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.

The case for a children’s basic income

A guaranteed basic income is becoming the pipedream du jour on the left, making it all the way to a favorable review in the pages of the New Yorker.  Experiments are underway in towns in Finland and the Netherlands to give all citizens a government-provided minimum income.  Venture capital firm Y Combinator is planning a basic income pilot program in Oakland, and non-profit GiveDirectly is trying to alleviate extreme poverty in East Africa with a pilot of its own.  In Switzerland, a basic income ballot referendum went down to defeat, but more than half a million Swiss voters supported creating such an entitlement.

It’s an intriguing idea, and one that serves a broad range of policy and ideological interests.  To Silicon Valley types, basic income can prepare for technology-driven labor displacement.  To some liberals, basic income combats poverty and rising inequality.  To others, a sense of utopian curiosity wants to see what happens when, unbound by scarcity and the grind of eking out a living, individuals can flourish to become their best selves, freed to pursue their passions, ideas, and humanitarian instincts.  And to conservatives, a basic income can elegantly replace most of the welfare state altogether.

As interesting as a basic income may be, it’s undoubtedly a politically farfetched scheme for the United States in the near future, to say the least.  But can we seize the principles of a basic income to take incremental steps to help those who would gain from it the most?

I’ve argued that those who support a basic income should make providing a child allowance to families with children one of their top priorities.  Children are entirely morally blameless for their poverty, and poverty holds back their academic achievement, making a mockery of the American ideal of equality of opportunity.  They also stand to gain the most from living in households with more money.

And among children, the youngest are likely to substantially gain the most from more income support.  In Congress, Rep. Rosa DeLauro has introduced a bill to create a new Young Child Tax Credit to provide relief to families with children under three years old, recognizing both that families need support during this special (and costly) time in their lives, and that young children would benefit immensely from extra resources.

The Empirical Case for a Young Child Allowance

The strongest empirical case for boosting the household incomes of poor kids comes from a 2014 paper by Greg Duncan, Katherine Magnuson, and Elizabeth Votruba-Drzal.  Reviewing the evidence, Duncan et al. conclude that “children from poor families that see a boost in income do better in school and complete more years of schooling.”

Duncan et al begin by reminding us of the long-lasting destructive consequences of child poverty.  Some 16 million American children live in poverty—more than one in five.  And the disadvantages to a child growing up in poverty reverberate for a lifetime, suppressing her years in school, halving her earnings in her 30s, slashing the hours she’ll work as an adult, increasing the odds of her landing on food stamps in adulthood, and raising her likelihood of ill health.  Growing up in poverty doubles the probability of young boys being arrested during their lives, and it quintuples the odds of teenage pregnancy among girls.

Poor children enter school behind their peers by the time they are in kindergarten.  On every basic metric, low-income children face a yawning gap between more privileged children, from recognizing letters to counting.  Poverty thus strongly appears to impede child development early in life.

Duncan et al explore three different explanations for why poverty hinders development: family and environmental stress; resources and investment; and culture.  Under the family and environmental stress theory, poor households face a mountain of constraints and limits that produce harmful stresses.  Parents contend with economic pressure and are forced to cut back on basic essentials.  This pressure causes psychological stress, producing depressive and hostile feelings.  This psychological stress can also distort decision-making and render parents less able to pursue long-term goals.  Financial scarcity creates marital tension and tends to lead to developmentally harmful parenting techniques.  And of course, economic scarcity leads to a whole host of bads, like dilapidated housing, dangerous neighborhoods, struggling schools, and exposure to pollution.  Studies show that when children are chronically exposed to elevated stress levels, the region of their brains responsible for self-regulation suffers.

Under the resources and investment theory, poor parents are too crunched for time and money to fully invest in their children.  Because of their parents financial constraints and work obligations, poor children “lag behind their wealthier counterparts in part because parents have fewer resources to invest in them.”  Poor parents are more often at the mercy of inflexible and irregular work hours, making it harder to make time for their children.  And poor children are exposed to far fewer enrichments like books, computers, and camps than wealthy children—an inequality that has grown substantially over the last forty years.

Under the culture theory, the structural impediments from living in poverty produce maladaptive norms and behaviors in individuals, which are then transmitted to children and cause another generation of poverty.  In this view, poverty and the welfare state inadvertently promote single motherhood, male joblessness, and increased crime.  A “culture of poverty” also influences parents to focus on keeping their children safe, regulating their behavior, and enforcing discipline, whereas better-off parents focus on letting their children grow and flourish.

Scholars like William Julius Wilson have pushed back against the cultural explanations of poverty, showing, for example, that poor women strive for marriage and motherhood, but run up against high rates of male incarceration and unemployment that make marriage unattainable or less desirable in practice.  Others acknowledge the role of structural social and economic factors, but aim to impart middle-class norms and behaviors to low-income children in order to compensate for the apparent political and cultural immovability of entrenched poverty.

While poverty is abhorrent at all ages of childhood, Duncan et al show that it’s most destructive at the earliest ages.  “[D]uring early childhood,” they explain, “the brain develops critically important neural functions and structures that will shape future cognitive, social, emotional, and health outcomes.”  Poverty gravely interferes with this development.

Duncan et al point to the famous high-quality childcare studies demonstrating the importance of the earliest years of life.  The long-term benefits to at-risk children placed in high-quality care in the Abecedarian and Perry Preschool programs show that infancy and toddlerhood are fruitful points to make positive interventions in a child’s development.

Next, Duncan et al evaluate the empirical evidence for boosting family income to help child development, focusing on experimental and quasi-experimental randomized studies from policy changes and pilot programs.  Between 1968 and 1982, six towns across the United States experimented with a negative income tax, essentially a basic income-style precursor to the modern Earned Income Tax Credit.  Studies measuring outcomes for children receiving these benefits found significant achievement gains for children in elementary school, but no corresponding impact for older children.  The studies did not measure the effects in early childhood.

Welfare reform in the 1990s, which encouraged parents to work and thereby increase their incomes, also provided an opportunity to study the effect of income gains on poor children.  Studies found that when welfare reform’s wage supplement programs took effect, children in early elementary school scored significantly higher on achievement tests.  In fact, a $3,000 increase in annual income was associated with an achievement gain of one-fifth of a standard deviation for these children.  Again, however, no gains were seen among older children.

Between 1993 and 1996, Congress greatly expanded the generosity of the Earned Income Tax Credit, which rewards work among long-income families.  Researchers found that the expansion of the EITC coincided with improved academic achievement among low-income children between the ages of 8 and 14.

In Canada, researchers studied the impact of variations between provinces in the country’s national child benefit on test scores.  Among children between 6 and 10 years old, more generous benefits were associated with both higher math scores and a lower likelihood of receiving a learning disability diagnosis.  There were also signs of gains among younger children, particularly boys.

Last, in North Carolina, a tribal government opened a casino and began paying $6,000 to each member of the tribe every year.  A study found that children in families receiving these casino payments had increased school attendance rates and were more likely to graduate high school.

Duncan et al conclude that these experimental and quasi-experimental studies suggest that elementary school-aged children have the highest academic gains.  Gains among adolescents were more muted, but did boost educational attainment like increasing years of schooling and high school graduation.  The authors noted that few of these studies estimated the impacts of higher family income during the early childhood period.

Duncan et al also point out that in the non-experimental Panel Study of Income Dynamics, researchers found that among families earning below $25,000, an annual boost to household income before their children turned 5 was associated with increased working hours as adults, increased earnings, and lower rates of food stamp receipt.  Older children saw no statistically significant impact.

The authors then examine the policy implications of these findings.  “If the evidence ultimately shows that poverty early in childhood is most detrimental to development during childhood and adolescence,” they posit, “then it may make sense to consider income-transfer policies that provide more income to families with young children.”  They specifically suggest creating more generous supplements to the EITC and/or the Child Tax Credit for families with young children—essentially the proposal introduced by Rep. DeLauro.  This mirrors the strategy adopted by several European countries like Germany and France that offer age-dependent income subsidies for families with young children.

It would also draw on the conditional cash transfer programs like the EITC and other programs in the developing world that give cash grants to individuals who engage in beneficial behavior, like working.  In New York City, the Bloomberg administration tested a Family Rewards program from 2007 to 2009, which gave cash incentives to promote a host of work, education, and health goals.  While the program lifted significant numbers of New Yorkers out of poverty, it failed to boost the academic achievement of elementary or middle school students.  However, the program was weighed down by a confusing multitude of incentives and irregular payments.  Family Rewards 2.0 is now underway in the Bronx and Memphis, Tennessee.

Finally, Duncan et al conclude by warning that the policy implications cut both ways: just as young children would gain from policies that boost household incomes, they would also suffer from policy choices that slash incomes and in-kind benefits like food stamps—the kinds of cuts pushed by Speaker Paul Ryan and other congressional conservatives.

Social Security for the Young

A young child allowance, or some permutation of it, would be a confluence of several of the principles animating the push for basic income.  For progressives, a young child allowance would combat inequality and poverty among the most vulnerable Americans.  For techies, it would invest in the faculties of young children to some day dream up the next frontier of innovation.  If Social Security for the elderly is a reward for a life’s work, “Social Security for the young” is an investment for future productive years to come—a pair of policies nicely bookending the life cycle.

While it would be wonderful if Congress saw the light and quickly passed Rep. DeLauro’s young child tax credit, Washington gridlock makes that a virtual impossibility in the near term.  And sure, if you squint hard enough and suspend some disbelief, you can see how a President Hillary Clinton’s childcare reform plan could morph into a quasi-child allowance through negotiations with congressional Republicans.  But I’m not holding my breath.

In the meantime, then, policy experimentation around this issue will need to take place at more local subsidiary units of government.  As I’ve written, this could take the shape of a child allowance with or without conditions: “One could imagine an enterprising city, school district, or even a well-funded and ambitious charter school trying out an initiative that (1) provides each family with a monthly ‘scholar success stipend’ for each of their children, and (2) conditions receipt of a full payment on children meeting certain basic expectations in school.”

This would seem like a particularly apt place for adventurous charter schools, whose appeal stems in part from their ability to innovate around providing added resources for low-income children, like highly-paid teachers and wraparound social services.  Why not try providing income support, too?

So the socially impactful venture capital firms and non-profits of the world should step up and partner with a town or a network of schools to see what happens when families with poor children suddenly get more money.  As the empirical evidence shows, these experiments should foremost target the youngest children who will reap the greatest developmental gains.  Just as a childhood in poverty can reverberate for decades, so too can a childhood of ample means — one that allows children to be children, to develop and thrive.  That’s an investment that would truly transform our society, and would be a big legitimizing down payment toward a basic income for all.

 

Bargaining up to a child allowance

Jeff Spross has a piece at The Week arguing that Hillary Clinton’s childcare reform proposal, while laudable, is still inferior to a straight universal child allowance.   Spross agrees that her plan to “make sure no American family spends more than 10 percent of their budget on child care[ . . .] would be a big deal,” but identifies a pair of problems with the proposal. First, subsidies to families will be offered through kludgy tax credits, making for a tedious application process and inefficient delivery system. Second, these tax credits will be paid directly to childcare providers, effectively steering children toward center-based care and away from other options like family-provided care. (Spross presumes that the fleshed out version of Clinton’s plan will look a lot like the Center for American Progress’s proposal. I do too.)

These are both valid criticisms of the Clinton/CAP childcare plan. Doling out subsidies through the tax code adds needless complexity to our social policy, and leaves out those without the awareness or resources to access these submerged benefits. Direct payment is undoubtedly a simpler option, both for the families eligible for benefits and the government agencies administering them.

Interestingly, Spross’s second critique—that childcare subsidies push families toward commercial care—is one more typically levied by conservative critics. “[I]f you want to get the tax credit,” Spross writes, “you have to want child care in the first place. The plan involves a certain failure of imagination that assumes all families want to have both spouses in the workforce.”

The National Review struck a similar note when President Obama proposed an expanded tax credit for childcare services. “Most mothers, especially of small children, prefer to work part-time or drop out of the labor force for a time,” it asserted. “Commercial child care is the least favored option for most parents. The president’s plan encourages families to do what they do not wish to do and penalizes them for refusing.” Instead, the National Review argued for an expanded Child Tax Credit so parents could do as they wish with the money.

This isn’t a new position for conservatives. In 2005, Ross Douthat and Reihan Salam wrote in the Weekly Standard to propose a similar solution to the childcare problem. “To address the concerns of women,” they wrote, “Democrats tend to focus on child care subsidies, parental leave, and other measures that are better understood as ‘market-friendly’ than as ‘family-friendly,’ in that the goal is to make it as easy as possible for parents to maximize their time in the paid labor force.” Under their preferred approach, “the government could offer subsidies to those who provide child care in the home, and pension credits that reflect the economic value of years spent in household labor.”

Whether raised by the right or the left, these strike me as valid concerns about the structure of a childcare subsidy. In its proposal, CAP makes an unapologetic case for nudging parents toward center-based care, which it sees as an “educational necessity” for the development of young children, whereas custodial care generally “does not prepare children for school.” Still, there are undoubtedly countless parents who would prefer to raise their children from home during their formative earliest years. Too many families are coerced into the dual-earner labor market by sheer economic necessity.

Where Douthat, Salam, and the National Review propose a bigger Child Tax Credit in place of childcare subsidies, Spross prefers a universal child allowance. As a general matter, a Child Tax Credit is essentially a child allowance with kludgy hurdles to applying for and receiving it added in. And if not made refundable, a bigger CTC cuts out the neediest families—a major problem for most progressives.

But suppose liberals and conservatives bridged their differences to: (a) make the new child benefit refundable, and (b) pay it directly to families instead of care providers. Liberals get protection for low-income families, while conservatives ensure benefits for stay-at-home parents. This would be something like an advance tax credit for families with children: a flat benefit for all who qualify. Essentially, it would approximate a universal child allowance.

This would still have some kludge baked into it, since it would ostensibly be a tax credit. But as I’ve argued, the second-best solution given our system’s exhausting preference for tax expenditures is to simply provide a periodic payment option for certain tax credits. Families could thus receive child subsidies in a series of regular payments like a child allowance, rather than in a springtime lump-sum tax refund.

Conservatives may recoil at this idea as thinly disguised welfare, particularly for families who would gain from the tax system while paying little into it. But perhaps they’d be willing to play ball in order to turn a subsidy for commercial childcare into one that rewards home-based care too.

Of course, this all assumes a functioning and good faith legislative process, something that is neither assured nor even likely at this point. But even if productive compromise legislation is farfetched, it’s interesting that the solution to valid conservative critiques of liberal childcare reform winds up being a more progressive solution.

A child allowance by another name would be an ever bolder and more ambitious program than a simple childcare subsidy. If Clinton’s significant childcare proposal wound up being bargained into an allowance-plus-kludge type of policy in Congress, we’d all be better off for it.

Cash: A poverty solution worth trying

As I’ve been writing lately, child poverty is a moral crisis in the United States. One in five children live below the poverty line today—a hardship that devastates their development and inflicts untold suffering.

This national plight—and in particular, our abysmal tolerance for child poverty relative to other countries—has gained some attention lately thanks to the prominence Sen. Bernie Sanders has given the issue in his presidential campaign. But how exactly can we best help children living in poverty? It’s worth exploring recent experiments importing successful poverty relief programs from abroad, and thinking about how we can best adapt them to meet the needs of children in the United States.

Between 2007 and 2010, New York City undertook a bold policy experiment to put more cash in the hands of low-income families. The pilot program, spearheaded by Mayor Bloomberg and funded by a consortium of philanthropic organizations, offered 4,800 poor families cash payments for certain beneficial activities. For instance, families could receive $200 for an annual doctor’s visit, or $150 per month for maintaining a full-time job. Students could earn $25 to $50 per month for good school attendance, and $600 for passing a high school Regents exam.

The experiment was a conditional cash transfer (“CCT”)—a policy that transfers cash benefits to low-income families upon their meeting set conditions, which has been implemented with tremendous success in Latin American countries like Mexico. New York’s program—known as “Opportunity NYC Family Rewards”—was the first of its kind in the United States or any developed nation.

Family Rewards had mixed results. All told, the program transferred an average of $8,700 to families during the three-year period. It reduced poverty, cut down hunger, and boosted family savings. But the program fell short of expectations in other metrics. Most notably, the program failed to increase educational outcomes for elementary or middle school outcomes—a key policy goal for the Bloomberg administration.

Some speculate that the design of Family Rewards was flawed from the start. Lawrence Aber, a New York University professor who participated in the implementation of Family Rewards, thought that the program’s conditions were too many and payments were too infrequent and too small. The program may have overwhelmed families with its ambition, trying to test too many incentives at once.

New York has since simplified the program and rolled out Family Rewards 2.0 on a smaller scale and with more targeted conditions in an attempt to improve upon the first pilot. For students, version 2.0 limits its rewards to high schoolers, providing cash benefits for attending 95 percent of scheduled school days in a month, taking an SAT or ACT exam, receiving good grades on a report card, and passing a Regents exam. This program has been implemented in both the Bronx and in Memphis, Tennessee. The results are still under evaluation, but early reports showed that they increased family incomes on average by more than $2,000 a year.

While the impact of the original Family Rewards program’s educational incentives so far appear disappointing, the program was successful at keeping families out of poverty by padding their incomes. This in itself helps promote academic achievement. We know that higher family income tends to improve students’ outcomes in school. In low-income families that receive higher EITC and CTC refunds, their children score higher on standardized tests, are more likely to graduate high school, and attend college in greater numbers.

This is because poverty impairs the ability of children to succeed in school. Material deprivation interferes with cognitive processes, clouds students with toxic stress, and reshapes their brain functioning. Providing enough income to reduce poverty and reverse these harmful processes thereby has the effect of making it easier for students to achieve in school.

So what’s needed for low-income children likely is not an incentive structure to succeed in school or a set of rewards to enhance the value of academic growth. Rather, what’s needed is basic household income security to provide the foundation of resources necessary to facilitate learning and development — something like a child allowance. Such a policy would provide families with a basic payment to cover the essentials of raising children and setting them on a path to success from the earliest years of life.

But it may still be worthwhile to consider coupling the support of a child allowance with the nudging instinct of Family Rewards. One could imagine an enterprising city, school district, or even a well-funded and ambitious charter school trying out an initiative that (1) provides each family with a monthly “scholar success stipend” for each of their children, and (2) conditions receipt of a full payment on children meeting certain basic expectations in school.

For instance, a school could offer each family $200 per child each month as a stipend meant to help with the cost of school supplies, clothes, food, and any other resource the family’s children need to succeed in school. But if a student missed too many school days, or failed to meet behavioral standards, or didn’t complete homework assignments, her family’s payment could be docked.

This structure has a few things going for it. When families receive a periodic and stable child allowance, they can better plan and incorporate this benefit into their household budget and incorporate this payment into spending and saving decisions. It’s much harder to do so with an incentive-based cash transfer program that pays out irregularly upon taking certain prescribed benchmark actions.

Moreover, we know that most people tend to be driven by significant loss aversion. That is, they fear loss of existing income more than they value the opportunity to gain additional income of the same amount. This means that for some families, the prospect of a $25 loss for failing to attend school regularly might be more powerful than a $25 reward for good attendance.

We also know that when a benefit is earmarked for children, parents do in fact tend to spend it on their children. Sociologist Jane Waldfogel studied Britain’s war on child poverty, and found that low-income families receiving child benefits increased spending on goods like children’s clothing, books, and toys, and decreased spending on alcohol and tobacco. The evidence thus refutes the boogeyman myth that poor families can’t be trusted to spend cash benefits appropriately.

Children are better off when they live in homes with enough income to meet basic needs. Decent economic security saves children from a whole range of detrimental long-lasting disadvantages, and sets them on the road to success. One way or another, curbing child poverty is an investment we desperately need to make, and it’s worth experimenting with how we can deliver this investment to families in the most effective way possible.

Looking to Britain in fighting child poverty

The Century Foundation recently released an important report on how we can provide more support for American children by adopting a universal child allowance.  With nearly twenty percent of American children living in poverty, a regular cash benefit for all families would provide effective and efficient protection against hardship.

One of the lead authors on the TCF report is Jane Waldfogel, a sociologist who has studied Britain’s remarkably successful fight against child poverty. Over the last fifteen years, Britain has cut child poverty in half with a combination of child benefits, early childhood investments, and family-friendly work policies. In 2012, Waldfogel gave a lecture at Cornell University on “What the U.S. Can Learn From Britain’s War on Poverty,” detailing exactly how Britain halved its child poverty rate and drawing lessons for the United States.

During the 1980s and 1990s, Britain saw its child poverty rate rise rapidly. In 1999, Prime Minister Tony Blair committed Britain to ending child poverty in twenty years. To do so, he aimed to “reform the welfare state and build it around the needs of families and children.”

This ultimately became a three-pronged strategy: (1) Promoting work and making work pay, by incentivizing work and boosting take-home pay; (2) Raising incomes for families with children by subsidizing child-rearing costs; and (3) Investing in children via early childhood services and workplace reforms.

Britain modeled its efforts to promote and incentivize work off of American welfare reform under President Clinton, with some key departures. Like the U.S., Britain adopted welfare-to-work programs and a working families tax credit similar to the U.S. Earned Income Tax Credit.

But Britain’s reform did not initially require single mothers to work. Under welfare reform in the U.S., single mothers must work 30 hours each week or risk losing benefits, and are only eligible for traditional welfare benefits for five years. Britain, on the other hand, only recently required single mothers to work once their oldest child turns twelve (a requirement that has since been lowered to seven under David Cameron).

Britain’s second front against child poverty was to raise incomes for families with children. Britain provides a universal child benefit to all families with children. Families receive about $30 per week for their first child, and $20 per week for each additional child. Britain provides an additional benefit to families with children less than ten years old, determining that it’s a good investment to provide extra support for children in their earliest years.

Britain also boosted family incomes by adopting a child tax credit, which is fully refundable for low-income families and has no work requirement. Low-income families with new children also received an additional tax credit. And all newborn British children received a child trust fund — a baby bond savings device where the government matched all family contributions.

Third, Britain invested in children by funding early childhood services and enacting family-friendly workplace reforms. New mothers are entitled to nine months of paid maternity leave. The first six weeks are paid at 90 percent of their average weekly earnings, and the remaining thirty-three weeks at a maximum of $207 per week. Fathers receive two weeks of paid paternity leave at a set flat amount (which Prime Minister Blair took while in office). Britain also provides maternity grants to low-income families.

Britain also enacted a so-called “right to request” law, which gives employees the right to request part-time or flexible working hours from their employers. Employers must consider the request seriously and may only decline it for a legitimate business reason. This policy has been highly successful, as 91 percent of requests are ultimately approved. The right to request was originally available for workers with young children, but has since been expanded first to cover workers with any children or elderly parents, and then to cover all workers.

Britain also provides universal pre-K for all three- and four-year-olds based on a voucher system that provides funds for parents to place their children in the school of their choice. This program also covers two-year-olds from disadvantaged families.

To navigate these programs, Britons rely on a series of community children’s centers. Though these centers were originally placed only in low-income areas, they proved to be incredibly popular and were expanded throughout the country. The centers coordinate child services for families and are tasked with locating sufficient childcare for working families, which is provided by the market, not directly from the government.

All told, the cost of these programs to combat child poverty amounted to 1 percent of Britain’s GDP annually. This was pitched to the public as “one percent for the kids.”

Waldfogel points out that, contrary to the claims of skeptics, there’s no evidence that this public expense was squandered. Studies show that families with young children used their income boost to spend more on their kids and less on alcohol and tobacco.

Some of Britain’s reforms were pared back during Prime Minister David Cameron’s austerity response to the Great Recession, but the vast majority of the anti-poverty effort carried forward. During austerity, Britain eliminated the new child trust funds and new baby tax credit. It capped the child tax credit for middle-income families and froze the value of the child benefit for three years. But it compensated for these cuts by increasing the value of the child tax credit for low-income families to prevent a subsequent rise in child poverty.

Waldfogel sees framing lessons from Britain’s experience for the U.S. Unlike in the United States, there is little racialization to the perception of poverty in Britain. Being poor is not necessarily associated with any one ethnic group in the public’s mind, so the mission to fight child poverty wasn’t seen as disproportionately helping any one group. Not so in the U.S. Because of the divisive politics of race and poverty in the United States, Waldfogel suggests that an analogous American effort might be best framed in terms of “child hunger,” “child housing,” “child opportunity,” or “child investment.”

However it’s framed, the U.S. would be wise to take note of Britain’s success combating child poverty. Britain’s reforms are broadly consistent with American policy traditions of supporting working families. But Britain went further to provide paid family leave, child allowances, the right to flexible work scheduling, and universal pre-K. Britain is also more generous to low-income households by providing more refundable tax credits, and to non-working parents like single mothers by maintaining their benefit eligibility.

Some of these reforms are already being contemplated in the United States, and the others should be, too.   With more than one out of six American children living in poverty, we should look across the Atlantic for proven ways to end this national moral crisis.

A universal young child allowance (almost) comes to Congress

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.

Going Dutch, child subsidy style

Over at The Week, I have a piece arguing that the policy reasoning that leads Sen. Marco Rubio to endorse converting the Earned Income Tax Credit into a biweekly/monthly wage supplement also ought to support shifting the Child Tax Credit to a periodic child allowance:

[T]here’s no reason to stop at the EITC. We could likewise convert the Child Tax Credit into a series of periodic direct cash payments to families. This would ensure that the childcare subsidy syncs with family expenses throughout the year, rather than arriving as a lump sum.

A few qualifiers to this claim are in order, however. I made the argument near entirely based on conservative policy proposals mainly to highlight the room for bipartisan coalescence on this issue: that conservative desire for efficient and effective support for families and work converge with liberal preferences for direct government payments to promote income security.

But it’s not clear that conservative enthusiasm for expansions of the Child Tax Credit (like the increase to $3,500 per child that Sen. Mike Lee proposes) would entirely translate to equivalently valued direct subsidy payments. It’s not entirely clear why. As I detail, there are clear efficiency gains from shifting toward a periodic payment system. But conservatives nonetheless traditionally favor tax credits based on a distinction between government spending and tax benefits that is increasingly illusory.

I also probably stretch the limits of conservative policy preferences by suggesting that a child allowance might be means tested to provide greater support for low-income families. I’ll add, however, that such a program could mirror the phaseout scheme of the EITC, which conservative politicians like Rubio and wonks like Reihan Salam seem to largely support.

But conservatives often worry about bad incentives on work. Ross Douthat favors an inversely means-tested (liberals might call it regressive) child subsidy, arguing that when it comes to the subsidy’s impact on work, “a child benefit whose value actually increases as you move from the bottom income quartile to the second one might have a much more beneficial impact.”

Conservatives raise important concerns about unintended bad incentives by creating higher effective marginal tax rates. Winding down benefits like child subsidies theoretically erodes some of the value gained from rising up the income ladder, adversely effecting one’s willingness to put in the extra work.

But liberals tend to believe that these bad incentives are muted at the lowest quintiles of our income distribution. Low-income families are concerned primarily about simple economic survival. Every extra dollar counts, and any opportunity to rise up the economic ladder will be seized. The weaning of means-tested benefits, the thinking goes, will have less of an effect on these families’ work decisions than conservatives fear.

Moreover, a carefully designed phaseout of a means-tested child subsidy like that used for the EITC can further minimize any adverse work incentives. By gradually phasing out, the EITC avoids benefit cliffs that might legitimately counteract income gains by low-income workers.

So the compromise position – between the liberal preference for means-testing and the conservative preference for inverse means-testing – is a flat benefit for all families like that used in the Netherlands. But as I explain, even this requires increasing refundability of the child subsidy and (ideally) increasing the value of the subsidy itself. Sen. Lee has proposed something along these lines for the Child Tax Credit at least, suggesting we raise the value of the credit to $3,500 and make it more refundable by counting both payroll and income taxes.

But all of this raises the biggest question of all: how to pay for it. Lee’s proposal raises objections from the left because it is paid for significantly by low-income workers (the type of policy that Douthat endorsed). Raising the value of the child subsidy – through full refundability and total value increases – would likely need to be paid for by raising taxes somewhere. Liberals would default to raising taxes on high-income earners, perhaps justifiably so. But on this point, conservatives would almost certainly part ways.

All of these are tricky practical questions that need to be sorted out. But they are worth exploring and negotiating. The openness of the right’s reformers to wage supplements and child allowances is an encouraging sign that conservatives are re-entering the realm of constructive policy proposals. The instincts here are right, and there ought to be room for real bipartisan cooperation.