Put Away the Kludges

The best child allowance policy is the simplest.
President Joe Biden speaks about his infrastructure plan, March 31, 2021 (CNS/Jonathan Ernst, Reuters).

Bipartisanship is a much-celebrated virtue in American politics, despite the fact that over the past several decades “bipartisan consensus” has often produced more harm than good: financial deregulation, military adventurism, and fiscal austerity. On occasion, though, Republicans and Democrats actually agree on the need to solve problems rather than create them, and the latest instance of such convergence has been on the issue of federal support for families with children. Elected officials from both major parties have recently advanced surprisingly progressive proposals that, however imperfect, have shifted the policy discussion in a way that seemed unimaginable just a few years ago.

The American Rescue Plan (ARP), passed by Congress and signed into law by President Biden in March, temporarily overhauls the federal child tax credit (CTC), increasing the maximum credit amount from $2,000 to $3,600 for children under age six, and to $3,000 for children from ages six to seventeen. (Until now, only children up to age sixteen could be claimed.) The credit has also been made fully refundable, meaning that parents whose tax bill is smaller than the amount for which they are eligible can receive the difference as a payment from the government. For example, a family with a child under six that is eligible for the full $3,600 credit but owes only $3,000 in federal income taxes would receive a refund for $600.

In addition, parents entitled to refunds will be able to collect them in advance installments throughout 2021 rather than having to wait until tax-filing season in 2022. Although these changes to the CTC are scheduled to expire after one year, President Biden and other Democrats in Congress have asked for them to be extended, perhaps permanently, in future legislation.

While the ARP was still being drafted and debated, Republican Sen. Mitt Romney of Utah released a counterproposal called the Family Security Act (FSA), which would eschew tax credits altogether and instead establish a child allowancea direct monthly cash payment to most families with young children. This from a man who, during his 2012 presidential campaign, had complained that nearly half of Americans were supposedly “dependent upon government.”

Under Romney’s scheme, the federal government would send parents a monthly check for $350 for each child under six and $250 for each child between six and seventeen, with a limit per family of $1,250 a month. High-earning families would receive smaller allowances, and those above a certain income level would receive no allowance. These amounts are comparable to those offered by the new CTC. Romney has proposed offsetting the cost of this plan by eliminating or scaling back existing tax breaks and social-welfare spending, including the deduction for state and local taxes and the Earned Income Tax Credit (EITC).

In late April, Republican Sen. Josh Hawley of Missouri debuted his own plan for a new Parent Tax Credit that would supplement the existing CTC and also be fully refundable and paid out in monthly advances. Single parents with at least one child under the age of thirteen would be eligible for $500 a month; married couples with at least one child under thirteen would be eligible for $1,000 per month. The credit would not phase out for those with higher incomes—though to qualify, household earnings in the previous year would have to be at least $7,540, regardless of whether you are a single parent or a couple who files a joint tax return. In the press release describing his bill, Hawley states that his intention is to “create an explicit marriage bonus of 100 percent,” as well as to encourage stay-at-home parenting. “Although most American families believe children are better off when one parent stays home to care for them,” he writes, “current federal childcare programs and policies force both parents into the labor market and require children be enrolled in formal commercial childcare.”

 

Dollar amounts and income thresholds aside, what exactly do we want federal family policy to accomplish?

These plans may all sound similar, but it’s important to look at the bigger picture. Dollar amounts and income thresholds aside, what exactly do we want federal family policy to accomplish?

The changes to the CTC under Biden—especially increasing the credit amounts, making them refundable, and allowing people to claim their tax refunds in advance—are welcome, but they leave the basic setup of funneling benefits through the income-tax system largely untouched. As Matt Bruenig of the People’s Policy Project has argued, the ARP seems likely to generate a lot of “horrible user experiences” that will only undermine support for the president’s approach.

For instance, while media coverage of the new CTC has tended to frame the advance payments of the credit as akin to a universal child allowance, they are in fact advance payments of an expected tax refund, not of the credit amount itself. In other words, those who anticipate that they will owe federal income taxes at the end of the year even after accounting for the CTC would not be eligible for the early payments. Even worse, some parents who do receive these advances could end up having to pay them back to the government if their tax bill ends up being higher than they expected. According to Vox’s Dylan Matthews, too much of what the Biden administration has been seeking to accomplish in the realm of social-welfare spending “consists of changing the existing kludgey system or making it even more kludgey, even as it makes it more generous.”

Another unfortunate bipartisan pathology has been a fixation on “targeting” and “means testing,” ostensibly motivated by concerns over the cost of the welfare state and the need to deliver benefits only to those who are genuinely “deserving.” But as both Bruenig and Matthews point out, targeting requires complexity, which breeds frustration and disillusionment on the part of the public and undercuts support for ambitious initiatives. The most popular government programs are those that are simple and universal. Hawley suffers from the same mentality: while he’s right to question an economic system that forces parents who want to stay home and care for their own children to go to work so that they can make money to pay others to take care of their children, the fact that he restricts his credit to those above a certain earnings threshold would hurt families who experience unemployment or income loss due to illness or disability. Plus, his attempt to use the credit as a tool for promoting marriage would penalize the children of single parents.

From this perspective, Romney’s proposal is, remarkably, the strongest of the three. Not only is his child allowance structured as a direct payment mostly independent of income, but he would have these payments processed not by the IRS but by the Social Security Administration, which has decades of experience sending out monthly checks to large numbers of Americans. His plan is designed in a way that seems likely to produce good “user experiences.” It also recognizes that children are deserving of income support because we cannot reasonably expect them to support themselves. I’m wary of some of the cuts Romney would make to fund his legislation, but insofar as a child allowance would simplify benefits people are already eligible to receive, such as the notoriously complicated EITC, these cuts seem relatively benign.

What explains Romney’s progressive turn? On the one hand, I’d like to think that there are social conservatives who are genuinely consistent in their pro-life and pro-family beliefs and who recognize that the precarity induced by modern capitalism militates in favor of more direct public assistance to parents and their children. I was pleased to see the conservative National Catholic Register declare that “President Biden’s child tax credit proposal and Sen. Mitt Romney’s child allowance proposal both align with some of the Church’s social priorities” and “could help lift millions of children out of poverty, encourage marriage and family formation, and save children from abortion.”

But a more significant factor may be that the politics around “welfare” are shifting. The multiple rounds of stimulus checks sent out since the start of the pandemic have proven extraordinarily popular. Former President Trump even condemned his own party’s leaders for not making the checks bigger in the relief package that passed late last year. Policy makers still enamored of phase-ins and phase-outs would do well to remember the old saying: “keep it simple, stupid.”

Published in the June 2021 issue: 

Matt Mazewski is a PhD student in economics at Columbia University and rapporteur of the University Seminar on Catholicism, Culture, and Modernity. You can follow him on Twitter at @mattmazewski.

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