Policies¶
United States¶
The United States currently has several programs to assist families with children, though complex rules and requirements end up excluding many low-income children:
The Child Tax Credit provides up to $2,000 per child per year, but it both phases in and out with income, and the bottom income quintile receives less than any other quintile.
The Earned Income Tax Credit primarily benefits children, providing up to $3,046 annually per child, but it also phases in and out with income and only provides that maximum amount for filers with one child in a narrow earnings range.
Temporary Assistance for Needy Families (“welfare”) targets low-income families with children, but work requirements, time limits, and other eligibility restrictions keep it out of reach of many low-income children, and only a quarter of these state block grant dollars is now spent on cash.
Other programs like the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) provide more assistance per child, but in many cases they also have work requirements and purchase limitations that constrain their antipoverty capacity.
The American Family Act (AFA) is the most significant major proposal to reduce child poverty. The AFA would expand the Child Tax Credit from its current maximum of $2,000 per year to $3,000 per year for children ages 6 to 16 and $3,600 for children ages 0 to 5. It would also remove the phase-in and distribute the benefit on a monthly basis, while retaining the phase-out for high earners.
Using data from 2017, researchers at the Columbia Center on Poverty and Social Policy found that the AFA would cut child poverty by 37 percent. They also calculated that the plan would cost $91 billion per year, cut overall poverty by 15 percent, and cut deep poverty1 by 17 percent.
These results align with the National Academies of Science published a 600-plus-page report on child poverty in 2019. They summarized the research on effects of child poverty, and compared policy options for addressing it. They found that a $3,000 per child per year child allowance would reduce child poverty more than the other 19 options they considered.2
Democrats are effectively including the American Family Act in its pandemic recovery plans. The HEROES Act, passed by House Democrats as a follow-up to the CARES Act, includes a policy that matches the AFA, except that it is only for 2021 (tax year 2020). Joe Biden proposed the same in his tax plan, “for 2021 and then as long as economic conditions require.” Elaine Maag at the Tax Policy Center found that the bottom quintile of families with children would receive about a third of the benefits from this part of the HEROES Act, with its full refundability driving most of this progressivity.
Other countries¶
Many OECD countries have unconditional child allowances, and many other countries also have conditional cash transfers to low-income families.
These payments are generally monthly, and compared to the $2,000 USD maximum US Child Tax Credit, range from $1,340 USD per year in Finland to $5,150 in Canada. Other amounts include $1,820 in Denmark, $1,770 in Sweden, $1,990 in Ireland, and $2,900 in Germany.
In some countries, the amount per child rises with the number of children. For example, Finland’s per-child child allowance increases for every child up to the fifth, where it nearly doubles compared to the first. Finland and Sweden also raise the amount per child for larger families.
While some OECD countries, such as Denmark and Canada, phase out child allowances for high earners, we did not identify any that phased their benefits in with income, as the US does.
Partly as a result of these policies, each of these countries has a smaller share of children living in households below 50 percent of median income than the US does.
- 1
Deep poverty is defined as the population share whose Supplemental Poverty Measure unit (a type of household unit) has total resources below half their poverty threshold.
- 2
NAS simulated that a child allowance would reduce earnings by $3.9 billion per year and jobs by nearly 100,000. However, this references income elasticities from Blundell and Macurdy (1999), which show larger effects than more recent reviews like the McClelland and Mok (2012) from the Congressional Budget Office. NAS’s simulation also replaced CTC and child exemption, and phased out between 300 and 400 percent of the poverty line, while making the child allowance non-taxable and non-countable for means-tested benefits.