How can it be that the United States spends so much money fighting poverty and still suffers one of the highest child poverty rates among advanced nations?
One in five American children is poor by the count of LIS, a data archive tracking well-being and deprivation around the world. By international standards that set the poverty line at one-half the income of families on the middle rung of the income ladder, the United States tolerated more child poverty in 2012 than 30 of the 35 countries in the Organization for Economic Cooperation and Development, a grouping of advanced industrialized nations.
The percentage of children who are poor is more than three times as high in the United States as it is in Norway or the Netherlands. America has a larger proportion of poor children than Russia.
So what’s going on? We may spend a lot of money, but we don’t spend it well. It turns out that the most generous federal programs for families with children barely help the nation’s unluckiest children. Rather, they generally push money to their counterparts higher up the ladder of well-being.
The child tax deduction — which allows families to exclude $4,000 a child from their taxable income — avoids the poor almost entirely. Just over 1 percent of the $40 billion it costs the federal budget every year flows to the poorest fifth of the population. That works out to an average benefit of $10 a poor family, according to calculations by the nonpartisan Tax Policy Center.
The $58 billion child tax credit that reduces a tax bill by $1,000 a child is more progressive. But families in the bottom fifth get only a tenth of the money, each receiving an average of $120 a year.To be sure, tax credits make a difference for many poor families, cutting the child poverty rate by almost a third, according to the Census Bureau’s new Supplemental Poverty Measure, which considers the effect of taxes and transfers on poverty. Still, children whose parents don’t work are left to rely mostly on food stamps. The American safety net has little else to offer. But perhaps this is poor children’s lucky year.
Hillary Clinton, who, according to most polls, will be the next American president, unveiled a set of programs last week to help families with children.
She proposed to double the child tax credit to $2,000 for each child up to the age of 4 and to restructure the benefit so more of it flows to very-low-income families. Today, the credit is worth only $300 to a mother of two who earns $5,000 a year. Under Mrs. Clinton’s proposal, it could be worth $2,250.
According to the Center for Budget and Policy Priorities, a left-leaning policy research center, Mrs. Clinton’s proposals could lift 1.5 million people out of poverty.
It is not a bad start. But there is an opportunity for even bolder action. Why not get rid of the child tax credit and the child deduction entirely, and instead provide a monthly check of $250 for every child in the country, to guarantee a minimum level of well-being?
“This is an old idea whose time has come,” said Timothy Smeeding, a professor at the University of Wisconsin, Madison, who directed the Institute for Research on Poverty there from 2008 to 2014. Daniel P. Moynihan, who advised former President Richard Nixon and was a Democratic senator from New York, actively supported this idea. So did Milton Friedman, the guru of conservative economic thinking from the 1960s through the 1980s.
Now the idea is being pitched in a forthcoming article for the Russell Sage Foundation by nine experts on poverty and child well-being including Luke Shaefer from the University of Michigan, Jane Waldfogel from Columbia University and Professor Smeeding.
The proposal rows against the flow of American policy over the last few decades. The benefit would be universal, like Social Security, rather than aimed at low-income families alone. And it would decouple government assistance from work, a sharp departure from the track followed since the welfare reform of the 1990s, when cash assistance was replaced with tax credits.
It offers a better deal than Mrs. Clinton’s for the poorest families. But more important, it also points the way to rethinking the nation’s antipoverty strategy, which allows far too many Americans to fall through the cracks.
And it could be a first step to guarantee a modicum of well-being to America’s most vulnerable citizens, building a floor below which no one is allowed to fall. That is one of the hallmarks of just about every other advanced nation.
“We might be coming into a moment where there could be some common-sense policy changes,” Professor Shaefer said. “There is a policy window that wasn’t open a year or two years ago.”
Austria, Britain, Canada, Denmark, Finland, France, Germany, Ireland, Luxembourg, the Netherlands, Norway and Sweden all already have some sort of child allowance. In Germany, the benefit for a family with two children adds up to $5,600 a year. In Canada, it is worth $4,935 per child under 6, and $4,164 for children ages 6 to 17.
Providing $250 a month a child — or $3,000 a year — “puts us in the ballpark of where our peer countries are,” Professor Waldfogel said. Provided monthly, rather than annually in a lump sum at tax time as current tax credits are delivered, it would be easier to manage. According to the researchers, it would cut child poverty by over 40 percent and deep poverty by half.
It is not even that expensive.
Critics will argue that a universal child benefit squanders money on parents who don’t need it. Yet many struggling middle-income families could do with the help. For taxpayers in higher brackets, a significant chunk of the benefit would be taxed away, returning it to the Treasury. Best of all, a universal program would avoid the bad incentives of targeted credits, which discourage work because they are phased out as parents’ earnings rise.
Eliminating the current tax exemptions would pay for much of it. Professor Shaefer and his colleagues estimate that at $250 a month a child (they also offer a few other options, their proposal would cost a little over $190 billion a year. Over half of that could be covered by dropping the child tax credit and the tax deduction, leaving a net price tag of about $90 billion, or about half of 1 percent of the nation’s gross domestic product. That’s only about $30 billion more than Americans spend on pets.
I know, I know. This kind of policy talk sounds crazy in the midst of an election campaign consumed by reports of sexual assault and outlandish accusations of voter fraud. Even after the election, I suspect Hillary Clinton, a cautious politician, would balk at trying to persuade Congress to approve a $90 billion price tag for such a plan.
And yet the case to help all children start life with equal support from society is powerful. Child poverty is perhaps the United States’ most painful failure. The Russell Sage Foundation is pointing to a way not just to tinker with the problem, but to start fixing it.