals.

Nixon’s FAP drew on proposals for a negative income tax from economists like Milton Friedman.  It also drew on work done by the Office of Economic Opportunity in President Lyndon Johnson’s administration.  A Johnson administration commission produced a report recommending a basic income, but Johnson rejected it out of hand in favor of an anti-poverty approach focused on skills training and education.

Nixon announced the FAP in a nationally televised address.  He saw FAP as an opportunity to upend the web of New Deal-era welfare state programs and to leave a conservative mark on  anti-poverty policy.

The FAP passed the House, but was attacked from both the right and left.  Conservatives fretted that the FAP would expand public dependency and expanded the size of government.  Liberals, on the other hand, thought that the basic income was too stingy and the work requirement to be punitive.

As an alternative, Senator (and future Democratic presidential challenger) George McGovern proposed a child allowance, which he called a “Human Security Plan” (HSP), on January 20, 1970 in a speech in New York City.  McGovern’s HSP would have provided at least $50 per month ($310 in 2016) for every child in the nation.  This entitlement would be paid for by eliminating the dependent tax exemptions, which today are worth up to $4,000 per child in reduced taxable income.  McGovern’s plan also included guaranteed employment, including government-provided public service employment of last resort if no private sector jobs were available.

McGovern hoped that a child allowance would “very nearly wipe out poverty among most families with children [and] would also provide a critical boost in the income of middle American families.”

McGovern evidently anticipated that the HSP would be criticized for incentivizing people to have more children at a time when many worried about overpopulation.  Indeed, the child allowance came into prominence in Europe for that precise reason: to serve pro-natalist population restorative purposes.  As Tony Judt explains in his European history Postwar, “[f]amily allowances were a key element in plans to increase the birth rate,” particularly in countries that suffered heavy death tolls in World War I.  Belgium introduced a child allowance in 1930, and was quickly followed by France, Hungary, the Netherlands, and others.

America in the 1960s had the exact opposite concern, fearing that out-of-control population would soon cause mass starvation and suffering.  McGovern tried to allay these fears by pointing out that the United States was then (and now) one of the only advanced countries without a child allowance, and that in most countries, the policy had in fact been implemented without causing birth rates to explode.

McGovern’s HSP went nowhere in Congress, but served as a prelude to his presidential run.  In January 1972, McGovern rolled out his own basic income proposal, which he called a “demogrant.”  More generous than Nixon’s proposal, the demogrant would have provided $1,000 per person as a minimum annual income, or $4,000 for a family of four.  This would replace the personal income tax exemption.

Liberals and conservatives revolted against McGovern’s demogrant plan.  In the Democratic primary, Hubert Humphrey warned that McGovern’s plan would have caused substantial tax increases on the middle class and ballooned government spending.  Others worried that the reach of the proposal would cover a large fraction of the country with new benefits.  In the general election, the Nixon campaign ran an ad blasting McGovern’s demogrant for leaving “47 percent of Americans” dependent on “welfare.”

Under pressure, McGovern ultimately scaled back his plan.  In the summer of 1972, McGovern dismantled his universal basic income proposal by “proposing a new categorical plan and by emphasizing the importance of work,” according to Brian Steensland’s The Failed Welfare Revolution.  McGovern’s new plan was a “system of national income insurance” built upon work and public service jobs.  “The best incentive is a job opening,” McGovern said.  “The best answer to welfare is work.”

McGovern’s scaled back approach had three still fairly ambitious components: more generous Social Security, an employment guarantee for those capable of work, and income assistance for those who could not work, including mothers with children, at $4,000 for a family of four.

It’s not clear why McGovern did not revive his HSP child allowance plan when he retrenched from his universal basic income proposal.  But his compromised version reflected the tendency for liberal welfare state expansions to hew toward categorical means-tested approaches instead of universal citizenship-based entitlements.

McGovern lost in a landslide to Nixon in November, shortly after Nixon’s FAP was unceremoniously killed in the Senate in September 1972.  Nixon ultimately dropped the idea entirely by his 1974 State of the Union address as he battled mounting calls for impeachment.  Congress eventually enacted a narrower version of the negative income tax concept underlying FAP, providing an Earned Income Tax Credit to top off the wages of the working poor.

The late 1960s and early 1970s arguably mark the zenith for American liberal policy imagination.  During the course of the Nixon administration, the United States came tantalizingly close to enacting a universal basic income scheme, a universal government-run childcare system, and universal healthcare.  It came less close to enacting a child allowance, but the idea was at least on the table.

Government was bold and full of ambition on the heels of the civil rights revolution and the War on Poverty.  The public trusted government to act in good faith and competently solve big national problems.  But the foundations were already cracking, and the aftermath of Vietnam and Watergate crippled public trust in government for generations, even still today.

We’re fitfully trying to pick up the pieces and restore a government to meet the needs of the twenty-first century, drawing inspiration from the audacious plans floated forty-five years ago.  But for now, the close of the 1960s seems to be the high-water mark for lofty public policy, too—one more place where, as Hunter S. Thompson once put it, “the wave finally broke and rolled back.”

Why we need a basic income for kids

Note: A version of this post has been cross-posted at Quartz.

A universal basic income is all the rage in policy circles across the globe.  And increasingly, UBI advocates are realizing that the best place to start is by providing a basic income for kids.

It’s a simple idea: to help families mitigate the costs of raising children, the government should send each household with minor kids a monthly check.  Unlike a full UBI, which is just now being piloted in a handful of cities, a basic income for children (often called a “child allowance” or “child benefit”) has already been successfully implemented in many other developed nations.  Countries like Canada, the Netherlands, and the Nordics all have one.  Britain used cash grants to families to help cut its child poverty rate by half in just fifteen years.

There are a lot of good reasons for the United States to import this tried and true policy.  On a basic moral level, a child’s wellbeing should not be dependent on her parents’ ability to earn market income.  But that’s exactly what we have allowed in the United States, and some 20 percent of all children suffer in poverty because of it.  Poor children are poor through no fault of their own, having simply had the misfortune of being born into low-income households.  We shouldn’t accept this fate.

Indeed, rampant child poverty makes equality of opportunity a fiction for poor children.  Poverty is a massive handicap for kids, impairing their ability to learn in school and literally scrambling their brain compositions from the permanent effects of stress.  The weight of poverty tragically holds kids back.

Conversely, children that get income boosts do better in school and grow up to earn more money.  Making sure that children are raised on at least a basic income gives them a fair shot to seize opportunity and achieve in school and their future careers.

A children’s basic income is also fair for parents.  Having a child is a huge financial burden, costing parents over a quarter million dollars on average.  Yet parents typically have children relatively early in their working careers, when their incomes are at their lowest.  This makes having and raising children a significant risk of poverty.  With more mouths to feed, family income just doesn’t stretch as far.

Our public policy typically tries to support and encourage childrearing, not implicitly penalize parents with the prospect of financial ruin.  Yet many millennials are finding themselves unable to afford to have children, a trend with bad long-term impacts for the size of the workforce, the prospects for the economy, and the stability of programs like Social Security.  A children’s basic income would provide the support parents need to securely raise children.

In fact, a children’s basic income would finally treat raising children like real valued work.  In 2012, when a Democratic surrogate bone-headedly bashed Ann Romney for foregoing private employment to stay home with her children, the Romney campaign rightly fought back by insisting that raising children is real work.  Most of us would undoubtedly agree, and paying parents to raise children would put our money where our mouths are.

Such a program would also be great for the economy.  Because parents have more expenses, they are more likely to spend new money they receive.  More spending generates more growth, boosting the economy as a whole.  That’s why, when the economy began to sputter in 2008, President Bush and Democrats in Congress responded with an initial stimulus plan that in part gave an extra $300 per child to parents as a sort of one-off child allowance.  Parents could be counted on to spend the money.  And when money is earmarked for children, parents do indeed tend to spend it on their children rather than on vices like alcohol or tobacco.

A children’s basic income is also a wise long-term investment in the future of the economy.  By one estimate, child poverty costs the economy a whopping  $672 billion each year.  By ensuring that all children can capitalize on their potential, we’ll have more productive workers in the future and ensure that talent does not go squandered by the bad luck of being born poor.

On the campaign trail, Donald Trump has proposed a new child care tax deduction that would, predictably, only help rich parents.  Hillary Clinton’s plan is better, but would only help parents who put their kids in commercial childcare, and not those who raise children at home.  In Congress, Rep. Rosa DeLauro has proposed a new refundable young child tax credit that would go far to help the youngest children who are most ill affected by poverty.

It’s a good sign these issues are finally being debated, but ultimately, something bolder is needed.  A basic income for children would alleviate child poverty and give parents the support and flexibility they need.  So aspirants for a universal basic income should start where it’s needed most: America’s children.