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This week, in response to the Biden Administration’s American Rescue Plan, which includes an expansion of the Child Tax Credit and the potential for it to be administered on a monthly basis, Senator Mitt Romney (R-UT) proposed a similarly robust child allowance, the Family Security Act. This document provides an overview of the trade-offs of each proposal, with JFI researchers weighing in from the perspective of extensive cash-transfer expertise in an effort to inform better long-term policy on child allowances. Notably, a new proposal from Representative Richard Neal closely mirrors the ARP.
Child allowances are a significant improvement over existing methods of providing benefits to families with children, including the EITC and the CTC in its current form, which exclude the poorest 20% of children living in households with minimal income and are only paid out once per year. By providing direct cash transfers for every child, an allowance is a powerful poverty-reduction tool that helps create the kind of financially stable environment that has consistently been shown to improve children’s well-being.
Key comparisons within each piece of legislation center around the following areas:
- Amounts for parents (EITC+CTC)
- EITC benefit for parents without children
- Payment mechanism
- Impacts for states
- Budgetary allocation
- Poverty impacts
The child allowance proposals within the Biden plan and the Romney plan both represent a net increase in federal benefits for households with children. The Biden proposal redesigns the CTC closer to a child allowance by providing all low-income families with monthly payments. However, under the Biden plan, administering through the tax credit system means the program could face implementation limits of existing EITC programs, as seen in the implementation of the CARES Act Economic Impact Payments. The Biden proposal’s debt-financing through budget reconciliation also means the program requires annual renewal. The Romney proposal administers through the Social Security Administration (SSA) while doing away with child tax refunds alongside the EITC. The net effect is a debt-neutral proposal that promises to ensure the program continues, while increasing the child benefit for many families, and creating more accessible administration with checks and debit cards on a monthly basis to even non-tax-filing households. However, it may also represent a marginally reduced benefits to single parent households with one child depending on their income level.
The chart below compares the proposal based on the key issues mentioned above:
- If, for example, the LIFT act serves as a model for EITC reform, households without children may benefit more from the ARP package. LIFT offered the childless up to $3,000 per year. https://www.vox.com/future-perfect/2018/10/19/17995374/kamala-harris-lift-act-basic-income-cash-eitc
- See fuller analysis of this implementation challenge here, “The EITC,” from Hilary Hoynes, 2019: https://journals.sagepub.com/doi/abs/10.1177/0002716219881621
- A first look at the CTC proposed by the Biden Administration appeared in the Washington Post: https://www.washingtonpost.com/us-policy/2021/02/07/child-benefit-democrats-biden/
- See a full breakdown by Center for Budget & Policy Priorities here: https://www.cbpp.org/research/family-income-support/temporary-assistance-for-needy-families
- Biden’s plan could be renewed yearly in budget reconciliation bills and eventually made permanent/paired with pay-fors as was done with CTC and EITC changes included in American Recovery and Reinvestment Act (ARRA) though this requires a set of political conditions that may not hold. https://www.vox.com/future-perfect/2020/9/18/21444103/child-tax-credit-2020-joe-bden
- See the Niskanen Center’s analysis here, https://www.expandthechildtaxcredit.com/the-american-family-act and Center for Poverty and Social Policy estimates here: https://www.povertycenter.columbia.edu/news-internal/2019/3/5/the-afa-and-child-poverty
- See full poverty impact estimates by the Niskanen Center:** https://www.niskanencenter.org/wp-content/uploads/2021/02/Analysis-of-the-Romney-Child-Allowance_final.pdf**
Breaking down the benefits of the expanded CTC by income group.
Part of the series Policy Microsimulations
Eleven states have passed refundable CTCs ranging in value from $300 to $1,750 per eligible child.
Revisiting the Child Tax Credit for the Lame Duck Session: Comparing Parameters for Anti-Poverty Impacts
JFI researchers review recent CTC proposals and simulate the effects of varying key reforms that increase the policy's anti-poverty impacts,...
Part of the series Policy Microsimulations