2019 has been a banner year for Democratic anti-poverty plans. Just in the past couple of weeks, Senate Democrats have rolled out a plan to expand tax credits for the poor, and presidential candidate Sen. Cory Booker has proposed an even more ambitious benefit for the working poor.
But these plans have one major obstacle: Donald Trump is president. Policymakers in the Democratic fold have been arguing over what should happen in a hypothetical 2021 in which Trump has been defeated, Democrats control the Senate, and the party gets a brief opening to pass legislation.
There’s no guarantee that will happen (especially the Senate victory), and there’s also no need to wait that long. Democrats control the legislature and governorship in 14 states and Washington, DC, representing more than a third of the country’s population. A new report from the Institute on Taxation and Economic Policy and the Center on Poverty and Social Policy at Columbia lays out a number of ways that state governments could substantially cut poverty. The report focuses on one tool in particular: a child benefit, offering anywhere from $2,000 to $3,600 per child to all but the richest parents, similar to the benefits most European countries offer to parents.
The report argues that it’s possible, and affordable, for states to augment the federal tax code and offer such a benefit — and that offering the benefit could dramatically cut child poverty.
In New York, for instance, child poverty would fall by 36 percent under the most generous option; in California, it would fall by 38 percent; in Illinois, 45 percent. It would take money, but those are reductions in poverty that Democratic governors like Andrew Cuomo, J.B. Pritzker, and Gavin Newsom could achieve with their state legislature — no action from Trump needed.
How the state credits would work
The federal government’s child benefit, the child tax credit, doesn’t help kids in the poorest households. While the full benefit is worth $2,000, kids in families too poor to pay income tax aren’t eligible for the full amount. The “refundable” portion of the credit available to poor families is capped at $1,400 per child, and parents who don’t or can’t work are ineligible. The credit only kicks in for families with earnings above $2,500, and from there is capped at 15 percent of each additional dollar of earnings.
Put it all together and you have to make tens of thousands of dollars to get the full credit. About a third of American kids are in families that don’t receive the full $2,000:
The ITEP report — authored by ITEP’s Aidan Davis and Meg Wiehe and Columbia’s Sophie Collyer, David Harris, and Christopher Wimer — estimates the cost of proposals that would “fill in” the federal tax credit. In the first option, states would simply ensure that every poor parent gets the full $2,000 credit. If they get $1,400 currently, the state would add $600. If they get $0 now, the state would add $2,000. and if they get $2,000 now, the state would add nothing. That limits the cost considerably and makes the change highly targeted at the poorest families.
State credits would dramatically cut poverty
The report finds that this change would substantially reduce poverty. The effects vary considerably from state to state. In Oregon, Maine, Nebraska, and South Carolina, the effects would be massive: Child poverty would fall by more than a third. In South Carolina, for instance, the child poverty rate would go from 16.1 percent to 10.6 percent; in Oregon, it’d go from 12.9 percent to 8.3 percent. The proposal is probably dead in the water in Nebraska and South Carolina, but in Oregon and Maine, Democrats control both houses of the legislature and the governorship.
In higher-income states like Connecticut and California, the reduction is more like 12 to 14 percent — still a big improvement (437,000 Californians, including 247,000 children, would escape poverty) but a less dramatic one.
The effects on deep child poverty — the share of kids living on less than half the poverty line, in truly extreme deprivation — are larger. In Oregon and Illinois, a $2,000 credit would cut deep child poverty by more than half. In California, it would fall by a third. Raising the incomes of families in really severe need is arguably as important as getting more people over the full poverty line, and even this relatively modest change would go a long way toward that goal.
The bigger change the report models would increase the child benefit to $3,000 for kids 6 and over, and $3,600 for kids under 6. These are the same parameters as the American Family Act, the federal child allowance plan from Sens. Michael Bennet and Sherrod Brown and Reps. Rosa DeLauro and Suzan DelBene backed by most Democrats in each house of Congress.
With that plan, the effects on overall child poverty are massive:
At an absolute minimum, the policy would reduce child poverty by a third, as it does in Massachusetts and Connecticut. But in other states, it does far more. In 12 states, child poverty would fall by more than half. In Idaho and Nebraska, where it would do the most, child poverty falls by 60 percent.
The effects on deep child poverty are even bigger. In Illinois, it would fall by nearly three-quarters; in California, it would be cut in half. In most states, in fact, deep child poverty would be halved or more.
And those are just the direct benefits. There’s a wealth of psychological and economic evidence suggesting positive long-term impacts of giving cash to families with kids. One study found a $3,000 annual income increase for poor parents is associated with 19 percent higher earnings for their child once he or she grows up. Another paper found that Canada’s child benefit expansions boosted test scores and health outcomes, and still another concluded that the Mothers’ Pension program, the first federal welfare program in American history, increased incomes and even life spans for children of mothers who got cash.
How feasible is this?
Relying on the federal child tax credit as a basis reduces the policy’s cost considerably, but these state policies are hardly free.
Let’s take California as an example. A $2,000 per child credit would cost the state $3.4 billion in 2019, and the bigger credit would cost $12.1 billion. Extending the $2,000 credit only to children under 6 would be very cheap: only $1.2 billion per year. Gov. Gavin Newsom’s budget proposal projects about $142 billion in normal tax revenue for fiscal year 2019. A large child benefit would require increasing revenues by 8.5 percent; a smaller benefit, by only 2.4 percent; a smaller expansion limited to young kids, 0.8 percent.
You could fund any of the above by, for instance, increasing taxes on top earners. Newsom’s budget notes that a 1 percent surtax on taxable income over $1 million brings in about $2.4 billion a year. Add another point or two to that and you can fund a basic child benefit for all kids. Add a few more and you can fund a more generous benefit. A tiny 0.5 percent surtax would be enough for the most basic version.
Alternatively, a 2020 ballot proposition proposes raising local property taxes; that could free up some state money that would otherwise go to local school districts constrained by low property taxes, money that could be used on a child benefit. A modest credit, like one for young kids only, could be funded by lightly cutting spending elsewhere in the budget. Even a tax hike that would be regressive on its own, like a sales tax bump, would be progressive if used to pay for a benefit aimed directly at the poor.
There’s already momentum toward a child allowance structured like this in California. A Department of Social Services task force designing a plan to end child poverty made a “targeted child tax credit” like this a centerpiece of their proposal, as the American Prospect’s Kalena Thomhave explains.
The same logic applies in states like New Jersey, New York, Oregon, Maine, Colorado, Connecticut, Delaware, Hawaii, Nevada, New Mexico, Washington, Rhode Island, and Illinois — all of which have uniform Democratic control of the governorship and legislature. If they made it a spending priority, they could find the money required to make a child benefit happen.
Besides financing, the other big question raised by state child benefit plan is how, logistically, “topping up” the benefit would work. Right now the federal child tax credit is paid out yearly, with tax refunds. That’s a less than ideal system and sometimes pushes poor households to go into debt during the year that they could’ve avoided had they gotten the credit a bit earlier. It’s also just confusing and leads to a sizable share of eligible people not getting the credit.
It would be better for states to simply mail $250 a month (or $300 a month for young kids, or whatever the ultimate number is) per child to parents, so they have a regular, predictable stream of support. If the governor behind a given plan wanted to get credit and raise their approval ratings, they could put their face on the check or something. But doing that would probably require coordinating with the federal government, as it would still be funding the bulk of the credit. Depending on how the Treasury Department feels about the benefit, that cooperation might not be forthcoming.
But even a top-up benefit paid at tax time would be an improvement on the status quo. Some state leaders, like Newsom, have suggested they want to make improving benefits for the poor a priority. A state-level child benefit is the logical next step toward that goal.
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