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When we checked in with economist Eileen Appelbaum last week to get some insight on the COVID relief package taking shape in Washington, she was particularly enthusiastic about the child allowance proposal it contained. In a move that would bring the United States in line with nearly every other country in the developed world, there are multiple proposals in Congress to send parents a monthly benefit from the time their child is born until they turn 18. Under the Democratic plan, for children under six, the proposed payment would be $3,600 a year. For ages six to 18, it would be $3,000 per child.
It represents a big step forward for the patchwork U.S. safety net, and a potentially transformative one for the quality of life for kids in this country. A Columbia University study found it would cut the number of American children living in poverty by more than 50 percent—or 5 million kids. (As it stands, the U.S. has some of the highest rates of child poverty among wealthy nations.) The idea even has bipartisan support on the basic merits: Republican Senator Mitt Romney has developed his own proposal, which differs in some important ways from the Democratic plans on the table. But he's got one. We've come a long way from the 2012 presidential campaign he ran.
To dig into all this further, Appelbaum suggested we chat with her colleague at the Center for Economic and Policy Research, Shawn Fremstad. He explained some of the differences between the various plans, why it’s so important for the benefits to go out to parents on a monthly basis, and how this can serve as a foundational piece of the American social-safety net. Our conversation has been edited for length and clarity.
How transformative could this policy be?
I would put it this way: It's a big deal for America because we're so far behind the rest of the world. But in most of the wealthy OECD [Organization for Economic Cooperation and Development] countries, this is just normal. It's not like a radical change. And these are longstanding things in the United Kingdom, France, the Nordics. It's a big part of their poverty-reduction strategy. Canada under Trudeau has moved in this direction. He really put them on a much more lasting path, and they’ve had huge poverty reduction—and a lot of political—success too, frankly. The only other countries where it hasn't been normal, historically, is places like Japan and South Korea, [which] have very limited welfare states. And those countries have all been moving in this direction, too. Because for them, it's that they want more babies, and they realize you have to know that if your birth rate is below replacement rate, you have to be doing more for parents.
A lot of these countries are doing it as part of a more comprehensive system of family policy that includes things like paid leave, childcare. You are going to see some resistance to that [in the United States]. A lot of it's going to be dog-whistling—remember how bad things were? Like Marion Barry is going to come back from the dead and put everybody on welfare. But if you're going to have a big welfare benefit for middle-class families with children, it kind of makes sense for all lower-income families to get it and to pay it monthly to provide stability to families.
Right, because the way the existing Child Tax Credit is laid out right now, a lot of the poorest and most needy families that would take advantage of it, can't really use it.
Exactly. I mean, it just excludes if you don't have an earner. If you're a single parent and you're not working, you don't get it at all, basically, if you don’t work. Maybe you’re disabled, maybe you're a student, maybe you're living with other family members and you want to focus on just being a parent, like a lot of parents in two parent families do. But yeah, they're completely excluded. And then there's also all the complexity about the phase-in. You have to have a certain amount.
So yeah, it would just be much fairer and more sensible to have something that's flat from the beginning, treats people the same, treats parents raising kids the same. I think ideally, you would just pay this as a universal benefit to all families with children. And then if you want to adjust the size, you could do it through a progressive tax system. It would mean you don't have to do as much prediction of what somebody's income is going to be, blah, blah, blah.
I’ve seen that suggested as a positive for the Romney plan, that it would be simpler to implement because it’s more universal, then you claw some of it back from higher earners through taxes.
So the Democrats would increase the Child Tax Credit and leave the Earned Income Tax Credit the same. I think it's really good for low-income, regularly employed single parents, because they kind of are in a sweet spot with both the CTC and the EITC.
The Romney plan, because of the way they cut the EITC and quote-unquote "eliminate marriage penalties," that’s really good for people at the bottom, including single parents. They're really good for people who are married in the middle-income range. It’s not so great for various groups of people who get cuts. It goes in the right direction, I think, in terms of separating out the EITC and the CTC, and making the EITC more about a worker credit that is less contingent on the presence of children. Keeping those things separate makes it easier to do the monthly payments on the child credit.
So the Democratic plan is Rep. Richard Neal’s bill in the House?
The Neal bill is doing on a temporary, one-year basis what the American Family Act would do permanently. The Neal thing is in the current COVID bill. The plan is to get it temporarily this year. And then next year, you need to go toward getting it more permanent.
On that front, when would people see the benefits of this in their bank accounts?
It’s a little bit up in the air. If I’m remembering the language of the bill, they're very much pushing in the direction of monthly payments, or at least not waiting until tax time next year. But they do give the IRS some language like, “to the extent practicable,” and so there’s some wiggle room for the IRS to say, "We can't do this monthly, starting July. Maybe we can do it quarterly or monthly starting later this year.” And the tension is going to be, how much do you want to get something out, so people start seeing it in July, August, September, versus how much can you really get from the IRS, an agency that has seen enormous cuts and has other things to do?
The other thing I’m sure the Democrats want to avoid is a problematic rollout where a lot of people are getting money and then being told, "Tax time, you got to pay this back." The challenge is figuring out how far you can go without it coming back to haunt you.
Is that a relative strength of the Romney bill?
I feel in the long run, there are a lot of advantages to having Social Security administer this, and doing some of these other fundamental reforms like separating the EITC and CTC. As an immediate thing, I think it's less clear. There may be short term advantages of having IRS do it, but I think there's real long-term advantages to having Social Security do it. Social Security has lots of offices. They have lots of customer service. So once they've got a program up and running, they've got essentially all the kids—at least who are born in the U.S. and get Social Security cards, typically often just at the hospital—they've got all those kids [in the system].
What does it mean that someone like Romney is proposing this? Does it indicate a shift in terms of viewing this as an investment in kids rather than welfare handouts?
I would like to think so. There are some younger conservative intellectuals, and even going back to someone like Ross Douthat, who want to see the GOP move in a more family-friendly direction. Whether you tie it to nationalism, natalism, whatever, they were clearly trying to push the GOP in this direction. It's striking that people like Marco Rubio have come out swinging at this. I think of it as the AEI [American Enterprise Institute, a conservative think tank] party line, where it’s “defend the honor of Clinton-Gingrich welfare reform.” But you’ve seen this shift happening in some countries with pretty conservative family policy regimes, like South Korea. They're really more interested in just making it easy for parents and kids, and trying to address the real tensions in family life.
What are some of the knock-on benefits for children? Obviously it helps people pay the bills, but what are the medium- and long-term impacts?
There's been a lot of focus on the poverty reduction, which I think is very important, but it's not just lifting a lot of people over line, it's closing what's often called the "poverty gap." I think it's also not just a static thing, right? It's one thing to lift people out of poverty by giving them a $5,000 next year. It’s another thing to say, "We're going to do this on a monthly basis, so that when your hours get cut by 20 hours a week, and you're now short $500 a month, at least you have this cushion." It reduces income volatility, and allows people to "smooth their consumption," quote unquote. Keep paying rent, keep up with your car payments.
It's both the extra money and the regularity that I think will have long lasting effects—not just for paying the bills, but for children's development. Part of it is knowing that you have that cushion next month and you don't have to think about, "How am I going to fill this $300 gap? Do I have to go to the paycheck loan place? What predatory lender do I have to use?” Just psychologically, I think it's huge for parents in terms of probably reducing stress. And I think that ripples through to kids.
Again, it's $3,000 or $4,000, so it's not the be-all, end-all. I think that's the other thing that's going to start to emerge as a tension. For conservatives and the Romney plan, they want this to be the be-all, end-all. They want it to be, "So we don't have to do childcare, so we don't have to do paid leave." I think for liberals, there's more of “this is one part of a family-friendly social state that includes paid leave, that includes childcare, pre-K.” And you’ve got to put these pieces together.
The idea is to put a floor under people with kids, to catch them before they fall into poverty when they have income shocks.
You can use COVID as the classic example of this, right? I mean, CEPR just kept paying me every month. But we have now a lot of research showing how common those kinds of negative income shocks are. 20 or 30 percent of income from month to month is changing for low-income people with kids. They haven't guaranteed you a full-time job with just-cause [firing provisions]. This has the potential to reduce income instability.
And it's not just about bringing people over this semi-arbitrary poverty line, but maybe some of these families, their kids could do something after school that they couldn’t otherwise do. Take piano lessons, or something.
Oh, yeah. That’s the problem with means-tested programs that are really strictly tested. They create a lot of interclass divisions, right? A a single parent [at a certain income level] might be eligible for this, but somebody with $2,000, $3,000 more isn't eligible for anything. I think this is saying parents in general are in a similar boat, even at very different income ranges, and we shouldn't treat them like one is more deserving than another, or others are the most virtuous. I think it’s learning the lessons of programs like Social Security, where you try to think about how you can build on natural solidarities rather than arbitrarily splitting people up because of very small differences in income often.
I think it’s important for Democrats to make sure they’re doing this in a way that isn't an overly Democratic style, where it’s really technocratic and complex. People need to know they’re getting it, and [it helps] that this is for all parents, rather than something where middle- and upper-income parents don't think they're getting anything, but they think poor parents are. There has been movement on this in terms of recognizing that people have to see the benefits.
So where does this fit in the larger fabric of the American social-safety net? Is it at the core of it, just one of many things?
There is something very foundational about it. It’s the flip side of saying, "We're going to put a floor under the elderly." Here, you're saying, "We're going to put a floor under kids." And it's not a floor like Social Security and even SSI, to some extent. The elderly have a pretty generous floor, it's $700 and up per month. This is a much less generous floor, but it's still a floor, and that's important. Again, you don't want to have this just be the be-all, end-all, where you can get this and stay home with the kids as a married mom, but can't get childcare if you need it to go to work. But yeah, I think it is kind of foundational.
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