What Is the Difference Between the Reformicon Tax Credit and the Child Allowance?

As coverage of the Child Allowance idea picks up (I, II), I am finding commentators here and there who do not appear to appreciate the fact that, in most meaningful respects, the Child Allowance is identical to the Reformicon tax credit. So I want to take a moment to very clearly specify the difference between the two policies, and what those difference mean for policy debates going forward.

Here are the two plans:

Reformicon Plan: When a family adds a child, the Child Tax Credits will increase their disposable income by $3500 annually, unless the family's market income is too low, in which case they will receive less than that, with the poorest receiving none at all. Families will receive their disposable income boost in an annual lump sum.

Child Allowance Plan: When a family adds a child, the Child Tax Credits Child Allowance will increase their disposable income by $3500 $3600 annually, unless the family's market income is too low, in which case they will receive less than that, with the poorest receiving none at all. Families will receive their disposable income boost in an annual a monthly lump sum.

Or to clean it up:

Child Allowance Plan: When a family adds a child, the Child Allowance will increase their disposable income by $3600 annually. Families will receive their disposable income boost in a monthly lump sum.

Or to put it in comparative terms, the Child Allowance is the same thing as the Reformicon plan, except:

  1. It does not exclude families because of their low market incomes.
  2. It pays out monthly instead of annually.

Or to put it into the language of transformation, the Child Allowance is what you get when you take the Reformicon Child Tax Credits, make them fully refundable credits, and pay them out monthly.

These are tiny conceptual changes, but they generate massively different outcomes. In particular, the Child Allowance cuts child poverty by half and overall poverty by a quarter, while the Reformicon Child Tax Credits (by intentionally excluding poor families) does not.

It is important to keep in mind how slight these differences are when you want to make an argument against the Child Allowance that doesn't also knock out the Child Tax Credits. Because they are otherwise identical policies, any argument you make against the Child Allowance will also hit the Child Tax Credits, unless the argument is specifically targeted at the two differences mentioned above.

When it comes to monthly versus annual lump sums, no one could possibly maintain that the latter is preferable. With monthly payments, you have a predictable income stream that can be reliably incorporated into a stable monthly household budget. With annual payments, you do not. Even the Reformicons, I imagine, would prefer to deliver their child benefits in monthly amounts instead of annual amounts if they could pull that off. But they can't pull off monthly payments because the only practical way to sufficiently exclude low-income families from the benefits is to wait until the end of the year, at which point you can identify them and deprive them accordingly. To sum: all else equal, monthly lump sums are superior to annual lump sums.

Since the monthly/annual difference is an obvious point in the favor of the Child Allowance, there is only one argument that you can use against the Child Allowance that doesn't also strike a blow against the Child Tax Credit idea. What is that one argument? It is this: the Child Allowance is bad because it doesn't exclude low-income families from child benefits. That's it. Outside of the monthly/annual payment difference, this is the only difference between the two plans. If your argument is not centered on why it is awesome to exclude low-income families from child benefits, then your argument also applies to the Child Tax Credit as well.

So if you want to have a debate between the CTCs and the CA, the only question is whether it is better to exclude families with low incomes from the disposable income boost or not. I say no. Reformicons say yes. I am right. They are wrong.

Comments