Photo credit: Connor Baker/ Unsplash By Dominic Richardson, David Harris, Shea McClanahan and Ian Orton
Imagining a post-post Washington Consensus – child benefits in the US offer hope for bolder action for children around the world
As part of recent COVID-19-related legislation, the US Government has committed to provide a quasi-universal child benefit (an affluence-tested “qUCB”) – a monthly child cash benefit where, like in Iceland, only the very wealthiest families will not receive the full amount. This child benefit – which transforms the existing Child Tax Credit (CTC) to pay up to USD 300 per month per child under 6, and USD 250 per child aged 6 to 17 – is likely to have a positive impact far beyond the family budget.
Reflections under a COVID-19 cloud…
Across the globe, alongside disease, death and economic dislocation, COVID-19 has brought cause for reflection on the value of social protection, and on existing provisions for children. The United States of America is no exception. Created in 1997, the CTC has been expanded in nearly every Congress since. At an annual investment of almost USD 120 billion, the CTC is now the largest child-focused programme in the US.
The most recent expansion in 2017 added upper-income families to eligibility, so that only two per cent of children live in families who earn too much to get the full USD 2,000 per CTC. Yet, because eligibility is tied to a combination of tax liability and earnings, more than one third of all children remain in families who earn too little to get the full credit. This imbalance is striking.
Across all children, one quarter only get a partial credit, and one in ten get no credit at all. Together, they have been called “the left behind” – those children who, without any means of redress, are excluded from a vital component of the American social contract. In essence, the US already has a child allowance, except for those children who stand to benefit the most.
While the CTC’s regressive formula was designed to reward work, it is increasingly difficult to justify the assumptions behind this incentive structure. Of course, all families pay taxes. Tying child benefits to income and restricting it to income taxpayers severely disadvantages those for whom work simply does not pay – those low-wage workers stuck in a context of deepening wage inequality and stagnant earnings, and those (predominantly women) who perform the unpaid care that underpins the economy.
But perhaps most troubling, the CTC has effectively allowed the most vulnerable children in society to pay the price for their parents’ employment status and earnings – and the structural challenges families face. In doing so, it has overlooked two basic principles of social protection: that over the course of their lives everyone contributes to society through their taxes, labour and care; and, that child benefits are for children, who have a fundamental and inherent human right to social security.
…but times can change, and COVID-19 clouds may have silver linings
As COVID-19 hit – and cash benefits followed in many countries around the world – a debate has resurfaced on what is affordable, and perhaps more importantly, why people find themselves in situations of need. In high-income countries, the budget constraints have been temporarily shed, and the average family – or child – is, generally speaking, not being held responsible for the vulnerability they face.
And so, as hope springs eternal, perhaps the first of COVID-19’s silver linings is an opportunity to reset a deeply politicised debate on families in need, parental responsibility for that need, and whether their children are acceptable collateral damage. In the US, that hope and opportunity can be found in the American Rescue Plan Act (ARPA).
ARPA is the US Government’s most recent round of COVID-19-related legislation, and as part of the reforms, the Child Tax Credit will become fully refundable for the first time. Instead of restricting eligibility to middle- and upper-income families – and paying lower levels to lower earners – eligibility for the full credit will extend to all of the children previously “left behind” because their parents earn too little or nothing at all. ARPA also increases the credit from an annual maximum of USD 2,000, to USD 3,600 for children under age 6, and to USD 3,000 for children aged 6 to 17, an increase of 80 per cent and 50 per cent, respectively. Finally, the legislation allows the Government to pay monthly benefits, rather than an annual lump-sum credit, with the goal of implementing regular payments by this summer. Regular payments mean predictable incomes, beneficial for setting consistent living standards and planning for the future.
Perhaps most significantly, while ARPA is a temporary measure that includes other health and economic policies in response to COVID-19, reports indicate that both the Biden Administration and the Congress hope to subsequently make the underlying CTC expansion permanent. A permanent, effectively universal CTC would be a silver lining to one of the greatest collective storms of our lifetimes.
For children and families in the US
Alongside a potential shift in the debates around poverty and stigma, a change to the US CTC benefit will bring immediate gains for more children and their families, including improvements in living conditions, health outcomes, and schooling. The experience of high-income countries shows how children and families, even those on average wages, are supported by family policies, which in turn contribute to keeping them out of poverty. Family policies, including child benefits, also support access to the services that benefit us all – schools, hospital, housing, and vaccinations.
If made permanent, a monthly CTC would mean that children in the United States would enjoy similar rights to their counterparts in the vast majority of OECD countries, where universal child benefits (UCBs) have long been a foundational component of national social security systems. The evidence from these countries demonstrates that UCBs help achieve greater poverty reduction than policies that rely on narrow means testing, largely because they achieve high coverage and have relatively high transfer values.
Perhaps unsurprisingly, in the lead up to COVID-19, the US ranked near the bottom in global measures of child poverty relative to its peers, as shown in Figure 1. However, estimates suggest that, all told, the CTC expansion would reduce poverty by 45 per cent, while the existing CTC plus the expansion will reduce absolute child poverty by more than half compared to a baseline with no CTC.
Source: OECD Data, https://data.oecd.org/inequality/poverty-rate.htm. The poverty rate is measured as the percentage of the population of children living below half the median income of the total population.
And while the debate in the United States has focused on how a universal CTC would slash child poverty and “pay for itself”, what has received less attention is how UCBs can strengthen the social contract. A permanent monthly child benefit in the US would offer a chance for people to tangibly interact with the state, on equal footing, from birth – an experience previously only afforded through the public school system (in the good old days) or to older people. UCBs, therefore, help break with the pervasive idea that benefits are for “the poor” – who, as a fixed group, don’t exist — and toward an understanding that all children should have access to collectively financed support and services to allow them to achieve their full potential. This collective investment will pay dividends throughout their lives, and to everyone.
Under the reformed CTC, within just one generation, the vast majority of Americans will have directly benefitted, children and adults alike. Just as the Great Depression opened the door for the Social Security Act – a watershed policy moment that transformed lives and politics for future generations – COVID-19 presents a critical juncture, and the introduction of the child benefit could set the country on a different and self-sustaining path.
Sustaining the benefit across generations matters. UCBs play a crucial role as “welfare lynchpins”; this lynchpin value enhances a UCB’s cash value by improving the efficiency of broader social services including health and education, and by strengthening the child policy portfolio that promotes social and economic development. Systems strengthening is a second potential silver lining from COVID-19, if the expansion outlives the crisis.
For children everywhere — toward global standards in social protection for children
The US is not alone in seeking to strengthen policies for children in the wake of COVID-19, and the CTC reforms in ARPA demonstrate an example of good practice when positive examples are very much needed.
A permanent “quasi-UCB” Child Tax Credit would be aligned with human rights and international social security standards and principles of equality and non-discrimination, as well as efforts to realise the UN’s Sustainable Development Goal 1 to end extreme child poverty and halve child poverty based on national definitions by 2030. However, the challenge remains: these international frameworks and standards, or targets such as SDGs, are more about the “where to” of child benefits, and less about “how to”. Given this context, the demonstration value of the United States’ example is hard to understate.
Moreover, the US example should offer encouragement to the International Financial Institutions (IFIs) to accelerate their emerging support for universal approaches to social protection. Indeed, there are signs that COVID-19 may be opening certain influential minds at IFIs to the merits of universal responses in contexts where means-testing can fail even at the best of times. Calls have increased for “universal entitlements to health care and income support” to reach the “missing middle”, but the responses promoted are typically temporary measures, risking a backslide to the old rules when economies begin to reopen. But with the US making a case for UCBs in view of the IFIs, what next? A post-post Washington Consensus? One can only imagine.
“Nothing is so permanent as a temporary government programme.”
Although inspired by the worst of circumstances, the United States is turning to a more universal standard for children, and a bar is being raised at home and abroad. Making the benefit permanent, if enacted, would represent both a silver lining to COVID-19 for American children — and an opening to strengthen social protection systems across the world.
Milton Freidman’s lament is apt here: “Nothing is so permanent as a temporary government programme.” But in contrast to Friedman, for children here, there and everywhere, we hope this is the case.
This joint blog was written by Dominic Richardson, Chief of Social and Economic Policy Analysis at UNICEF Office of Research – Innocenti; David Harris, President of the Children’s Research and Education Institute and Senior Research Fellow at the Center on Poverty and Social Policy at Columbia University; Shea McClanahan, Senior Social Policy Specialist at Development Pathways; and Ian Orton, Social Protection Policy Officer at the International Labour Organization’s Social Protection Department.
Disclaimer: The responsibility for the opinions expressed in this article rests solely with its authors, and publication does not constitute an endorsement by the organisations to which they are affiliated.
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