Predicting the political outcome of that debate is above my pay grade, but the idea of meeting big challenges with big ideas could be attractive to a lot of Americans worried about not just their own futures but also those of their children. And it is precisely there where an important, new idea deserves your attention: a child allowance called the American Family Act (AFA).
The AFA has been endorsed by majorities of Democrats in both chambers, meaning that if Democrats win the White House and control both houses of Congress, this bill could become law. By expanding the current but inadequate child tax credit (CTC), the bill would provide $3,600 per year for children younger than 6 and $3,000 for children ages 6 to 16, paid in monthly installments. The credit phases out slowly for households with incomes well above $100,000.
Critically, the bill fixes a shortcoming in our system by making these credits fully refundable, meaning low-income families with little or no federal income tax liability will get the full payment. The 2017 tax cut did expand the existing child tax credit, even though most of its goodies went to corporate shareholders and other wealthy taxpayers, but that expansion was structured in such a way as to leave behind those who need it the most. One-third of low-income children — 27 million kids — do not get the full $2,000 credit that exists today. The AFA fixes that flaw and delivers full, expanded credits to low- and moderate-income families raising kids.
Here’s a good example of the power of this simple idea: Consider a single mom trying try to raise two young children on a full-time, minimum-wage job paying $14,500 a year. The current CTC gets her $900 per child, less than half of today’s full credit of $2,000 per child (this occurs because the CTC starts phasing in at $0.15 per dollar only after the first $2,500 of earnings). Under the AFA, she would get the full credit for each child: $3,600 for children younger than 6. That is a difference of more than $5,000 — which is more than a third of her annual income.
That is the “what.” Now, let’s talk about “why”: both why this idea is so important and why the United States is such a laggard in this policy area.
To state what’s obvious to anyone who has ever undertaken it, raising children is expensive, even if you do not bribe college admissions officers. According to recent research, “annual child-rearing expense estimates ranged between $12,350 and $13,900 for a child in a two-child, married-couple family in the middle-income group.” Of course, lower-income families spend less on their children, and the gap between what low- and high-income families spend to enhance their kids’ chances in life (camps, music lessons, books, tutoring) has been rising along with all other forms of economic inequality. As these disparities grow, the upward mobility of children who start out at the low end is diminished.
But underinvesting in kids is not just a cost borne by their families. It is a cost borne by all of us.
There are massive spillovers into all our lives from how well we provide for and prepare our nation’s children for adulthood. The economic costs of failing to adequately educate them are intuitive and well-understood. But research is just as clear that children who grow up in poverty face stressors with lasting negative effects, for themselves and for the rest of us (e.g., less educational attainment, reduced earnings, worse health outcomes). The AFA’s extra credit for young children is thus a particularly attractive attribute, as providing such resources has been shown to improve adult outcomes of poor children.
Perhaps one of the most important findings regarding the AFA’s potential impact comes from researchers at Columbia University, who find that it would cut child poverty by 38 percent. That maybe is not all you need to know to get behind the idea, but it is close.
Virtually every other advanced economy has figured this out already. As Dylan Matthews notes in a recent Vox piece on the AFA, “Child allowances are common abroad, and they work.” Check out his graphic showing such programs among 12 countries, with allowances ranging from about $2,000 to $9,000 for two kids. To state the obvious again, we are a big, bad outlier.
Evaluations of their effects in other countries find these allowances boost parents’ labor force participation, especially for moms, and, as noted, health and educational outcomes for kids. Columbia’s Jane Waldfogel aptly summarizes the relative lay of these lands: “The United States stands out from other advanced economies in not having a universal child benefit that provides help to all families with children. As a result, the child poverty rate in the United States is alarmingly high, resulting in diminished opportunity for too many American children and immense costs to American society over time.”
So, here’s what we could expect from the AFA. It would cut child poverty by almost 40 percent, while reaching well up into the middle class (very important, as the costs of child care squeeze not only the poor). There would be little new bureaucracy — we already administer a child credit, just not a very good one. Like Social Security and Medicare, it seems axiomatic that the AFA would be widely valued and politically insulated once established. Given that the AFA would give families cash (rather than a restricted payment that must be used for child care, housing, etc.), its “consumer sovereignty” could appeal to conservatives and libertarians. In fact, some of the latter are big supporters of the idea.
While there is no official budget score yet, the plan would likely cost about $100 billion per year, making it about half as costly as the Trump tax cuts — and many times more useful. Progressive ways to pay for it abound, including Sen. Elizabeth Warren’s wealth tax, Sen. Bernie Sanders’s expanded estate tax and Sen. Brian Schatz’s financial transaction tax.
Why has it taken so long for us to do the right thing by working families and kids?
Because Republicans are obsessed with upward redistribution to their donor class while too many Democrats have been content to nibble around the edges of a true progressive agenda. This dynamic created an opening for a false prophet of the working class, a huckster who reveals his phoniness every day he is in the White House.
But the boldness of the current debate shows that Trump also created an opening for genuine, ambitious solutions. Enter the AFA, a big idea that offers a compelling answer to the question: What are we waiting for?