Democrats Have United Around a Plan to Dramatically Cut Child Poverty

The American Family Act, one of Democrats’ biggest policy initiatives of 2019, explained.

Dylan Matthews Vox
Printer friendly  

Sens. Michael Bennet (D-CO) and Sherrod Brown (D-OH) on Wednesday unveiled the latest version of their American Family Act — in my view, likely to be the single most important bill of the 116th Congress for the country’s poorest residents.

The bill, whose House counterpart is sponsored by Reps. Rosa DeLauro (D-CT) and Suzan DelBene (D-WA), almost certainly won’t pass this session. It comes from the Democratic Senate minority and might not get any Republican support. But if enacted, the bill would slash child poverty in the United States by over a third in a single stroke. Passing it would enact a child allowance in the United States, bringing us in line with our peers in Canada, the United Kingdom, and most of the rich world in guaranteeing a basic payment for the care of children.

Most important, in its latest incarnation, the bill has the support of the majority of the Democratic House and Senate caucuses, including the No. 2 Democrats in the House and Senate (Steny Hoyer and Dick Durbin, respectively); just about every possible Democratic 2020 contender currently in Congress from Tim Ryan in the House to Cory Booker and Elizabeth Warren in the Senate; and leaders of both the moderate (Sens. Amy Klobuchar and Chris Coons) and left (Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez) wings of the party. Thirty-five Democratic senators (out of 48 Democrats total) and 168 Democratic House Reps (out of 235) are sponsors or co-sponsors.

Given that the bill could easily be passed through budget reconciliation — which requires only a bare majority in the Senate — it has a strong shot at being enacted the next time Democrats have a governing trifecta in the House, Senate, and presidency, whether that’s in 2021, 2025, or later. What’s more, the expiration of the Trump tax bill in 2025 will force a reconsideration of the US tax code, giving Democrats an opportunity to push for the inclusion of a child poverty-slashing provision in whatever deal comes out of that deadline.

2021 or 2025 isn’t soon enough for the nation’s poor kids; in a better world, Trump and the Senate Republican leadership would adopt the proposal as their own, the way some center-right intellectuals have.

But while it could take a number of years, the odds of a generational reduction in child poverty in America just went way, way up.

How the American Family Act works

The American Family Act of 2019 would dramatically expand the child tax credit (CTC), which currently offers up to $2,000 a year for families with significant earnings but little or nothing for many poor people. It would pay:

  • $3,000 per year, or $250 per month, per child ages 6 to 16
  • $3,600 per year, or $300 per month, per child ages 0 to 5

The benefits would be distributed monthly, in advance, so families could pace out their spending and smooth their incomes. Because the CTC, like the earned income tax credit, is currently paid out through tax refunds, it sometimes leads to a perverse situation in which families use it to pay down debt they never would’ve had to incur if they’d gotten the money earlier.

The credits would phase out for high-income individuals, just like the child tax credit today does, with a gradual phaseout beginning at $130,000 a year in income for single parents and $180,000 for married couples. This is a change from the original version of the bill unveiled in late 2017, which would’ve had the credit phaseout for people making much less (for singles, the phaseout would have started at $75,000 a year).

If you like this article, please sign up for Snapshot, Portside's daily summary.

(One summary e-mail a day, you can change anytime, and Portside is always free.)

Christina Animashaun/Vox

For middle-class and upper-middle-class families, the plan would result in a huge increase in monthly income, especially when kids are young and need diapers, cribs, strollers, and new clothes to replace quickly outgrown old ones.

But arguably the most important effect would be on child poverty. A team of researchers at Columbia University’s Center on Poverty and Social Policy — Christopher Wimer, Sophie Collyer, Robert Paul Hartley, and Sara Kimberlin — estimated how the plan would affect the child poverty rate (measured accurately using the Census Bureau’s Supplemental Poverty Measure, or SPM). The results were remarkable.

Poverty among children would fall from 14.8 percent to 9.5 percent, meaning 4 million kids would escape poverty. Deep poverty — the share of kids living on half the poverty line or less — would fall almost by half, from 4.6 percent to 2.4 percent.

That’s slightly less poverty reduction than the original version of the bill, unveiled in late 2017, promised. There are a few reasons for that. First, the new version of the bill is weakened in one key respect: 17- and 18-year-olds are excluded from the child allowance, whereas in the original bill their families were entitled to it. A Bennet aide stated that this change was made to keep the cost down, but it does reduce the plan’s anti-poverty impact.

Second, the Trump tax bill expanded the child tax credit somewhat for poor families, lowering the earnings level at which it phases in from $3,000 per year to $2,500 per year, and expanding the refundable portion from $1,000 to $1,400. That means, thankfully, that child poverty is a bit lower than it was when the original Bennet-Brown was formulated, and that Bennet-Brown is a bit less of a leap from the existing child tax credit than it would have been before.

The Bennet-Brown plan isn’t perfect. I would love to see the benefits for 17- and 18-year-olds return, I feel like eliminating the phaseout (and replacing it with a more general tax increase on wealthy households) would make the program easier to administer and stronger politically, and I can see a case for having the Social Security Administration send the checks, not the Treasury Department.

But no bill is perfect, and this one is an extremely effective tool to reduce child poverty. A recent National Academy of Sciences report on child poverty found that an American child allowance would be an evidence-based, high-impact way to cut the child poverty rate. Bennet-Brown implements that recommendation, and would be the biggest step on behalf of poor children that Congress has taken in a generation.

Child allowances are common abroad, and they work

A child allowance or similar policy exists in almost every EU country, as well as in Canada and Australia. In many countries, the payments are truly universal; you get the money no matter how much you earn. In others, like Canada, the payments phase out for top earners, but almost everyone else benefits. France has an unusual scheme in which only families with two or more children get benefits, as an incentive to have more kids.

But the core principle is the same in every system: Low- and middle-income families are entitled to substantial cash benefits to help them raise their children.

This helps explain why European countries are so much better at fighting child poverty than the US is. While about 11.8 percent of US children live in absolute poverty (as indicated by the US poverty line), only 6.2 percent of German children do, and only 3.6 percent of Swedish children do (note, though, that this absolute poverty data isn’t updated regularly and is a bit out of date).

The numbers get even worse when you define poverty like most European countries do, as living under half the median income. By that standard, 20 percent of children in the US live in poverty, compared to only about 10.3 percent in Germany and 4.9 percent in the Netherlands.

This isn’t exclusively due to child benefits, but they play a crucial role.

For instance, in 1999, Tony Blair and the Labour Party dramatically increased cash benefits for families with children in the UK. But it wasn’t a standalone initiative. The measure was part of a broader set of proposals meant to tackle child poverty, including tax credits, means-tested programs, a national minimum wage, a workers’ tax credit, universal pre-K, expanded child care, and much longer parental leave.

The result was that absolute child poverty fell by more than half from 1999 to 2009, while relative poverty (the share of children under 60 percent of the median income) fell by 15 percent. The decrease in relative poverty was smaller because while things got dramatically better for the poor, the middle class gained, too.

After Blair took office in 1997, the child poverty rate in Britain began to plummet and just kept plummeting as the reforms were implemented through 2001. Then it continued to gradually decline. In the US, by contrast, child poverty fell with the late-’90s boom, and then rose in the 2000s.

The UK benefit and tax credit increases from 1997 to 2005 caused incomes for the bottom 10 percent of households to grow 20 percent, according to researchers Tom Sefton, John Hills, and Holly Sutherland.

While concerns over “welfare queens” living high on the hog and misspending benefits have often stopped the US from expanding safety net programs, there’s no evidence that child benefits would be used this way. Sam Houston State University’s Christian Raschke has found that Kindergeld, the delightfully named German child benefit program, leads families to spend more on food but not to drink more alcohol.

One study of the US’s earned income tax credit found that receiving cash actually makes mothers more likely to get prenatal care, which in turn reduces the amount they smoke and drink. A Canadian study found that each dollar spent on child benefits reduced spending on tobacco by 6 cents and spending on alcohol by 7 cents.

What’s more, a growing body of evidence suggests that investments in early childhood development can pay off in lower crime, higher earnings, and greater educational attainment later on.

Programs that give families cash, according to UC Irvine economist Greg Duncan, result in better learning outcomes and higher earnings for their kids. One study found a $3,000 annual income increase for poor parents is associated with 19 percent higher earnings for their child once he or she grows up. That implies that a child allowance of that size could dramatically improve the lives of children decades later.

There’s plenty of other research where that came from:

Cash subsidies can even extend lives. Brown’s Anna Aizer, University of Toronto’s Shari Eli, Northwestern’s Joseph Ferrie, and UCLA’s Adriana Lleras-Muney looked at the Mothers’ Pension program, the first federal welfare program in American history, which ran from 1911 to 1935. They found that male children of mothers who were accepted for the program lived one year longer, got more schooling, and had incomes 14 percent greater than children of mothers who were rejected.

A child benefit would even have some effects that social conservatives might like. It encourages having more kids, and would likely reduce abortion rates by making it less costly to raise children. Money troubles are also a leading cause of marital strife, family instability, and divorce. Endicott College sociologist Josh McCabe has argued for a universal child benefit in pieces for the conservative National Review on exactly these grounds.

The political case for a child allowance

Some activists and politicians in the Democratic Party have been pushing for a fully refundable child tax credit for decades. When Bill Clinton was negotiating the very first child credit in 1997, Robert Greenstein, president of the think tank Center on Budget and Policy Priorities, wrote him a letter urging him to make it fully refundable, meaning low-income people without positive income tax liability could still benefit.

Even if the initial credit was small, Greenstein wrote, it could expand over time, and eventually “have a large effect in reducing child poverty in our country. But if a non-refundable children’s credit is established, it will probably be impossible to come back at some future time and convert it to a refundable credit.”

Ultimately, Clinton and congressional Republicans agreed to a non-refundable credit, and for the past 22 years, Greenstein’s prediction has been largely proven right. The Bush tax cuts and especially the stimulus package made the child tax credit somewhat refundable for low-earners, but caretakers, unemployed parents, and others with low earnings have still been excluded. In March 2003, Rep. Rosa DeLauro, the lead House sponsor of Bennet-Brown, submitted an amendment in the House Budget Committee to make the child credit fully refundable; it failed on a party-line vote.

So why the new push? Why are child allowances suddenly in vogue after decades of trying and failing?

Bennet and Brown deserve a lot of credit for their initial bill, which had no other co-sponsors for about a year. They went out on a limb, and others followed. DeLauro has been Democrats’ loudest voice on child poverty for decades, and has fought for refundability for nearly as long. Without her consistently trumpeting these kinds of policies, this kind of momentum would’ve been unlikely.

But there’s also a straightforward political argument for Democrats championing a child allowance.

Last year, Scott Walker, then the governor of Wisconsin, announced that Wisconsin parents could receive $100 checks just by going online and filling out an application. The benefit was framed as a refund for “sales and use tax paid on purchases made for raising a dependent child in 2017.” His political opponents were furious. State Sen. Kathleen Vinehout, who was running for the Democratic nomination to challenge Walker at the time, said voters were being “bribed with a $100 payment.”

The implicit idea is that just giving cash to every family is so popular, so obviously beneficial and inclined to make voters like you, that it’s borderline unfair to do it. If handing out cash to parents is that politically popular and also dramatically cuts poverty rates, we should do it!

One of the most difficult aspects of making policy better for poor people is aligning the interests of politicians with those of the poor. Extremely tacky, credit-grabbing cash checks to families do exactly that. And they do it in a way that resonates with the current redistributive mood in the Democratic Party. Big taxes on wealth and high incomes are in vogue due to leaders like Elizabeth Warren and Alexandria Ocasio-Cortez, and a child allowance is the natural yin to a “tax the rich” yang. If you want to reduce inequality, there are few more efficient means than taxing the wealthy and funneling the proceeds to poor families with children.

Jack Meserve, the managing editor of the center-left journal Democracy, wrote an influential piece in 2017 calling on progressive politicians to “keep it simple and take credit.” Don’t, as Barack Obama did as part of his stimulus package, structure tax cuts so that the government just withholds less from paychecks and people basically never know that they were getting them. Make the payments public and noticeable so voters know who sent them, like FDR did when unveiling Social Security, or George W. Bush did when he sent out $1,600 rebate checks as part of his 2001 tax cuts.

The American Family Act allows the Democratic Party to do something similar the next time they take power. If you’re a 2020 contender, like Bernie Sanders or Kamala Harris or Amy Klobuchar (all of whom are sponsoring the bill), the strategy is simple: Tell voters you will give them $300 per month, per child, in a check in the mail that has your smiling face on it. Call them BernieBucks or KamalaKash or AmyAlms or whatever. You will materially help people out. And you’ll have a monthly reminder sent to the homes of all your constituents, reminding them that you, unlike Trump, actually helped them out.

There’s a great bit in the pilot episode of The Carmichael Show where Jerrod Carmichael’s dad, played by David Alan Grier, confesses that he voted for George W. Bush in 2004. His liberal black family is shocked and horrified. But his explanation is simple: Bush gave him a $1,600 check in 2001. “He sent me that stimulator check. No president ever sent me $1,600. Nobody ever sent me $1,600. You can bomb whoever you want long as you send me $1,600.”

I don’t know how common a reaction that was to the 2001 tax cut checks; I haven’t read a well-designed study on the question. But I would be shocked if Bush’s checks didn’t swing some votes.

And why shouldn’t they? Part of how democracy is supposed to work is by aggregating the self-interests of everyday people, so their needs and desires are represented in government. There are few better ways to show that you understand their interests than by cutting them big checks every month.

Dylan Matthews joined Vox as one of its first three employees in February 2014, and has been there ever since.  He writes about global development, anti-poverty efforts in the US and abroad, factory farming and animal welfare, and conflicts about the right way to do philanthropy.