In his State of the Union address, President Obama unveiled a number of proposals he grouped under the heading of “middle-class economics.” These included things like raising the minimum wage and expanding the child care tax credit. Fair enough: We need new ideas for supporting working American families, since our child poverty rates remain among the highest in the developed world. One in four American kids is growing up poor in the United States. More than half of our children come from low-income families.
As Demos’ Matt Bruenig is fond of pointing out, the U.S. doesn’t top OECD child poverty charts because our economy is uniquely bad at distributing resources. To the contrary: Market incomes in, say, Finland are about as unequal as in the United States. But Finland has serious redistribution programs that reallocate resources from the wealthiest incomes to ease the strain on the poor. That is, its rich bring in huge incomes (like ours) but the country spends heavily on redistributive programs to support low-income children. As a result, Finland’s child poverty rate is a comparatively tiny 3.9 percent. Ours remains reliably north of 20 percent.
Could Obama’s child care tax credit proposal narrow that gap? Maybe a little. It would expand both the number of families who qualify for the federal child care tax credit and the size of the credit itself. But bear in mind that the tax credit still clocks in at a featherweight-class maximum of $3000. And to get that full amount, families must spend at least $6000 on care in a year. That is, to get the additional money, families need to be able to float the cost of child care in the first place so that they can be reimbursed later through the tax code.
Which is fine for families who can afford those costs and wait for the tax year to end before being reimbursed, but it’s useless to those who can’t. For those families, the high cost of care remains a considerable barrier to staying in the workforce. They can’t work without care for their children, but their jobs pay so little that they cannot afford care (even if it’s eligible for a tax credit when the year ends).
As Bruenig often notes, these sorts of credits are (to put it nicely) inelegant public policy. They complicate the tax code. They confuse taxpayers. They are hard to target to those families who need the most help.
At a Century Foundation event last month, a number of experts explored a different option: child cash allowances. Given the name, you’re probably thinking about weekly spending money 10-year-olds get for keeping the garage clean. But these “allowances” are way more potent: They’re a monthly check governments send to citizens raising young children.
If this sounds like another far-out Euro-lefty wish-piece in the making, hang on a sec. Canada has a child allowance, and the governing Conservative Party is pushing to expand it. And the United Kingdom’s conservative government has taken pains to avoid cutting child allowance benefits for the UK’s poorest even during their recent austerity efforts. This isn’t an idea just for continental socialists.
In fact, child allowances are attracting attention from return-on-investment economists like those who helped make pre-K a prominent political issue in recent years. For them, child allowances aren’t just about making ourselves feel better or occupying some novel ideological space. These researchers are exploring data on the consequences of investing public dollars directly in low-income families’ pocketbooks.
Panelists noted that research specifically designed to measure the effects of child allowances in the early years remains rare. But there’s good reason to expect that sending families money when their kids are young would be particularly powerful. An enormous amount of brain development occurs in the first three years of children’s lives.
Not to mention that parenthood comes to most families at a time when family breadwinners have not yet advanced very far professionally. Advances in fertility treatments notwithstanding, most parents have children early in their careers, when their incomes are not particularly large. That is, the average income of a 24 year old is likely lower than his or her income will be at 48 years old.
Child allowances support young parents of young children by increasing incomes at the most developmentally-critical moment for those kids’ success. The taxes to support these programs come from higher-income folks who are, by virtue of that income, more likely to be older. That is, child allowances are a way to raise families’ incomes at the critical moment—early in kids’ lives—by redistributing from people who have already passed through that stage in their lives.
President Obama’s State of the Union proposals are modest in comparison. His child care tax credit echoes the sorts of tax-policy-as-welfare proposals of conservatives like former Republican Senator (and 2012 presidential candidate) Rick Santorum.
Child allowances cut child poverty. They support kids’ long-term development and health. Why don’t we give them a shot?
Well, here in the United States, we like the abstract idea of supporting young children and their families. But that usually evaporates when proposals get concrete. To a large degree, we haven’t recovered from Reagan-era “welfare queens” rhetoric alleging that some poor American mothers were using federal benefits to pad out a luxurious, work-free lifestyle. Mitt Romney’s leaked disdain for the “47 percent” of Americans “dependent on government” is simply an updated version of this old Ayn Rand creed.
So we route much of our public support for low-income children and families through our tax code. We provide various tax exemptions and credits to ease the burden on parents, and periodically monkey around with those with an eye to changing their target beneficiaries. This is an inefficient way to deliver benefits to low-income families. And it often imposes confusing, unpredictable risks on these families—if their incomes or the costs of care change, they may unexpectedly see big changes in their end-of-year tax benefit. That undermines tax credit programs’ effectiveness, low-income families’ ability to plan financially, and public confidence in these sorts of government efforts. Child allowances are relatively clear by comparison and minimize many of these challenges.
So here’s another way of putting this: America’s high child poverty rates are a choice. We could bring them down. We have the resources to do so. But we don’t—whether we’re using proposals like Obama’s or others.
DISCLOSURE: I am a parent of two children under the age of four, and thereby am clearly in the pocket of Big Toddler. Or rather, Big Toddler has its hands in my pocketbook. In any case, I could certainly use—and would definitely appreciate—a monthly check to help care for those two beautiful creatures.