Joe Biden hasn’t been in the White House for three months, so it’s way too soon to justify the claim that he has already joined the ranks of transformational presidents. But one Biden initiative that really could be game-changing is his plan to give U.S. households a monthly check based on the number of children they have.
Progressives celebrate the program as an antidote to child poverty. Conservatives fret that it will give low-income parents the opportunity to avoid work.
Those views are worth discussing, but both miss the real problem with Biden’s plan. The group of Americans for whom the child-allowance might be transformational is the middle class, not the poor. And the most concerning aspect isn’t its generosity. It lurks behind the decision to distribute it to households as a monthly check, rather than a once-a-year payment bundled with tax refunds.
The 2017 tax law doubled the child credit from $1,000 to $2,000 per child. It also made the credit partially refundable, so that a household that didn’t owe any income tax was eligible for a refund payment of up to $1,400 per child. To receive the credit, a taxpayer had to earn at least $2,500.
The $1.9 trillion pandemic relief law that Biden signed last month expanded the credit even further, boosting it to $3,600 for each child under age 6 and $3,000 per older child. It also waived the $2,500 annual earnings requirement and made the credit fully refundable. The changes will only be in effect this year, but Biden and congressional Democrats hope to extend them.
A household with two young kids and no earnings will receive $7,200 from the expanded child credit. That’s a lot more than the $2,800 this household would have received prior to the relief law. And previously, the household would have needed to earn at least $2,500 to get the credit.
The more generous credit will probably reduce employment. But I wouldn’t expect the drop to be large because the structure of the credit doesn’t penalize labor income — for low-income households, the size of the child allowance doesn’t shrink as earnings increase. And the extra money will have a significant impact on poverty. My American Enterprise Institute colleagues Alex Brill, Kyle Pomerleau and Grant M. Seiter estimated that it will cut child poverty by one-third.
As important as this is, it is not a new paradigm for anti-poverty policy. It is simply ratcheting up the generosity of a program that has been expanded by presidents of both parties over several decades, including by President Donald Trump.
But while the expanded scale doesn’t represent a paradigm shift in anti-poverty policy, the payment structure might represent one — and not for the poor, but for the middle class.
By distributing the child allowance as monthly income, the government would encourage middle-class parents to stop thinking of it as a tax break. Instead, it might start to feel like a … monthly income.
This has the potential to change the relationship between the citizen and the state. The poor and the elderly already receive regular assistance from the government in the form of, say, Social Security checks or monthly deposits to their food stamp accounts. But government assistance to the vast middle is more opaque, hidden in places like tax breaks for health insurance, college savings and mortgage interest. And while the middle class welcomes this assistance, it is notably tied to specific expenses.
Cash is different. Monthly child-allowance checks would bring assistance front and center. And this could change the way the middle class thinks about the role of government in their lives. After a few years, it might become commonly assumed that the government should provide regular cash assistance to households with kids, even to those earning six-figure salaries.
These monthly checks would be front-of-mind and popular among a large group of Americans who are likely to vote in elections. That would tempt politicians to crank them up, making them more generous, and to argue that the government should also be picking up part of the tab for other expenses. This actually could, to borrow the cliche, create a paradigm shift.
According to calculations by Seiter, the child allowance will boost household income by $101 billion this year. Just $36 billion of that will go to households in poverty. Supporters have characterized the program as a boon to the poor, but in terms of dollars, it’s more a program for the middle class.
Society has a special obligation to the poor, and fighting poverty is a worthy use of public funds. But the amount of financial assistance Biden wants to give to better-off households is excessive. It would be better to use much of that money to expand economic opportunity or to reduce the deficit.
And it would be better to leave the relationship between the middle class and the government as it is.©2021 Bloomberg L.P. Distributed by Tribune Content Agency, LLC