When the pandemic hit early last year, the US government did something it had never done before: sent out money to nearly every person in the country, including the poorest of the poor. Last month they did it again. Together, these two sets of checks provided a typical family of four with $5,800 of direct cash benefits.
Despite what we’ve been told over the last few decades, issuing these checks did not generate an anti-welfare backlash. Instead, public opinion is overwhelmingly in favor of sending out more of these checks, with even the majority of Republicans telling pollsters that they’d like to see another $1,400 per person ($5,600 for a family of four) included in another coronavirus bill.
The success of these checks clearly refutes the prevailing Democratic approach to building the US welfare system. According to this approach, cash benefits should be opaquely provided through the tax code to make them seem less like handouts and should be designed to exclude the very poor and the rich in order to avoid triggering middle-class resentments. These checks broke every single one of these rules: they were blunt, clearly handouts, and available to the “shiftless poor” as well as many rich families. Yet the masses loved them.
In a paper published by the People’s Policy Project, I argue that the Democrats should apply the lesson learned from this experience to the country’s bizarre and overcomplicated child benefit system. Specifically, I propose that the US government eliminate the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and Additional Child Tax Credit (ACTC) and replace these programs with a $374 check sent out to every family every month for every child they are taking care of.
Based on what we’ve seen with the coronavirus checks, this type of universal child benefit, which is common in Northern and Western Europe, would be wildly popular and highly effective. Unlike our current mess of tax credits, this program would be easy to use, available to everyone, and very successful at tackling the nation’s severe child poverty problem.
So far, Democrats have not indicated any desire to go in this direction. In fact, just yesterday, Joe Biden released a budget plan that expands the Earned Income Tax Credit and Child Tax Credit, but only for a single year, and with benefits only being paid out in early 2022 rather than right away.
One reason Democrats keep going back to this same failed approach is because many of them really do believe that tax credits are the best ideological fit for America’s uniquely reactionary politics. But another more pernicious reason is because the auxiliary policy institutions that policymakers rely upon — such as the Center on Budget and Policy Priorities, the Urban Institute, and the Center for American Progress — consistently mislead them about the efficacy of these programs.
As I argue in my paper, tax credit advocates engage in two egregious forms of deception when selling their proposals to the media and key decision makers.
The first thing they do is present figures that are outright false. Specifically, they produce estimates of how much tax credits reduce poverty that assume that every eligible person receives the benefit they are owed when we know from IRS data that this is not true. Two years ago, the Census Bureau released a paper cautioning that these assumptive models are overstating the antipoverty effect of the EITC by 50 percent. Nonetheless, these same models continue to be used, both to evaluate existing programs and to produce garbage figures about what effect proposed changes to these programs would have.
The second thing they do is use a deceptive way of measuring poverty, called “headcount poverty,” that tax credits are specifically designed to game. Headcount poverty is calculated by establishing a certain dollar amount known as the poverty line, adding up all the people who have incomes below that dollar amount, and then declaring that the resulting figure — e. g., 34 million people — reflects the extent of poverty in the country.
The problem with the headcount poverty measure is that it does not distinguish between someone whose income is $1 below the poverty line and someone whose income is $10,000 below the poverty line. A program that provided $1 to the former person would count as reducing poverty while a program that provided $9,999 to the latter person would not.
Given this dynamic, it is possible to juke the headcount poverty measure by creating a program that sprinkles a modest amount of money on those with incomes just below the poverty line while giving nothing to those living in deep poverty. This kind of program would not provide much in the way of genuine poverty relief, but if it were implemented successfully, it would end up moving a significant number of people just below the poverty line just above it, thereby allowing advocates to claim the program is a huge success.
As we can see in the graph from the report below, this is exactly the kind of disingenuous game-playing that tax credits are being used to do. The poorest 9 percent of children are almost entirely excluded from our current tax credit regime, but, on paper at least, a significant number of kids from the upper half of poor families get enough money to pull them just over the line. Tax credit advocates call this success, but anyone with any sense can see that it is not.
The better way forward is the social democratic way forward. It is the universal way forward. Stop creating and reforming opaque, duplicative tax credits that are hard to use and that partially or entirely exclude the poorest of the poor. Instead, get rid of this entire tax credit mess, and create the simplest and most inclusive program imaginable: a universal monthly child benefit for every kid in America.