Reducing Poverty With A Child Allowance

Last week, I wrote a post arguing that we should give parents free money. To the extent that we want to help families raise children, a good idea in my view, the best way to do that is not to create really strange tax code carve outs for parents, but to give parents a monthly check for each of their kids. This policy is called a child allowance.

It is a much better policy for a long list of reasons, but one of them is that tax code mangling doesn't really do much to help low-income parents . For instance, Senator Mike Lee's proposal to increase the child tax credit to $3,500 would provide little to no additional help to those with low incomes because it is not refundable and low-income parents already have low to no tax liability. So while it is billed as a way to help families raise their kids, it only actually helps middle and upper class families do so.

A child allowance, on the other hand, treats all kids the same no matter how much their parents make. It does not perversely give more assistance to those with higher incomes, as if they somehow need more money to undertake all of the time, effort, and expenses involved in child-rearing. Also, because it is not tied to tax liability, a child allowance comes with a bonus: substantial childhood poverty reductions.

In anticipation of a longer piece I am contributing to on this topic, I produced the following numbers from the Census ASEC microdata file for 2012 in order to gauge the impact a child allowance of $300 per month per child would have on poverty. I chose $300 because it is more or less the same as Mike Lee's $3500/year Child Tax Credit plus the Personal Exemption for children (both of which I would recommend getting rid of in favor of a child allowance). Of course, it would cost more than Mike Lee's stuff because he saves by giving little to no assistance to poor families, but that's a pretty unconscionable way to save money on a program intended to help families.

Using the official poverty metric, I found that, all else equal, a $300/mo child allowance would:

  • Cut child poverty by 42 percent
  • Cut child poverty rate by 9.2 percentage points
  • Cut the child poverty amount by 6.8 million children
  • Cut adult poverty rate by 2 percentage points
  • Cut adult poverty amount by 4.7 million people
  • Cut total poverty rate by 3.7 percentage points
  • Cut total poverty amount by 11.5 million people

Here is a graph of poverty rates with and without the allowance:

Here is a graph with the number of people pulled out of poverty by this program:

Ultimately, the $300 amount and the figures that it generates here are not necessarily the point. You can have more or less than that if you want, which would mean lower or higher poverty reductions.

The point is that, whatever the amount we decide upon, providing it flatly to all parents is the way to go, if you actually care about supporting families and what they undertake to raise children. If you actually just care about giving middle and upper class parents some extra money while neglecting poor families almost entirely, then you go with the convoluted tax code stuff.