Child Benefit Graphic: Finland vs. US

Recently, I've been writing about the child benefit policies in Finland to comment about US news events related to child tax benefits. I pick Finland for these discussions because, depending on the year, it has the lowest or nearly the lowest relative child poverty rate in the world. Its social insurance agency also publishes nearly all of its materials in English, which has certain practical advantages for me personally.

I was asked if I could compare child benefit regimes between the US and Finland in a side-to-side manner. And it turns out I can. Below, I've compared child benefits across the two countries, grouping them by specific "problems" (click the image to get a slightly larger version).

For simplicity, I've chosen not to include health and disability benefits. Know that children in Finland are covered by their universal health care regime and parents of disabled children receive benefits to cover the costs of caring for their disabled children. Parents of disabled children can also receive a special care allowance if they need to stay home to care for their disabled children.

Also, I left off Finland's partial care allowance under the child care section, which allows parents to receive a monthly cash benefit (smaller than the child home care allowance) if they reduce their work hours somewhat to provide child care prior to school age. This was an oversight and I am too lazy to fix it. It's also not a huge part of the comprehensive child care regime.

The overall point of the Finnish regime is to comprehensively smooth the costs associated with parenting. Parenting comes with significant financial shocks, often at a time when people are at their lowest earning level in their careers. All parents, regardless of means, deal with these shocks (taking time off to deal with newborns, new costs associated with feeding and clothing children, as well as costs associated with child care and education). Thus, a universal benefit regime (with some earnings-related portions and some means-tested supplements) has been constructed so that all parents receive similar support.

There is no overall point to the US regime. It has been constructed in ad-hoc pieces that often make no sense when put together. For one example of this, consider that we have both the Dependent Exemption and the Child Tax Credit, both of which provide per-child tax benefits (one via tax deduction and another via tax credit). Why on earth would you have both of these things? They perform the exact same function even if their details differ somewhat.

The US system needs to be improved and some of the improvements could be done easily. I've previously suggested rolling all these child tax benefits into a child allowance. That would involve eliminating the Child Tax Credit, the Dependent Exemption, the Child and Dependent Care Tax Credit, and the Head of Household Filing Status, as well as reforming the Earned Income Tax Credit so it is a pure wage subsidy that provides the same benefit scale to all qualifying low-income workers regardless of how many children they are caring for.

You'd take the savings from these reforms, add in more money, and create a universal monthly child allowance like Finland has. To provide extra support to parents during pre-school years where they are most likely to deal with child care costs, you would just have one child allowance amount for kids aged 5-17 and another higher child allowance amount amount for kids aged 0-5. This is real low-hanging simplification that we could do tomorrow if we wanted.

In any event, if you've ever wondered what the difference is between the country with the highest child poverty and the country with the lowest child poverty, look no further than the graphic above. That's where the difference is made.