July 07, 2022
Child allowance programs have proven to be a durable part of the social compact in a long list of high-income countries. Typically available to both low- and middle-income parents, well designed child allowances are not conditioned on parental employment status, are paid monthly, and have support from parties across the political spectrum, including center-right and conservative parties. Most recently, Italy’s coalition government, formed with support of the far right Lega Nord and the populist Five Star Movement, adopted a single universal child benefit that is not conditioned on parental employment.
Unlike their counterparts in other high-income countries, conservative politicians and elite conservative intellectuals in the United States have generally opposed establishing an inclusive child allowance program. There was some hope that the tide was turning last year when Sen. Mitt Romney (R-UT) proposed a near-universal benefit for families with children and pregnant women that did not have a minimum earnings test. At the time, Romney said he supported family policies that encouraged childbearing and employment, but preferred an approach “where we do not connect work and childbearing in the same policy.”
Unfortunately, Romney has revised his original proposal to do just that by excluding children who live with parents who did not have earnings in the year before the family benefit would be paid. His new proposal, Family Security Act 2.0 (FSA2), is cosponsored by Sen. Richard Burr (R-NC) and Sen. Steven Daines (R-MT). This article reviews key elements of FSA2 and discusses the implications of “Romney’s Retreat” for a progressive strategy on child allowances and other family benefits.
FSA2’s Child Deservingness Categories
As with the current Child Tax Credit (CTC) and Earned Income Tax Credit (EITC), FSA2 effectively assigns children to one of three deservingness categories: deserving, semi-deserving, and undeserving. Unlike the current CTC and EITC, FSA2 also explicitly recognizes pregnancy as relevant to eligibility, although the same deservingness categories apply to what FSA2 calls “unborn children.”
Deserving Children and Pregnant Women
Children living in families where the parents received $10,000 or more in the prior year from paid work would get the full child benefit ($350 a month or $4,200 a year for children 0-5; $250 a month or $3,000 a year for children 6-17). For a child living with two married parents, the $10,000 earnings test could be met by the combined earnings of their two parents, or—if one of their parents was not employed—by the other parent alone.
For children living with a single (unmarried, unpartnered) parent, the same $10,000 earnings test would have to be met by the single parent alone, and presumably regardless of child support payments made by a parent who has over $10,000 in earnings, but does not live in the same household as the child for more than half of the year.
According to the FSA2 summary, “a family must have earned $10,000 in the prior year to receive the full benefit,” but no definition of family is provided. Moreover, as discussed further below, the FSA2 benefit appears to only be “available to a legal and physical custodial parent” of the child. Questions the lack of a family definition raise include:
- whether the child’s own earnings would count toward the family earnings test
- whether partnered, but unmarried, parents who live with their child would be able to combine their earnings to meet the earnings test
- whether the earnings of other nonparental relatives or chosen family members living with, or providing regular care for, a child can be counted toward the earnings test
A family that includes a pregnant woman and meets the earnings test in the prior year is eligible for a $700 a month benefit during the last four months of pregnancy (maximum of $2,800 during a pregnancy). It is unclear if this benefit is structured as a benefit for pregnant women (as is the case with WIC benefits for pregnant women) or for fetuses (as is the case with the SCHIP option for “unborn children”). Given the pro-life framing of the benefit in the press release announcing FSA2, the latter may be more likely.
At the same time, FSA2 would apply the same deservingness categories to fetuses carried by pregnant women as it does to children. As a result, a pregnant woman in her last four months of pregnancy would not receive the full benefit if her family did not have $10,000 in earnings in the prior year. By contrast, both WIC and SCHIP provide prenatal benefits without a minimum earnings test.
Semi-deserving Children and Pregnant Women
Children and pregnant women living in families where the parents had earnings in the prior year, but less than $10,000, would receive a reduced benefit proportionate to their parents’ earnings as a percentage of $10,000. A 4-year-old whose parent(s) earned $5,000 (half of the earnings test) would receive a $2,100 benefit (half of the full benefit).
Undeserving Children and Pregnant Women
Children are completely excluded if they live in families where the parents had no earnings in the prior year. This exclusion applies regardless of:
- parents’ current year earnings or past earnings history (amount of earnings before the prior year)
- the reason for nonemployment during the prior year
- parental or child age (if a parent does not meet the earnings test because they were caring for an infant in the prior year, the infant is undeserving, or if a 60-year-old grandmother caring for the child does not meet the earnings test, the child is undeserving)
- parents’ capabilities for market employment (if a child’s parent is unable to work because of a disability, and there are no other countable earnings income in the family, the child is undeserving)
- the value of past or current uncompensated work provided by the child’s parents, including caring for disabled family members
Regardless of family earnings, children are excluded if they do not live with a parent who has a Social Security Number (SSN), even if the child is a US citizen, or otherwise lawfully residing in the United States, and has an SSN. If a child does not have an SSN, they are excluded, even if they live with a parent or other family member who has an SSN.
The eligibility of children living in households where the only household member who meets the earnings test is a nonparental adult is unclear. This would include a child who lives with a nonemployed parent and an employed nonparental adult who meets the earnings test. Moreover, according to the FSA2’s write-up, the benefit is “available to a legal and physical custodial parent” [italics added]. Presumably, this would include a child cared for by a nonparental adult who has legal and physical custody of the child through a court order.
FSA2 appears to exclude children cared for by grandparents without both legal and physical custody, other relatives or adults who are the child’s de facto caregivers, and children in foster care or other arrangements where a public entity has legal custody of the child. Note also that under current law, a noncustodial parent who does not live with the child can claim the CTC if: (1) the custodial parent agrees, and (2) the noncustodial parents’ tax return otherwise meets the dependency test and CTC rules for the child. The FSA2 proposal appears to eliminate this option.
There is no substantial justification for using these crude deservingness distinctions to restrict access to a modest child benefit. A child benefit should treat children and their caregivers with equal concern and respect. Children’s value does not increase with every dollar of earnings their parents have up to $10,000.
Raising children is unpaid essential work that is largely done by parents and other adult caregivers, whether they have earnings or not. The value of uncompensated care work provided by a parent or other caregiver does not drop to zero if they are not employed outside the home. Similarly, the value of care provided by a nonemployed parent does not depend on whether or not they are married to someone with earnings of $10,000 a year.
FSA2’s Winners and Losers
Like Romney’s initial plan, FSA2 combines the CTC and part of the child benefit portion of the Earned Income Tax Credit (EITC) into a single per-child benefit paid by the Social Security Administration (SSA). Under current law, the maximum refundable portion of the CTC is $1,400 until 2025 (after which it falls to $1,000), does not start phasing in until a tax unit has $2,500 in earnings, and it phases in at a slow 15 percent rate. Thus, compared solely to the current CTC, the FSA2 benefit is larger, starts phasing in from the first dollar of earnings, and phases in at a faster rate than the current CTC.
At the same time, FSA2, like the previous Romney benefit, partially consolidates the CTC and the child benefit portion of the EITC. Table 1 below shows how the FSA2 would change the current law (2022) EITC.
| Maximum EITC Benefit | Phaseout Ends (Credit Equals Zero) | Difference | ||||
|---|---|---|---|---|---|---|
| Current Law 2022 | FSA2 | Current Law 2022 | FSA2 | Maximum Benefit | Phaseout Ends | |
| Single filer with no dependents | $560 | $1,000 | $16,480 | $17,000 | $440 | $520 |
| Single or HoH filer with one dependent | $3,733 | $2,000 | $43,492 | $37,000 | -$1,733 | -$6,492 |
| Single or HoH filer with two dependents | $6,164 | $2,000 | $49,399 | $37,000 | -$4,164 | -$12,399 |
| Single or HoH filer with three or more dependents | $6,935 | $2,000 | $53,057 | $37,000 | -$4,935 | -$16,057 |
| Married couple filing jointly with no dependents | $560 | $2,000 | $22,610 | $34,000 | $1,440 | $11,390 |
| Married couple with one dependent | $3,733 | $3,000 | $49,622 | $54,000 | -$733 | $4,378 |
| Married couple with two dependents | $6,164 | $3,000 | $55,529 | $54,000 | -$3,164 | -$1,529 |
| Married couple with three dependents | $6,935 | $3,000 | $59,187 | $54,000 | -$3,935 | -$5,187 |
Sources: FSA2 parameters are from The Family Security Act 2.0; current EITC parameters are from 2022 Tax Brackets and Federal Income Tax Rates.
As a result of the combined changes made by FSA2, most families will see their total child benefit income go up compared to current law, while others will see their total child benefit income go down. As with Romney’s initial plan, the biggest losers include a substantial number of working solo mothers with no children under age 6. According to a new analysis by the Center on Budget and Policy Priorities, single parents with two children ages 6-17 and earnings between roughly $15,000 and $45,000 would lose income compared to current law, with parents in the middle of this range losing the most (about $2,000).
The winners would include parents with very low earnings, but also a substantial number of higher-income married families, including many nonemployed wives. The current CTC starts phasing out for married couples at $400,000, until 2026, when the phaseout falls back to $110,000. The Romney benefit would make the $400,000 phaseout threshold permanent. As a result, Romney would increase, and lock-in, what are effectively tax cuts for high-income households with children who do not need them, while completely denying them to children who need them the most.
Moreover, FSA2 eliminates Head of Household (HoH) filing status and the childcare portion of the Child and Dependent Care Tax Credit (CDCTC). HoH filing status is an important tax benefit for many single parents who are employed, while the CDCTC provides benefits to employed single parents as well as married couples where both parents are employed.
Eliminating these benefits continues a troubling trend in federal tax law toward favoring married couples with a dependent, nonemployed adult (typically a dependent wife) over both married, dual-earner families and single-parent, single-earner families.
As tax scholar Shannon Weeks McCormick has documented, the Tax Cuts and Jobs Act (TCJA) signed by President Trump in 2017 favors married couples with one earner “over dual earning and unmarried caregivers by failing to address old inequities and creating new ones of its own.” In a law review article on the “social meaning” of the TCJA, tax professor Linda Sugin reaches the same conclusion. Sugin also notes that the TCJA “imposes a new obligation on tax preparers to investigate taxpayers’ eligibility to file as a head of household….Consequently, the new law requires preparers to disproportionately police single mothers, which operates in contrast to the general expectation that taxpayers will honestly report their tax-relevant information to preparers and the government.”
This unfair treatment of single-parent households is evident in the Romney proposal even for very low-earning families. All else equal, a two-parent household has at least twice the capacity for market employment of a one-parent household. Yet, under the Romney proposal, a single parent must meet the same earnings test ($10,000) as a two-parent household. If the earnings test were proportional to the number of potential wage earners in a family, the test for single parents would be $5,000 rather than $10,000. Notably, Romney himself has previously said that he would be “okay” with a $5,000 earnings test for the full benefit.
Implications of Romney’s Retreat
Romney’s retreat is a reminder that Congressional conservatives remain steadfast in their opposition to a normal child allowance that treats low-income children, single parents, student parents, relative caregivers, and apparently even “unborn children” fairly. In the face of this united conservative opposition to a fair and inclusive child allowance, anti-poverty and child advocates are right to call on members of Congress to not pass or renew corporate tax cuts before eliminating the earnings test in the current Child Tax Credit and making it fully refundable.
Progressives should also do more to highlight the public cost and unfairness of marriage bonuses for high-income married couples with only a single earner. For example, under current law in tax year 2022, a single-parent family with a child is subject to the 24 percent marginal tax rate when their income is just over $89,000. By contrast, a married, single-earner family with a child is not subject to the 24 percent rate until their taxable income is just over $178,000. Thus, even if these two families’ taxable incomes are equal, say $100,000, the single parent faces the higher marginal tax rate, despite having less time for household production, care provision, leisure, and typically greater work expenses.
Continued conservative opposition to a fair child allowance raises the question of whether a focus on expanding public goods and in-kind benefits—particularly housing, transportation and universal early learning and childcare—will deliver more for low- and middle-income families over the next decade than a focus on cash benefits.
In-kind benefits like these free up family cash income and reduce poverty. In their report on child poverty, the National Academy of Sciences (NAS) estimated that funding federal housing vouchers at a level sufficient to ensure that 70 percent of already eligible children are able to receive them would reduce child poverty by nearly as much (3.0 percentage points) as a $2,000 child allowance (3.4 percentage points). By comparison, the new Romney benefit would only reduce child poverty by 1.6 percentage points.
NAS also estimated that fully funding the existing federal Child Care and Development Fund (CCDF) would reduce child poverty by 1.2 percentage points. (At recent funding levels, only about 15 percent of children eligible for child care subsidies under federal rules received subsidies). Establishing a more comprehensive childcare and universal pre-K system, like the one that passed the House earlier this year, would almost certainly do more to reduce poverty and increase working-class economic security than the Romney benefit.
Moreover, since rationing rules in childcare and housing assistance programs tend to favor single-parent families over two-parent ones, ensuring that all eligible families receive these benefits would also reduce what are effectively two-parent family penalties in these programs.
Past experience shows that in-kind benefits have been easier to defend against punitive earnings tests than cash benefits, at least when children are in the household. And, in recently published research, Zachery Liscow and Abigail Pershing conclude that the general public overwhelmingly prefers in-kind transfers to cash transfers, and will support a larger transfer if provided in-kind than in cash.
Although poor respondents prefer cash transfers, they also appear to prefer a larger in-kind transfer to a smaller cash transfer. If this is correct, then a federal strategy focused on housing, childcare, and other in-kind benefits might deliver more for children over the next decade, including bigger reductions in child poverty, than one that prioritizes expanding money benefits for children.
This is not to suggest that the push for child allowances or other forms of broad-based cash money benefits should be abandoned, even if Congress does not come to its senses and pass a fair and inclusive child benefit this year. It would be helpful to have legislation introduced in both the House and the Senate next year that establishes a unified child benefit. The End Child Poverty Act, introduced earlier this year by Rep. Rashia Tlaib (D-MI) and Rep. Mondaire Jones (D-NY) does this. Legislation should also be developed to establish an Advance Child Support Guarantee program, that is, a “public guarantee of a minimum amount of support per child” for single custodial parents combined with “assurances that no noncustodial parent will be charged beyond their current means….”
State-level campaigns to expand child allowances in blue states appear to be increasingly viable.
California’s Young Child Tax Credit (YTCT) established in 2019, provides a $1,000 fully refundable credit to children under age 6 as long as their parents have at least $1 in earned income. In his 2022–2023 Budget, California Governor Gavin Newsom proposed expanding the YCTC to include children under age six living in families without earnings. AB2589, legislation introduced earlier this year by California state representative Miguel Santiago (D-Los Angeles), would increase the YCTC to $2,000 per child and eliminate the $1 earnings test.
In 2021, Massachusetts converted two care-related tax deductions into two fully refundable tax credits. The credits are small ($180 to $480 annually, depending on the number and age of children), but earlier this year, the Republican governor of Massachusetts, Charlie Baker, proposed doubling them.
In addition to California and Massachusetts, there are roughly 15 other blue states (including the District of Columbia) with refundable state earned income tax credits. Regardless of what happens in Congress this year or next, there should be a coordinated push to establish inclusive child allowances in all of them.
