Child Allowance Net Cost

To rehash, the Child Allowance (CA) is a policy I have been pushing in which parents receive $300/month for every child they are taking care of. I propose that it replace the Child Tax Credit, the dependent exemption, the head of household filing status, and the child and dependent care tax credit.

If implemented, this plan would cut official child poverty by 42 percent, child poverty under the supplemental poverty metric by 51 percent, and overall poverty under the supplemental poverty metric by 25 percent. Here, I give a more thorough estimates of net costs.

In 2013, some simple multiplication tells us that the CA itself would have shown up on fiscal budgets as amounting to $264.6 billion. According to Tax Policy Center estimates, using the CA to replace the various tax benefits mentioned above would achieve the following tax expenditure savings (in 2013):

  • Child Tax Credit - $54.15 billion
  • Dependent Exemption - $39.61 billion
  • Head of Household Filing Status - $5.92 billion
  • Child and Dependent Care Tax Credit - $3.51 billion

These expenditures total $103.19 billion. So, the net fiscal cost of replacing them with the CA is just $161.4 billion ($264.6 billion minus $103.19 billion), which is right at 1 point of GDP.

This reform would leave every family with children better off than the status quo, at least in terms of the child benefits they receive. It would replace needlessly complicated and duplicative tax code programs with one program. It would pay it out monthly instead of annually, which is better for family budgets. In short: it's a no-brainer policy and pro-growth to boot.