President Joe Biden’s proposal to make the Child Tax Credit larger and fully available to all poor families has been widely recognized for its potential to reduce child poverty. Yet the proposal is drawing a predictable criticism from some conservative corners: that because the full child credit would go even to families with very low or no incomes, it will discourage work.
But does this type of fully-refundable child tax credit – sometimes called a “child allowance” –truly force a tradeoff between combating poverty and discouraging work? As it happens, we know the answer to that question.
In the 1990s, conservatives harshly criticized a different anti-poverty tax credit, the Earned Income Tax Credit, even though it was specifically designed to reward work for low-income workers. Their argument? That since it was “refundable” – meaning if a worker did not owe enough in taxes to use the full-tax credit, the remaining portion could be received as a refund – it was “welfare” and not legitimate tax relief. In 1993, when President Bill Clinton doubled the EITC for typical working-poor families and offered tax relief for workers without dependent children, he was lambasted by conservatives as expanding the “nation’s fastest growing, most fraudulent welfare program.” Speaker Newt Gingrich was so outraged he almost blew up the 1997 budget negotiations over it. The Wall Street Journal editorial board infamously called refundable tax credits to working poor families “welfare” for “lucky duckies.” All the same, the credit survived and was even expanded under President Barack Obama. Democratic leaders in Congress and Obama also gradually increased the amount of the separate Child Tax Credit that poor working families could receive as a partial tax refund.
The cumulative benefit has been consequential. Together, the two tax credits now boost the incomes of 28 million Americans, lifting nearly 11 million people, including 5.5 million children, out of poverty. Today, a working parent of two who makes $17,000 a year gets over $7,000 more than they did before the Clinton increase in 1993.
Along the way, evidence has grown that such refundable tax relief increases the incentive to work. Perhaps as a result, conservative opposition has softened. Even the American Enterprise Institute now supports the EITC. Some congressional Republicans back the type of EITC increase for workers without children proposed by Biden, and Republican Senators like Mitt Romney, Marco Rubio and Mike Lee have supported some increases in the refundability of the Child Tax Credit.
But even with these positive steps, the child tax credit provides more to better-off families than to families who are struggling the most. The design for phasing in refundable relief for the hardest-pressed families does not allow them to get more than 70 percent of the credit – $1,400 of the $2,000 that middle-class families receive. This gap means that 35 percent of all children, 50 percent of Black and Latino children, and 70 percent of children of single mothers do not get the full Child Tax Credit.
Biden has put forward a proposal to increase the Child Tax Credit while ensuring that even the poorest families can get the full amount. Researchers calculate that on its own, it would cut our current child poverty rate – one of the highest in the developed world – nearly in half.
But this is where the battle has been re-engaged. Because the Biden proposal (and the version put forward by Mitt Romney) would allow the lowest-income families – including a family without income – to get the full child tax credit, conservatives claim it is anti-work. The very same AEI which now supports the EITC has come out in full force against a child allowance. AEI’s Angela Rachidi writes that it would “decrease employment for low-income parents.” And Scott Winship, AEI’s Poverty Director, warns that by discouraging some parents from working, it would hurt the long-term prospects of their children. AEI’s President Robert Doar has previously said that it will “increase work disincentives” and mean “more people will not work.” The Heritage Foundation’s Robert Rector suggested that the potential work disincentives could actually lead to an increase in child poverty. And now Rubio and Lee have responded that such a child allowance is welfare, not tax relief. They argue that it that would undercut “the responsibility of parents to work to provide for their families.”
But is there compelling evidence for this charge? Nope.
First, the international experience shows that a child allowance is not anti-work. The vast majority of OECD countries already provide an unconditional child benefit, and most have a higher labor force participation rate than the U.S. In fact, research suggests that parents receiving allowances actually work more: “After Canada enacted a national child allowance in 2006, employment rates for mothers actually increased across the board,” according to one report. In 2016, Canada increased its annual child allowance to $4,800 per young child and $4,000 per older child – and the economy added jobs.
Second, the questionable argument conservatives often use against aid for working poor families – that programs like the EITC or SNAP discourage work at the income levels where they phase out – does not exist in the context of Biden’s proposal, which does not phase-out until families are well into six-figure incomes. Its design thus avoids creating a threshold at which it can even be argued that a working poor family will fear that they will lose benefits with additional income. Indeed, it is childcare costs that function as the most regressive “tax” on work for parents. The Biden plan proposes major new childcare relief to address this.
Third, if conservatives are still worried about discouraging work, then they should aggressively support Biden’s EITC increase as well as his proposal for a $15 minimum wage. As economists like Hilary Hoynes have pointed out, proposals like child allowances, when combined with increases in the minimum wage and the EITC, clearly increase the financial incentive to work.
Let’s do the math. Today a single mother with two children working 25 hours a week at $9 makes a poverty-level $11,700. With the $15 minimum wage, she will make an additional $7,800 or 67 percent more for a total of $19,500 — better, but still below the current poverty line of $21,960 for a family of three. So, even if you worry that a fully refundable Child Tax Credit would discourage work, a $15 minimum wage surely increases the incentive to work.
It is hard to see how critics can continue to argue that a child allowance will discourage work – especially when combined with a higher minimum wage and EITC. Their only case seems to lie in the trope that our nation is filled with people who – because they could get a fully-refundable child tax credit worth $4,000 if they were raising two children (or about $6,000 if the Biden increase passed) – would choose to do zero work while living in deeper poverty and economic despair.
I believe in an economic dignity compact that rewards work and calls for everyone to do their part — as do most Democrats. But we must recognize that what keeps many Americans out of the workforce is not the prospect of a child allowance but the barriers of extreme poverty, the costs of childcare, disability, past criminal justice problems, addiction, and mental or physical health issues. Affirmative help to empower more Americans to overcome these barriers is far more likely to increase work than keeping their children in poverty as a punitive stick. We also must remember that economic dignity means ensuring that no child’s potential should be deeply diminished due to the accident of being born and raised in poverty. Our commitment to rewarding work neither must nor should trump that value.
Biden’s full plan – a child allowance, a $15 minimum wage, and an increase in the EITC and childcare relief – shows exactly how we can promote economic dignity for all. We don’t need to choose between rewarding work and fighting child poverty.
View original post