Want to Lower Child Poverty? Give Families Cash.

July 7, 2016 | Andrew Stettner

Lisa Zilligen serves lunch to her three children in her home in Chicago. (AP Photo/M. Spencer Green)

This year marks the 20^th anniversary of the “welfare reform” that slashed cash income assistance in the United States. At the time, we didn’t have much scientific evidence about how children’s futures are impacted by poverty. Now, we know better.

Poverty can impede children’s brain development and harm biological processes in ways that damage long-term health. Numerous federally supported interventions, including Head Start, children’s health insurance, and child nutrition programs are deployed to ameliorate these disadvantages.  While these programs are crucial, they don’t get to heart of the matter.

What if we tackled the problem of child poverty head-on by providing a modest amount of cash assistance to parents?

In 1997, in the mountains of Western North Carolina—a region affected by grinding rural poverty—one community did exactly that. When the Cherokee Nation built a casino on the border of its reservation, they distributed the proceeds to local tribe members—the average family received $4,000 per year. Since non-tribal communities nearby lived in similar conditions, but were not eligible for the monies, these payments created an opportunity to examine the impact of cash assistance on the children who received it.

Researchers at Duke University tracked the participants from childhood into adulthood, and found that those who received the assistance “used less alcohol and fewer drugs, were less likely to commit minor crimes, and more likely to graduate from high school.”

What’s striking about this assistance—which was given without restrictions, guidance, the stigma of welfare, or the intervention of social workers—is that it paid off large dividends on problems that seemed intractable, such as alcoholism, crime, and education outcomes.  The study also made it clear that when parents have additional resources, they spend it on key investments like education for their kids, safe housing, meeting basic needs, and preventing hardships (like a broken down vehicle) that can push a family into crisis.

These results should not come as a surprise to anyone who has followed the success of the Earned Income Tax Credit (EITC), which provides an average of $3,000 to a working family of three. Studies have found that the EITC facilitates infant development, reducing the incidence of low birth weight. They have also shown that children in families that receive larger credits have higher test scores in elementary and middle school, and are more likely to graduate from high school and complete one or more years of college. In fact, a modest $3,000 increase in annual income for children ages 0-5 is associated with a 17 percent increase in annual earnings as adults.

Given the amount of evidence we have on how much a child’s future can be impacted negatively by poverty, and how that trajectory can be shifted in a positive direction by modest additional resources for their families, it’s time to re-imagine how we ensure that all children have the opportunity to thrive.

Universal child allowances, which exist in many industrialized countries, provide a useful model. These benefits are delivered monthly to help families cover recurring expenses, which is difficult to do with the once-a-year Child or Earned Income Tax Credits. Basic monthly benefits are modest. In Australia, Canada, and Britain they range from approximately $100 to $345 per month per child (USD).

We could establish a universal child allowance in the United States, by reforming our existing Child Tax Credit. Representative Rosa DeLauro’s Young Child Tax Credit Act (co-sponsored by House Democratic Leader Nancy Pelosi and Representative Sandy Levin) would increase the child tax credit to $1,500 per year for children ages three and under, remove arcane earning thresholds that keep the credit from reaching many impoverished families, and deliver the credit monthly (or as frequently as administratively possible).

A report by the Bernard L. Schwartz Rediscovering Government Initiative at the Century Foundation (where I work) modeled a number of different options for a child allowance, and found that a $2,500 universal allowance for children under six would lift 3.2 million children out of poverty—nearly twice as many as the current Child Tax Credit—at a cost of $33.7 billion (that’s less than the U.S. spends on estate tax breaks for millionaires and billionaires). Given the societal costs related to childhood poverty—more than $500 billion annually—it is a price well-worth paying.

Is it possible to move Washington to pass and implement such a bold policy? There is reason for hope. Tax reform is sure to take center stage in the next Congress, and there should be no reduction of corporate tax rates without commensurate help to our most vulnerable residents. Moreover, there is growing support from both the left and the right (and even venture capitalists) for a universal basic income, as well as popular support for family-friendly policies like paid family leave and child care. Given the broad interest in helping both low- and middle-income families, reforming the child tax credit to maximize its reach in the fight against child poverty should be a priority for any new administration.