Matt Bruenig of the People’s Policy Project has an excellent new paper out making the case for a child allowance — a reform we’ve long supported here at Niskanen. He proposes a child allowance of $374 a month, or $4488 per year, that would replace the existing child tax credit (CTC), additional child tax credit (ACTC), and the earned income tax credit (EITC). The key deficiency of the status quo, Bruenig argues, is that it leaves out children in households with little or no earnings because of how they phase-in, and due to the complexity of navigating the tax code.
Under Bruenig’s child allowance, the vast majority of households would gain, often substantially. At $4488 per child, Bruenig’s child allowance would ensure that no families with children are in poverty regardless of earnings. Though as Bruenig points out, eliminating the EITC does produce some losers, including childless workers, college students, disabled adults, and working parents with a single child within a certain low-income range.
Under the Bruenig plan, households with one child earning between roughly $10,000 and $26,200 (for single-parent households) or $32,000 (for married households) annually stand to lose. For most one-child households within this range, losses equal roughly $500 annually, briefly peaking at approximately $600 between when the CTC begins phasing-in and when the EITC has not yet begun phasing out yet.
The challenge of ensuring one-child families are kept whole is a byproduct of the EITC’s targeted structure, which delivers a maximum of $3580 for a family’s first child while providing less for subsequent children. This is on top of the $1400 per child delivered through the ACTC and any additional tax liability above the standard deduction offset through the CTC.
For families with more than one child, Bruenig’s proposal leaves all families better off, with two-child households gaining $350 at minimum:
To leave all families better off, including one-child families, the child allowance would need to be somewhat higher for firstborn — about $5088 annually. Bruenig acknowledges this as an edge case, but is quick to argue that the number of single parents made worse off by his proposal are relatively few in number: The households that lose on net must have earnings that fall in a relatively narrow income band, and this is before accounting for the fact that most one-child households eventually go on to become two-child households, at which point they are unambiguously better off.
Nevertheless, our estimates suggest this could represent nearly 720 thousand single-child households at any point in time. Given that childless workers also lose out from eliminating the EITC, there may therefore be wisdom in retaining a flat worker credit. A maximum, per-worker EITC of about $600 would guarantee none of these households are worse off, including childless ones.