This One Weird Trick Actually Cuts Child Poverty in Half

A child allowance program provides a monthly check to parents for each kid that they are raising. Previously, I estimated the poverty reductions that would result from implementing a child allowance of $300/month. The previous estimates were made using the Official Poverty Metric that many regard as a bad poverty measurement. So, here, I make the same types of poverty reduction estimates using the Supplemental Poverty Metric instead.

To be specific, I estimated the effects of implementing a $300/month child allowance alongside getting rid of the Child Tax Credit. Here are the results for poverty rates (rounding may cause slight figure mismatches below):

  • The child poverty rate would decline 51% (from 18.1% to 8.9%).
  • The adult poverty rate would decline 14.8% (from 15.3% to 13.1%).
  • The overall poverty rate would decline 25% (from 16% to 12.1%).

Here are the results for poverty amounts (rounding may cause slight figure mismatches below):

  • Child poverty would be reduced by 6.9 million (13.4 million to 6.6 million).
  • Adult poverty would be reduced by 5.4 million (36.5 million to 30.1 million).
  • Overall poverty would be reduced by 12.2 million (49.8 million to 37.6 million).

Cost

A flat benefit like this would have cost around $265 billion in 2012. But recall that I am saying we should get rid of the Child Tax Credit (saving $57 billion) and the personal exemption for children (savings unknown). Thus, the net cost of the total reform is considerably lower than that, and would amount to somewhere a little above 1% of GDP.

This is unbelievably cheap. The U.S. tax level in 2012 was 24.3% of GDP according to the OECD. This is one of the lowest in the developed world (UK - 35.2% of GDP; Canada - 30.7%; Australia - 26.5% of GDP; Austria/Sweden/Denmark/Norway/Finland - >40% of GDP). There is plenty of room in the tax level for an extra point or so of GDP, for the children.

There is no other policy out there as impressive as this one when it comes to poverty reduction. What other idea out there can, for around 1 extra point of GDP, cut poverty by a quarter and child poverty by half, all while using a universal program that involves no means-testing and therefore no benefit cliffs that might disincentivize work? There isn't one. This is super low-hanging fruit in the game of poverty (and especially child poverty) reduction. This probably helps to explain why the child allowance is so commonly used elsewhere in the world.

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