October 25, 2016

Niskanen Report: Toward a Universal Child Benefit



EXECUTIVE SUMMARY

In a new report we propose turning the Child Tax Credit (CTC) into a true Universal Child Benefit. This will require making the CTC fully refundable and a periodic, monthly payment. By taking the form of cash, a Universal Child Benefit has the flexibility to meet the multifaceted and idiosyncratic needs of American families. This would be a huge improvement over the current CTC which, due to its phase-in rate and minimum income eligibility requirement, fails to reach families with the greatest need.

Our proposed annual benefit of $2000 per child under the age of 18, phased-out for high income households, would not require any new taxes. At an estimated net cost of $97 billion, the benefit could be paid for several times over by consolidating some existing child programs and streamlining the complex and fragmented bureaucracy that administers them.

We also consider a more modest Universal Child Benefit based on making the expansions to the CTC recently proposed by Hillary Clinton fully refundable. A fully refundable CTC of $2000 for children ages 0 to 4, and $1000 for children ages 5 to 17, would cost $59 billion more than the status quo, or $37 billion more than Clinton’s proposal. Under both proposals, adjusting the phase-out threshold will eliminate the marriage penalty at potentially no extra cost.

Finally, we argue that program consolidation has benefits that go well beyond the question of how best to pay for improved support to children and families. A simpler system of child benefits would:

Eliminate perverse incentives created by overlapping or duplicative programs;
Treat stay-at-home parents and those who require external child services with neutrality;
Increase fairness and equity by allowing the CTC to reach many low-income households for the first time;
Reduce rent-seeking by third parties and other co-beneficiaries of programs delivered in-kind.

Read the report in its entirety here.