US embarks on first national child allowance experiment

Since 2003, Rosa DeLauro, the Democratic congresswoman from Connecticut, has argued that the US government should send direct payments to parents to help support their children, something that most developed countries already do.

For almost two decades she waged a lone campaign, until the Covid-19 pandemic resulted in an alarming increase in child poverty and a willingness in Washington to look at new ways of alleviating it.

DeLauro succeeded at including a version of the policy in President Joe Biden’s $1.9tn stimulus package, which was signed into law this month. “It is a new lifeline to the middle class,” she said on the floor of the House of Representatives last week. 

And so this summer, the US will embark on its first nationwide experiment with child allowances. From July until the end of the year, millions of parents will receive monthly cheques of up to $300 for each child under six, and $250 for those under 18.

Policy experts and members of Congress have described the payments as the most significant expansion of the American safety net since the introduction of social security benefits for seniors in 1935. Researchers at Columbia University estimate that the monthly payments will cut the number of children classified as poor almost in half.

For almost two decades Rosa DeLauro, the Connecticut congresswoman, waged a lone campaign to pay child allowance, until the Covid pandemic resulted in an alarming increase in child poverty and a willingness in Washington to look at new ways of alleviating it © Tom Williams/CQ-Roll Call/Getty

“Franklin Roosevelt lifted seniors out of poverty, 90 per cent of them with social security, and with the stroke of a pen, President Biden is going to lift millions and millions of children out of poverty in this country,” DeLauro said.

Parents in the US already received a tax credit of up to $2,000 a child each year, which is also being increased to between $3,000 and $3,600 for this tax year.

But the monthly cheques are entirely new: they are effectively a partial advance on the value of the credit that parents will receive when they file their 2021 tax returns.

Among the world’s wealthy nations, America is virtually alone in not providing direct payments for the majority of its children.

The US child tax credit. What’s changing?

In 2020:

  • The child tax credit was a maximum of $2,000 for each child under 17, paid out when parents filed their taxes in spring 2021;

  • For parents with no income or with very low incomes, the credit might have been larger than their tax bill. Those parents could receive up to $1,400 as a tax refund, but not the full benefit;

  • The benefit began to phase out when a single parent’s income reached $200,000, or a married couple’s combined income topped $400,000.

In 2021:

  • The maximum child tax credit is now up to $3,000 for each child under six and $3,600 for under 17;

  • The funds are divided between monthly cheques of up to $300 from July to December and a credit in 2021 tax returns that will be filed in spring 2022;

  • There is no income requirement to receive the benefit;

  • Some high-earning parents that received the credit in 2020 will be ineligible in 2021. The credit now begins to phase out at $112,500 in earnings for single parents and $150,000 for married couples.

Canada pays its low income families up to $450 a month, a programme its government credits with helping to cut poverty rates by 20 per cent between 2015 and 2017. Finland provides monthly payments of approximately $119 a child, while Denmark pays up to $735 a quarter.

The US trails these countries in spending on family benefits and leads them in rates of child poverty. For decades the American welfare system has been predicated on the idea that parents needed to work, or prove they are looking for it to be eligible for assistance. 

At the heart of the US system is the $2,000 child tax credit, which was ushered in 1997 on the back of Bill Clinton’s welfare reforms that were passed a year earlier. At that time lawmakers from both parties advocated for tying government benefits to work requirements. Most low-income families were eligible for only part of the credit.

“It was completely upside down,” said Kris Cox of the progressive think-tank Center on Budget and Policy Priorities. “The kids who needed it the most got the least from the credit.”

An estimated 27m American children — including half of black and Latino children — lived in households that did not receive the full benefit. Now they will.

“The US has been behind the rest of the world and this policy helps us catch up,” added Cox. “Expanding the tax credit allows low-income parents to pay rent, to put food on the table, to buy diapers, to keep the lights and the heat on.”

Matt Weidinger, a fellow at the right-leaning American Enterprise Institute, thinks the allowance marks a much larger welfare shift in the US. “This [is] basically a first step on the road to universal basic income,” Weidinger says. “This is UBI for parents.”

An estimated 27m American children — including half of black and Latino children — lived in households that did not receive the full benefit. Now they will © Scott Olson/Getty

That worries opponents, who say the lack of an employment requirement will discourage parents from working.

“We do not support turning the child tax credit into what has been called a ‘child allowance’, paid out as a universal basic income to all parents,” Republican senators Marco Rubio and Mike Lee said in a statement last month. “That is not tax relief for working parents; it is welfare assistance.”

Others are concerned about its cost — estimated to be $120bn annually. Advocates say the policy will more than pay for itself, citing research showing that children that grow up in homes with more income are healthier, and attain more education and higher salaries when they grow up, in turn boosting economic growth.

Support for the credit is more broad-based than ever before. Mitt Romney, the Republican Senator from Utah, even proposed his own version of the child allowance, although it called for eliminating another programme that provides cash to low income families.

Children of colour are more likely than white children to experience poverty in the US

Some analysts say that the monthly cheques for parents are a sign of a leftward tilt in American politics, made possible by shifting public opinion in the wake of Covid-19. Since the start of the pandemic most Americans have received $1,800 in stimulus cheques from the federal government, with another $1,400 being paid out now after the enactment of Biden’s stimulus.

“Covid increased poverty, increased unemployment through no fault of [individual Americans],” said Sarah Bidner, a political scientists at George Washington University. “We’re out of the world where conservatives are blaming low-income people for behaviour that got them in that situation. Covid hit across the board.”

Biden’s American Rescue Plan only funds the child payments for 2021, but Democrats including DeLauro have said they intend to make it permanent, setting up a political battle with Republicans ahead of next year’s midterm elections.

“These things are hard to turn off,” warned Weidinger from the AEI. “The era of big government is back.”

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