In 2019, Mitt Romney became the first Senate Republican to endorse a form of child allowance, where all low- and middle-income parents would get a cash benefit to help raise their kids, regardless of whether or not they’re able to work. At the time, the plan was modest, amounting to only $1,500 a year for kids under 6 and $1,000 for kids 6-17.
But on Thursday, Romney went further and proposed the Family Security Act, one of the most generous child-benefit packages ever, regardless of political party. The plan completely overhauls the current child tax credit and turns it from a once-a-year bonus to massive income support, paid out monthly by the Social Security Administration. (The bill text isn’t final, but you can read the Romney team’s summary here.)
Romney’s plan would replace the child tax credit, currently worth up to $2,000 per child and restricted to parents with substantial income (it doesn’t fully kick in until you reach an income of over $11,000), with a flat monthly allowance paid out to all parents:
- Parents of kids ages 0 to 5 would get $350 per month, or $4,200 a year
- Parents of kids ages 6 to 17 would get $250 per month, or $3,000 a year
Parents with multiple kids could get a maximum of $1,250 per month or $15,000 a year; that translates to five kids between the ages of 6 and 17. Very large families would be somewhat penalized, but many families with three or four kids will get the full benefit.
Just like the current child tax credit, Romney’s proposal would phase out for wealthy parents — the benefits begin phasing out for single filers with $200,000 and joint filers with $400,000 in annual income. But the phaseout would be implemented on the back end, through the tax code — even the richest parents would still get their $250-$350 per-kid checks in the mail every month; they’d just return the money on April 15. That helps ensure the benefit is truly available to all eligible people and not delayed due to concerns of “overpayment.”
If you’re a liberal reading this and wondering if there’s a catch, there is — but it’s not necessarily a huge one. Romney doesn’t want his plan to add to the deficit, and he wants to simplify the set of child-related benefits the government currently offers. So his plan would pay for the child allowance by eliminating a number of other programs, including some that mostly benefit the poor (more on those below).
According to an analysis from the centrist Niskanen Center think tank, which has backed child allowance proposals from both parties, the deficit-neutral Romney plan would be highly progressive. They estimate that poverty as they measure it would fall by nearly 14 percent across the board (lifting 5.1 million people out), and by one-third for children. The effects would be even more pronounced for extreme poverty, defined as living under half the poverty line. Some critics argue the poverty line Niskanen uses is too low, but the point remains: This plan would do an awful lot to chip away at poverty in the United States. (You can read Niskanen’s full report on the plan here.)
That poverty effect, Niskanen concedes, is smaller than the effect of Joe Biden’s proposed one-year child tax credit expansion would have during that one year. But that’s only because the Romney plan curtails tax breaks and cuts spending, including getting rid of other programs for low-income people that the child allowance renders redundant. The upside of Romney’s plan being fully paid for, however, is that it would allow Congress to make the measure permanent under budget reconciliation rules, whereas the Biden proposal that relies on deficit funding is a temporary one-year measure.
The Romney plan also has some advantages over the Biden plan as currently presented, even beyond being permanent. Checks are sent in a truly universal manner, which makes for easier monthly payments. As of this writing, the Biden administration hasn’t commented on whether or not its plan will include monthly payments, though some Democratic offices in Congress have told me on background they are pushing for monthly payments. A White House spokesperson told me, “We are working with Congress and the Treasury Department to determine the best way of getting families this relief in the American Rescue Plan.”
The Romney plan has already earned praise from surprising quarters. Matt Bruenig, the leftist writer and founder of the People’s Policy Project think tank who writes frequently about child benefits, told me, “Among the child benefit policies that have been proposed so far, Romney’s is the best. It has the highest benefits and the simplest administration. I’d like to see Romney get rid of his proposal’s benefit phaseout and child cap, which create hassle without meaningful savings, but otherwise it’s a pretty solid proposal.”
Sharon Parrott, president of the left-leaning Center on Budget and Policy Priorities, which pushes for expanded benefits for low-income people, was more skeptical. “This proposal shows growing bipartisan support for expanding the child tax credit, but it’s misguided to undercut the policy’s poverty-reducing impact by using deep cuts in other critical forms of support for low-income people to pay for it,” Parrott told me. “They want to talk about it as consolidation, but they are massive cuts. Their own document shows an EITC cut of $47 billion.”
In its current form, the Romney plan may not be able to make it through Congress, for reasons Parrott highlights and detailed further below. But if the Biden administration embraces it and tweaks it, it could hit on a rare achievement: a truly bipartisan expansion of the social safety net that permanently reduces poverty in America.
The background to Romney’s proposal
To understand the Romney plan and why it’s so important, you have to understand a bit about how the child tax credit works now.
Currently, the credit offers parents up to $2,000 a year (up from only $1,000 a year before the Trump tax cuts). But the benefits are sharply limited when it comes to poor families. That’s because households have to earn at least $2,500 per year for the credit to be “refundable,” or for households that don’t have a tax liability to actually receive the benefit. And only $1,400 of the $2,000, at most, is refundable; poor families that don’t make $2,500 a year can never get the full $2,000.
An American without any taxable income — say, a single mom with a kid who lives with family but doesn’t have a job because of the recession or some other barrier — won’t owe any taxes, but because their income falls below that $2,500-a-year threshold, they don’t get any benefit from the current child tax credit. The problem is more severe than that, though, because even above $2,500 per year the credit phases in slowly, at a rate of 15 percent. A parent has to earn at least $11,833.33 to qualify for the full refundable credit, a bar that the poorest households can’t meet.
That has led to a variety of proposals meant to expand access to the credit for poor people. The most modest suggestion, pushed in the Senate by Marco Rubio (R-FL) and Mike Lee (R-UT), was to let families that pay payroll taxes, but not income taxes, claim the credit. That still excluded the poorest families where the adults are out of work. The Rubio-Lee measure failed on the Senate floor during the 2017 tax cut debate (though they did succeed in increasing the credit to $2,000 per child for people with high enough incomes to owe taxes).
Democrats went bigger. During the tax cut fight, Sens. Michael Bennet (D-CO) and Sherrod Brown (D-OH) proposed a bill called the American Family Act (AFA) that would make the child tax credit fully refundable — meaning poor families could access the full benefit right away, no phase-ins or income thresholds. They refined the bill with Reps. Rosa DeLauro (D-CT) and Suzan DelBene (D-WA) and reintroduced it in 2019; by the end of the last Congress, 38 of 47 Senate Democrats had sponsored or cosponsored it, as had 188 of 232 House Democrats. The latest version is expected to be reintroduced for 2021 soon.
The AFA looks a lot like the Romney proposal. It would also offer $3,000 a year or $250 a month for parents of kids aged 6 to 16; 17-year-olds would not be eligible, and are not eligible under the child credit now. It offers a lower payment compared to the Romney plan, $3,600 a year or $300 per month, to children under 6. But it also includes no cuts to other programs that might offset the credit’s benefits.
The AFA also envisioned the payments being made by the IRS and/or the Treasury Department, rather than through the Social Security Administration as in the Romney plan. There are advantages and disadvantage to using each agency, Elaine Maag, an expert on child and family benefits at the Urban Institute, told me: “SSA does have experience delivering monthly payments, which is certainly an advantage they have over other agencies … but SSA does not have information about who a child lives with, which means they would likely need to coordinate with the IRS on who should receive the payment.”
Joe Biden, as part of his American Rescue Plan, has essentially proposed implementing the AFA for exactly one year. His plan as proposed does not specify that the payments will be monthly, though his campaign proposal did include monthly payments. Biden’s campaign plan and the American Rescue Plan also include 17-year-olds, which neither the current child tax credit nor the AFA did.
The key to Romney’s plan: It’s deficit-neutral
Mitt Romney, a Republican, is calling for an even bigger child benefit for kids than President Biden is. So why might Democrats not immediately want to sign on?
The short answer is the pay-fors. Romney’s plan is deficit-neutral at least through 2025 (when many Trump tax breaks expire, making analysis beyond that year tough), and to do that he pairs his remarkably generous child allowance plan with some cuts to other tax breaks and spending programs.
Romney’s proposal would eliminate:
- Head-of-household filing status, which gives income tax breaks to some single parents and caregivers)
- The child and dependent care tax credit, which offers tax breaks for parents paying for child care services so they can work
- The temporary assistance for needy families (TANF) welfare program, which replaced traditional “cash welfare” after the 1996 welfare reforms and is run as a state block grant
- The state and local tax deduction (SALT) in the income tax, which critics decry as regressive but also provides a subsidy for blue states with high income and property taxes
Romney would also replace the earned income tax credit (EITC), which currently offers more benefits to families with more kids, with a flat credit worth up to $1,000 per working adult, with no child-related component. The EITC for adult dependents, however, would be unchanged.
The Niskanen analysis suggests that poor Americans, overall, would come out ahead in this trade. The SALT deduction, for instance, is highly regressive. Per the Tax Policy Center, about 75 percent of the benefit of the deduction goes to the richest 20 percent of Americans; the bottom three-fifths of Americans get roughly nothing from it.
The child and dependent care credit, while well-intentioned, is also poorly targeted. It’s not refundable, so the more than 40 percent of households without a positive income tax burden cannot benefit from it. As a result, the Tax Policy Center estimates only 12 percent of families with children benefited from the credit in 2020. By contrast, roughly 100 percent would benefit from Romney’s plan.
Eliminating the head-of-household filing status, while boosting other benefits for single parents and caretakers (as through a child allowance), is a common feature of tax reform proposals because it makes filing taxes more complex without much payoff. And while TANF is supposed to benefit poor families, in practice states tend to use it as a slush fund to fund whatever they like. For every 100 families in poverty, only 23 got TANF benefits in 2019, while 100 would qualify for the Romney allowance.
That said, the people who do rely heavily on the program might suffer. “Eliminating TANF as one way to help pay for the costs of the new benefit is tricky,” Urban’s Maag says. “TANF is a small program affecting a small population. Eliminating it will likely create difficulties for those families; it’s a relatively small but disadvantaged group.”
But while all of Romney’s pay-fors may appear to be reasonable trades for a generous child allowance, they might create political headaches for the plan in Congress. Democrats in rich blue states like New York and New Jersey are fervent defenders of the state and local tax deduction, with many pushing to repeal even the modest limits on the deduction put in place in the 2017 tax bill. (Less cynically, some tax experts have argued that state and local taxes really should be tax-free, to encourage rich people to live in high-tax states and subsidize their poorer neighbors.)
Meanwhile, Biden has proposed dramatically expanding the child and dependent care credit by making it fully refundable and much, much more generous. Eliminating it entirely obviously goes in the opposite direction.
And, Parrott notes, Romney could have financed the plan with tax increases on the rich, rather than cuts to other safety net programs. “The question is how you’d finance a child tax credit expansion for low-income kids,” Parrott says. “Their answer, largely, is to take away resources from low-income kids.”
The bottom line: The Romney plan would make a real dent in poverty
Democrats do not, on their own, have 60 votes in the Senate, which means that Republicans opposing a bill can block it by filibustering. The only way around that, for the time being, is the budget reconciliation process, which enables 51 senators (or 50 and tiebreaker Vice President Kamala Harris) to pass legislation.
It’s hard to see Romney’s proposal gaining enough Republican support to get the plan above 60 votes, though I’d be thrilled to be proven wrong on that front. But it could easily, with Romney, Democrats, and maybe a few other Republicans on board, make it into a reconciliation package.
The difficulty with reconciliation packages is that they normally cannot increase the deficit after 10 years. When George W. Bush passed his tax cuts in 2001 through reconciliation, those tax cuts had to sunset in 2011. A permanent child allowance, without any pay-fors, would definitely increase the deficit. That’s part of why the Biden administration has so far only proposed a one-year variant of its plan to expand the child tax credit.
So Romney’s plan offers a plausible and appealing alternative. It’s almost as effective at reducing poverty, even when taking into account its pay-fors, as the Biden plan, and because it’s deficit-neutral, it can be enacted permanently as part of a budget reconciliation package. And obviously, a permanent plan is more valuable to poor families than Biden’s one-year package.
If Biden wants to tweak it by slightly changing the pay-fors, that’s fine; I’d prefer a more generous allowance paid for by higher taxes on the rich, to make up for the EITC cuts. But it’s important not to let the perfect be the enemy of the good. And as it stands, the Romney plan is better than the Biden plan, in my estimation, if only because it’s permanent. A Romney aide told me they have reached out to the president already on the topic and are hoping they can negotiate.
It might not be Chuck Schumer’s ideal plan, but it would help millions of families with children in a straightforward way. It would meaningfully slash poverty and provide a base from which to slash it more in the future. Programs that give families cash, according to UC Irvine economist Greg Duncan, result in better learning outcomes and higher earnings for their 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. That implies that a child allowance of that size could dramatically improve the lives of children decades later.
Romney’s plan presents an opportunity to enact that kind of profound change in the lives of millions of impoverished children. Congress shouldn’t pass it up.