Suppose you’re a single parent raising two kids, ages 3 and 5. You were furloughed in the spring, when the big-box store you worked at downsized. You started getting hours again in the summer, enduring substantial risk by going to work with customers who didn’t always wear masks. Child care was a mess, and you had to scrape together help from family and friends.
It was a rough year — but you stayed afloat. In total, you ended up working about 1,000 hours last year at $14 an hour, or $14,000 total — plus there were the two stimulus checks the government sent out in April and December.
Less heralded but no less important to helping you pay the bills were a couple of tax credits the government offers: You got $1,725 through the complicated child tax credit (CTC) and another $5,600 from the earned income tax credit (EITC). That came out to $7,325 — a badly needed infusion. But as is the case every year, it was also a pain — you basically have to go to a tax preparer every tax season to help you with the paperwork to claim the credits.
This week, your member of Congress, in an unprecedented act of constituent outreach, asks you to hop on a Zoom. She’s working on legislation meant to make life easier for single parents like you, including a stimulus check. But it’s the two options to reform the tax credits that she wants to ask you about.
The first option: The government will increase your CTC a ton, so you get a whopping $7,200 a year ($3,600 per child), not just $1,725. Instead of a lump sum at tax time, the government will send you the money every month or so. Under this scenario, you’d still get the $5,600 from the EITC. The downside? You’d still have to go through all that tax prep every spring.
The second option: The government will junk the CTC — and will just send you $700 per month in the mail. That’s $350 per kid under 6, every month, regardless of whether you owe taxes. Perhaps just as appealing, there’s no tax-season paperwork to prepare. That’s $8,400 per year total, even more than the CTC in option one. The downside in this scenario: Under this plan, the EITC shrinks — and your EITC goes down to $2,000.
To recap: Both give you more money than you get now. Option one gives you more money than option two. But option two makes your life much easier logistically. You get big regular monthly payments whose amount doesn’t vary. And you would no longer be in a desperate rush every spring to get your tax return in for your big refund.
Option one above is what Democrats in Congress and the Biden administration want to do to tackle child poverty. Option two is Republican Sen. Mitt Romney’s plan to enact a new, simplified child allowance.
The debate over the past month about which of these policies to pursue has typically focused on the total dollar amounts, and which people are better or worse off under Democrats’ or Romney’s approaches. That’s important, and worth arguing about.
But underappreciated in the debate is which of the policies is simpler. Romney has thrown down a gauntlet not just in proposing a major new policy to address child poverty, but in proposing a way to dramatically simplify the welfare state. Democrats would be missing a major opportunity if they were to reject Romney’s simplification measures because his overall plan isn’t generous enough for their taste.
Congress has a chance to not just debate these two options but take the best from each, and build a child benefit that’s both more generous and simpler than the current system. The result would be a huge win for low-income families, and a lasting positive legacy for the Biden administration.
The dueling child benefit plans in Congress are more consequential than you think
The current debate over the child allowance has been shaped by years of advocacy and proposals on the issue. In recent weeks, however, the idea has hit a new gear with competing legislative proposals from each side of the aisle.
The Democrats’ proposal expands the child tax credit to be worth $3,000 a year per child ages 6 to 17 and $3,600 a year per child under 6, and makes it available for the first time to parents with low or zero earnings. Biden’s plan would make it available for one year as part of pandemic relief, but the American Family Act, newly reintroduced in Congress by leading Democrats, would enact the expansion permanently. (Still, the Biden proposal is widely understood as a first step toward a permanent expansion.)
Meanwhile, Romney (R-UT) has proposed option two: a simplified check in the mail for all American parents, paid for in part by cutting back on other programs like the EITC.
It’s not as generous for many working poor families as the Democratic plan, as in the example above, but is more generous for others. If you had two young kids and weren’t able to work any hours in 2020, and so had no “earned” income, you’d get $7,200 under the Democrats’ plan but $8,400 under Romney’s (that’s compared to $0 under current law). In that scenario, the EITC was doing nothing for you anyway, and so replacing it with a more generous CTC is just a win. Same thing if you’re a middle-class single parent of two earning $50,000 a year; this parent also currently gets nothing from the EITC and $4,000 from the CTC, but would get $7,200 from the Democratic plan and $8,400 from Romney’s.
The people who lose out in Romney’s plan relative to Biden’s are ones like the parent in our opening example: working parents who earn under $40,000 or so. A single parent of two young kids earning $25,000 gets $8,341 under current law, $10,114 under Romney’s plan, and $12,026 under the Democrats’ plan.
The debate over Romney’s plan has, predictably, involved debates about which of these groups need more or less help. Experts at the Center on Budget and Policy Priorities, which has been one of the biggest institutional backers of the EITC and thus deserves credit for lifting millions out of poverty for that work, are skeptical of giving up those hard-fought gains for Romney’s plan, especially when the exact people the EITC helps most (low-income working single parents) stand to lose in Romney’s plan relative to Biden’s:
Please, liberal commentators, ask yourselves whether having home health aides & grocery cashiers pay for or an expanded Child Tax Credit is better than some obvious progressive alternatives (e.g. wealthy heirs, real estate partners, wealthy shareholders)— Chuck Marr (@ChuckCBPP) February 7, 2021
But there’s another facet here that needs more attention, one that presents itself even in scenarios where the Romney plan offers less total money than the Biden plan: How easy do we want it to be to access the welfare state? How much of an overhaul does the user interface of our government need in order to be maximally useful to citizens? And how much are we willing to consolidate or rework existing programs to make the user interface as easy as possible to interact with?
The Romney plan, by doing away with the convoluted tax-season routine of trying to get these benefits, effectively issues a challenge to well-meaning liberals in Washington who’ve focused primarily on expanding, not simplifying, benefits.
Expanding benefits is good; expanding benefits more than Romney wants is better still. Expanding and simplifying benefits would be best of all. And liberals and Democrats haven’t focused enough on the second goal.
The problem with the American safety net
Let’s go back to our hypothetical parent.
If you make $14,000 a year, there are a bunch of state and federal programs out there to help you. And by “a bunch,” I mean a bunch.
Depending on the state you’re in, you may qualify for Medicaid. It’s not so simple, though — you’re eligible in every state that did the Obamacare expansion, but a bunch of states (Texas, Florida, Georgia, North Carolina, Mississippi) set the eligibility cutoff much lower. In Texas, single parents have to make less than $277 a month to qualify, so in this scenario, you’d be way too “rich.” (And getting your kids covered through Medicaid or S-CHIP is a whole other can of worms.)
Need housing? You can apply for a housing choice voucher under the Section 8 program, but it’s underfunded so you will have to navigate years or decades of waitlists.
Need help with child care and early education? There’s Head Start and Early Head Start. In addition, there’s the federal Child Care and Development Block Grant — but you probably won’t get it; only about 15 percent of income-eligible families do, and depending on your state, you might have to be enrolled in a formal welfare-to-work program.
Speaking of which, you might get some money from Temporary Assistance for Needy Families (TANF). But, again, most don’t, and for those who do it’s strictly time-limited and requires tedious “work reports” to prove you’re not too “lazy” to deserve it.
In the winter, if you need help with heat, there’s the Low Income Home Energy Assistance Program (LIHEAP) — but only 20 percent of eligible families get it.
You’ll probably be able to get Supplemental Nutrition Assistance Program (SNAP) benefits, or food stamps, to help with groceries. If you have an infant, you can probably get aid from the nutrition program for women, infants, and children. There are probably some other programs I’m forgetting.
Conservatives and libertarians sometimes see this laundry list and think, “Look at how much we do for poor people!” I see it and think, “Look at how ridiculously complicated the system we make poor people navigate is.”
Georgetown political scientists Don Moynihan and Pamela Herd call these costs imposed on low-income people by the safety net system “administrative burdens.” It’s a prime example of what fellow political scientist Steve Teles has dubbed “kludgeocracy” — a government held together through “inelegant patch[es] put in place to solve an unexpected problem” rather than designed to work cleanly from the start. Teles argues this piecemeal approach also leads to exorbitantly high compliance costs, makes government administration more difficult, and makes it easier for businesses to extract rents from the government.
It also has broader implications for the political system. Suzanne Mettler, a political scientist at Cornell, calls the approach the “submerged state,” and argues it erodes public belief in the effectiveness of government by hiding from view the government benefits voters receive. Middle-class Americans who got subsidized student loans to pay for college and deduct mortgage interest from their taxes are getting government benefits, too, but those benefits aren’t perceived the same way as, say, Social Security.
Biden’s plans right now are too kludgey
Which brings us back to the child allowance debate happening today, and Democrats’ plans to bolster the welfare state more broadly.
Romney’s child allowance plan is generous. The Democrats’ plan is even more so. But Romney’s plan has one edge: It simplifies things for the people it’s supposed to benefit.
It’s a feature that Democrats should really pay attention to — and, ideally, steal.
But too much of it consists of changing the existing kludgey system or making it even more kludgey, even as it makes it more generous.
Perhaps the best example is Biden’s main proposal on child and elder care. This is a real point of passion for Biden, who views better caretaking as essential “infrastructure” for the broader economy. And his plan to expand it is ambitious.
At its center is a proposal to greatly expand the child and dependent care credit. That credit, as it stands, is frankly terrible. It’s not “refundable,” which means the roughly 43 percent of Americans who don’t owe income taxes get nothing. And it’s not sent out in advance, so it doesn’t help parents pay their child care costs as they’re incurred; it just refunds a bit of them come tax season.
Biden’s plan makes the child care credit bigger and better. He makes it fully refundable, so low-income Americans benefit for the first time, and greatly expands the maximum credit, making it worth up to $8,000 for families with multiple kids, up from $2,100 now. The plan would cover up to half of child care costs, while for many people today the credit only pays 20 percent of costs.
But in part because it’s done through the tax code, it’s still delivered all at once, at tax season. That raises the bizarre specter that families might have to take out loans to pay child care costs until they get their tax refund, something that happens to some degree with the EITC as well. It would be much better for the benefit to be spread out over the year in the form of monthly payments, as the Tax Policy Center’s Elaine Maag and Nikhita Airi note.
It would be better still to take it out of the tax code altogether. The federal government could just offer a child care benefit to people every month that’s totally unrelated to people’s taxes. It has the technology; this is basically how food stamps work now. Americans who qualify could use their EBT card to pay at child care centers directly rather than working through the tax code. If Biden wanted to get more ambitious, he could adopt a plan like Elizabeth Warren’s to set up government-run child care centers nationwide, similar to Head Start or, indeed, to public schools.
The same kludginess can be found in Biden’s tax plan. The additional portion of the $3,000/$3,600 per year child credit he’s proposing, on top of existing law, has a different phaseout schedule than the existing credit, as the People’s Policy Project’s Matt Bruenig notes. It phases out first at $112,500 for single parents down to $2,000 per child, and then phases out again to $0 per child starting at $200,000 for singles (the married phaseouts are higher).
This is, suffice it to say, incredibly confusing. The plan, as written by House Ways and Means Chair Richard Neal (D-MA), also has something of a “clawback” problem. It pays out to families based on their taxes the previous year, so if a child aged out of the credit, or the family starts making more money, they could get a check that’s too big and have to pay it back at tax time. The Neal plan has a “safe harbor” provision to prevent these clawbacks, but that means there have to be a whole new set of rules around what that safe harbor looks like.
The plan still requires filing tax returns every tax season, both for the child credit and for the earned income tax credit, which would continue to exist in its current form. As Bruenig likes to note, this reduces take-up rates — meaning many people who would benefit end up not getting it because of the complexity of the process. Social Security’s take-up rate for old age insurance is about 100 percent, because it knows how much everyone made in their career and is very good at tracking that and sending out checks. The EITC’s take-up rate is more like 78 percent. Biden’s plan doesn’t do much to move from 78 to 100 percent.
Kludgiest of all, Biden is proposing his child benefit plan for only one year. Everyone, and I mean everyone, I talk to in the Washington tax credit world thinks that’s a bluff and that he wants to make it permanent. So why not just say that? Why ask the IRS to set up something this complicated with the assumption it’ll immediately go away?
What Biden can take from Romney
What I would like to see is Biden adopting the best parts of Romney’s plan, and its call for greater simplicity, and marry it with his greater ambition on tax credits.
Here’s one way to do it:
- Give every child up to 18 years old Romney’s maximum $350 per month benefit, or maybe even $400 (the poverty line increases by $378 per month per child added to a family). I understand why most proposals give more to younger children — investing in young kids has certain benefits — but a uniform benefit would be less complex and only modestly more expensive (extending the Democrats’ young child benefit to all kids only costs $40 billion a year, per the TaxBrain model).
- Don’t phase out the benefit at all. Phaseouts don’t raise much money and add a ton of complexity.
- Pay it out through the Social Security Administration, which has much more experience sending out regular checks than the IRS.
- Replace the EITC with Vice President Kamala Harris’s LIFT Act. That plan, proposed in the lead-up to her presidential run, pays out up to $250 per month per worker, with a much faster phase-in than the EITC that makes it a better deal for low-income workers. Think of it as a particularly massive expansion of the EITC, so that the solidly middle-class benefit too, not just the working poor. The Social Security Administration could pay out those benefits every month based on the prior month’s earnings, which it tracks anyway.
If Biden wants to win bipartisan support by paying for some of this by eliminating less-used social assistance programs like LIHEAP and TANF, I would be fine with that. Those programs are largely failing anyway, and with benefits as generous as those above, no one would actually be made worse off. I’ll be happy so long as the whole package is financed through deficit spending or upper-income tax hikes, and benefit cuts in older programs are made up for by hikes in the new, simplified programs.
But the key about the above model is that it’s not remotely kludgey. It takes the administrative burden away from poor families and puts it where it should be: the federal government. Poor families wouldn’t have to file taxes anymore, and would instead get regular, reliable checks in the mail every month.
That world is possible, and I think the Biden administration and its allies in Congress know that world is better than a mess of tax credits. Here’s hoping they work toward it.