| Posted: September 16th, 2013
More than 16 million children in the United States are poor, and the child poverty rate has been at historic highs since the Great Recession.
We could effectively end child poverty now, at least in the short run. The question is whether we’re willing to do that.
If the United States offered cash benefits to children in poor families, we could cut child poverty by more than half. According to calculations using the 2012 Current Population Survey, poor children need $4,800 each, on average, to escape poverty. That’s $400 a month for each child.
If we issued a $400 monthly payment to each child, and cut tax subsidies for children in higher-income families, we would cut child poverty from 22 percent to below 10 percent. If we further guaranteed one worker per family a job paying $15,000 a year, and each family participated, child poverty would drop to under 1 percent.
A child benefit is now common across developed countries, with amounts of about $140 a month in the UK, $190 in Ireland, $130 in Japan, $160 in Sweden, and $250 in Germany. A smaller child benefit of $150 per month would chop child poverty from 22 percent to below 17 percent. Adding the job guarantee would lower child poverty to 8 percent.
A very brief history of child poverty
Using cash to help fight poverty isn’t a new idea, but welfare in its latest form (Temporary Assistance for Needy Families) does not do that. Child poverty rose in the 1970s and 1980s largely due to a sea change in the American family, away from married parents and toward the single parent family. Wages stagnated and policy did little to address poor children’s needs.
In the early 1990s, new tax credits and an explosion of demand for workers at all wages drove down child poverty, especially for black and Hispanic children. After 2000, we still had the new approach to welfare and tax policy, but the bottom of the labor market dropped out, and child poverty rose for the next 12 years. The replacement for welfare has moved away from giving cash to the poor, giving the typical recipient about $3,000 a year and only reaching about 2 percent of poor people.
Why doesn’t the United States offer a child benefit?
Many developed countries have a child benefit, where the central government pays families—all families, not just poor families—a monthly stipend for each child. The child benefits can be taxed as regular income, so the effective benefit is lower for higher-income families. Why doesn’t the United States do the same thing?
Part of the answer is that economists tend to think that some parents will choose not to work if they can scrape by on a small cash benefit. A related concern is that phasing out benefits works like a tax, discouraging more work or the pursuit of higher-paying jobs because a worker keeps less than one dollar for every additional dollar earned. Falling effective tax rates in the late 1980s and early 1990s are widely credited with increasing work, but changing effective tax rates have had little impact on work in the past 15 years.
Shifts in the availability of jobs have had much larger impacts on whether parents work than changes in benefit or tax rates. And it seems parents have reacted little to recent changes in public assistance or tax policy, leading us to believe that the costs of discouraging work are small, so we can safely offer larger benefits.
The economic argument for lifting children out of poverty
Beyond the moral responsibility to help poor children, there is an economic argument: helping children escape poverty keeps them off public assistance and out of jail as adults, and improves everyone’s future quality of life.
Children growing up poor are more likely to be poor as adults and to cost society more in terms of lost taxes and benefits paid out. This cost could be avoided by ending child poverty, but a worry often raised in the welfare reform era was that cash benefits would teach children not to work when they grew up. If cash benefits kept low-income children from moving into the middle class, we would have to count up the benefits of lower child poverty very differently.
We could reverse the upward trend in child poverty by turning some existing benefits into cash, and creating a new child benefit. The preponderance of evidence points to large gains in well-being from cash benefits, and small social costs. The time is not yet ripe for federal policy change, but a few states could try out a new taxable child benefit paid to all families. Many states are in budget crisis mode, but poor families are in worse shape than their state governments.
Child image from ShutterstockEconomy |Tags: cash, children, investment, poverty, Urban Institute
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