The progressive way to slash child poverty

On Monday, congressional Democrats unveiled a proposal to dramatically expand the Child Tax Credit (CTC), one of the bigger policies in President Biden’s $1.9 trillion American Rescue Plan. On the same day, Sen. Mitt Romney (R-Utah) gave the concept bipartisan backing by offering a Republican proposal for turning the CTC into an expanded child allowance. Both proposals would raise the current benefit from $2,000 per child to $3,000, provide an additional credit for children under age six, make the full value of the benefit available for low-income families, deliver the payments in a monthly installment instead of a lump sum at the end of the year and dramatically reduce child poverty in America. 

It’s no surprise that policymakers in both parties are prioritizing child poverty. As many as one in seven children, or close to 11 million, are poor. The United States consistently has among the highest levels of child poverty among the world’s wealthiest countries, many of which offer so-called “child allowances” to support low-income parents. The Democratic proposal would not just help these kids in the short term by lifting an estimated five million children out of poverty. It would also have long-run benefits for social mobility and support Black and Hispanic families the most. This Democratic proposal is estimated to cut child poverty nearly in half while the Romney proposal would reduce it by one third. 

The biggest and most important change is to make the full child benefit available to low-income families. Although the CTC is meant to be an income support for working families with children, about 27 million children under 17 – about one third – don’t receive the full benefit because their parents don’t make enough money. The expansion under the American Rescue Plan would make the credit fully refundable so even families that are low-income (and thus don’t have an income tax liability for the CTC to offset) would be eligible for the full credit. Romney would also make the full benefit available to low-income families. This component represents a fraction of the proposal’s costs but most of its poverty reduction because it directs investment toward those who need it the most.

Another improvement in both the Democratic and Romney plans is that the benefit would be delivered in monthly advance payments instead of one annual lump sum at tax time the following year. Democrats propose to deliver payments through the Internal Revenue Service while Romney proposes to do so through the Social Security Administration — a technical but meaningful difference. However it is implemented, the change in frequency to monthly payments should smooth out volatility in incomes for families throughout the year and bolster their budgets during difficult months.

The provision to make the benefit more generous for children under six will also better target the credit and boost outcomes for the youngest members of families. Research shows that not only are younger children more expensive to raise but investments in their formative years have profound effects on economic and developmental outcomes later in life. Democrats would offer an additional $600 for children under age 6, while Romney would offer an additional $1,200. We would go even further by increasing the supplement for young children to $1,500 and setting the base benefit at $2,500 to offset the cost.

There are other important differences between the plans. Romney proposes that the benefit would begin to phase out for singles who earn $200,000 and couples who earn $400,000 — wealthy people who hardly need government assistance to care for their kids. The Democratic proposal is better targeted to those in need, beginning the phase-out at $112,500 for single parents and $150,000 for married couples.

Perhaps the biggest difference is how the plans are paid for. Some of Romney’s proposed offsets, like ending the deduction for state and local taxes or consolidating select anti-poverty programs that are made redundant by a larger child benefit, would be welcome as part of a broadly progressive piece of legislation. Others are more problematic and undermine the poverty reduction his plan achieves. Democrats, meanwhile, have not offered any proposed offsets for their proposal, which would cost $110 billion if enacted just for 2021 and almost twice as much in 2030 if the policy were later made permanent. 

We believe the costs of benefit expansion (but not necessarily refundability) should be fully offset in a way that doesn’t significantly undermine its poverty-reducing potential. The current CTC, combined with the stimulus checks Congress is about to authorize, will result in a greater child benefit for 2021 than any of the plans discussed in this column. Because the CTC expansion is clearly intended to become permanent policy, we believe it should be offset by a 2 percent value-added tax or other reasonable cost-saving measures. The new benefit should also be indexed to inflation, as previously proposed by Sens. Michael Bennet (D-Colo.) and Sherrod Brown (D-Ohio), which removes the need for Congress to proactively ensure that the credit keeps up with the cost of living every few years.

President Biden should be commended for prioritizing working families and those who have struggled the most during the COVID-19 recession with a bold plan to reduce child poverty. Congress should follow his lead and expand benefits to immediately lift five million children out of poverty, especially the youngest and poorest, who often lack a voice in policy debates but stand to gain the most.

Veronica Goodman is the director of social policy for the Progressive Policy Institute. Ben Ritz is the director of PPI’s Center for Funding America’s Future.