Families Are Nice — Let's Give People Money So They Can Have Them
Expanding Child Tax Credit is cooler than it sounds.
Imagine that you are in a conscious, intelligent state in your mother’s womb before your birth, with no knowledge of the circumstances you will be born into. You don’t know anything about your parents, nor the genetic characteristics that they will pass on to you, which may shape your position in a society that considers itself meritocratic, decades down the line. The school district you are born in also may offer a decent prediction of your educational and professional outcomes decades down the line. You may be in the lowest rung of society financially, because of poverty, or socially because of factors such as disabilities. It is unknown whether even the most basic necessities — food, water, shelter — will be guaranteed.
Twentieth-century political theorist John Rawls developed this thought experiment, the ‘Veil of Ignorance’, as a way to contemplate fairness in society. While countless statistics communicate the issues surrounding economic and social injustices, none perhaps convey unfairness more succinctly than Rawls’ theory.
Positioning yourself in such a perspective should broaden your awareness of the uncontrollable factors that are subject to a genetic lottery of sorts. For example, as early as conception, children are affected by parental decision-making they cannot control. Whether the mother smokes cigarettes or drinks alcohol or whether both parents are below the poverty line can tremendously set back a child’s starting point relative to others.
I see welfare and other policies that help shape our country’s income and wealth distribution as methods that seek to equalize opportunity, or at least alleviate extreme disadvantage while acknowledging there will always be unequal outcomes.
Among the greatest tragedies Americans encounter, is the fact that nearly 12 million children live in poverty, through no choice of their own. Millions of children begin life way behind their peers, suffering from the extreme disadvantage that welfare is supposed to alleviate.
Welfare has become a topic that is always signaled to rhetorically yet rarely discussed in terms of policy — despite there being fascinating ethical debates related to policy choices. Since the Clinton administration, a modern and somewhat bipartisan consensus around welfare has been formed: welfare should not disincentivize work. While the current anti-poverty programs informed by this consensus have been effective in reducing poverty significantly, the reality of millions of children still remaining in poverty is a travesty.
A Short Lesson on the History and Politics of Welfare
The welfare programs central to today’s newsletter are Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). There is no entertaining way to explain tax credits but I will try my best.
The 1970s were riddled with war, hippies, film debuts from our best filmmakers, intellectual revolutions within economics departments of certain elite private institutions, and what this article cares about most: intense debates on welfare. The pre-existing welfare program ‘Aid to Families with Dependent Children’ (AFDC), signed into law by Franklin D. Roosevelt in 1934, was under heavy scrutiny by libertarians and feminists alike for incentivizing women to have children instead of joining the workforce. Libertarians argued the bill was creating unnecessary dependency on government spending programs, while feminists argued it confined women to child-rearing roles. Such qualms from both groups reverberate in welfare policy discussions today. Plus, there was a lot of fraud and the number of welfare-dependent people kept rising, especially in the 1990s.
While the AFDC was not replaced until the Clinton presidency, a pillar of our present welfare system was still established in the 70s: the Earned Income Tax Credit (EITC). Developed in response to President Nixon, a conservative, who proposed a ‘Negative Income Tax’, which is not unlike a universal basic income, Senator Russell Long’s EITC bill became law in 1975, stressing that benefits would go to working families and not non-working families.
The Earned Income Tax Credit, while quite modest initially, was expanded into a program targeted at working families with children, who make under $41,000 - $56,000 depending on marital status and the number of dependent children. On average families with children earn about $3,200 of tax credit, which is fully refundable in that if it exceeds the amount of taxes owed, the family will still receive the difference as a refund. EITC is also offered to working families without children, although to a lesser extent.
EITC incentivizes work, whether you are married or, perhaps more controversially, if you are a single parent raising a child. Thanks to the abundant rhetorical ammunition available to conservatives including terms such as ‘welfare queens’, millions of Americans were persuaded into believing that their taxes were being wasted on single mothers defrauding the government. Welfare fraud is a problem but such issues, people like myself would argue, do not call for the removal of benefits for children who have no control over their parent’s decisions. It should instead call for better policy design. Despite this foreseeable area of dispute, the EITC is pretty bipartisan and has been expanded under Reagan, Clinton (who tripled its size in 1993), Bush, and Obama.
In the 90s, Clinton expanded the EITC and passed welfare reform of the AFDC (a lot of acronyms, I know), which was a big deal but too big to fit in this article. Clinton also enacted the Child Tax Credit (CTC), which helped working families — emphasis on working — offset the costs of having children. Before the American Rescue Plan, thanks to efforts by Ivanka Trump and Republican Senator Marco Rubio to expand the program in 2017, the CTC offered up to $2,000 per child of partially-refundable tax credit to couples with children who earn under $400,000 and singles with children who earn under $200,000. The tax credit is partially refundable meaning that up to $1,400 per child can be refunded to families. Combined with the EITC, both programs have cumulatively lifted 28.1 million people and 11.1 million children out of poverty.
Each new welfare reform bill directed at families evoked the same debate about inclusion versus exclusion of non-working families, with what has been enacted slanting towards the exclusion of non-working families. At least at the federal level, both liberals and conservatives expanded welfare programs such as EITC and CTC, debunking the conventional belief among liberals that all conservatives want to eliminate welfare (although a sizable amount still do). Conservatives care about the preservation of welfare too — most importantly, the belief that welfare should not disincentivize work. They have been winning, with many modern Democrats becoming converted to their orthodoxy.
Welfare for families became less about generally socializing the costs of raising children and more about subsidizing costs of raising children for those who deserve it — because they work. But this past month, there was a slight crack in the consensus around welfare. Both Democrats and Republicans in 2021 have favored expanding the EITC and CTC substantially, but some Democrats and oddly Republican Senator Mitt Romney proposed that non-working families should also receive the expanded tax credits.
The family welfare provision that passed in Biden’s American Rescue Plan included expansion of EITC to working people without children and more significantly, an expansion of CTC that will cut child poverty in half. The Child Tax Credit for this year, at least, is a fully refundable tax credit up to $3,600 per child under the age of 6 and $3,000 per child ages 6-17, dished out as a monthly child allowance of up to $300. Mitt Romney, who once called 47 percent of the entire U.S population dependent on the government, weirdly went further, proposing even more tax credit for children than under Biden’s plan.
In both plans, CTC is extended to non-working families, whereas before it was restricted to families with incomes above $2,500 — a break from modern welfare orthodoxy. But the CTC is not only directed at children in poverty. Approximately 90 percent of all children will receive some form of a child allowance. Biden’s rendition of CTC restores the perspective that believes the state should socialize the costs of family creation or essentially pay people to have families, in an age when those costs are soaring and birth rates are declining.
Economic Freedom for Single Parents
My views regarding welfare circle back to Rawls’ ‘Veil of Ignorance’. Children born to a single mother in poverty should not be disadvantaged more because of their uncontrollable circumstances. Integral to the design of Child Tax Credit before the American Rescue Plan, was the exclusion of non-working singles and couples with dependent children. If you wanted the benefits, you had to work. The benefits’ purpose, however, is to help children. Taking them away from non-working parents essentially punishes children for the decisions their parent(s) makes.
But honing in on the decision of whether or not to join the labor force that a single parent might have to make, begs its own set of questions. Is it in the best interest of the child’s development, especially in his formative years, for his single mother to take up a full-time, low-wage job at an Amazon fulfillment center, instead of staying home with them? In an economic downturn such as the Financial Crisis, is it fair that joblessness might leave a single mother and her child in poverty for more than one year, rendering them unable to receive any benefits?
Answers to such questions are not a definite yes or no, but what expanding the Child Tax Credit to non-working families does is enable choice. It is up to families to decide what is in the best interest of their children, not some means-tested tax credit. In other words, the choice of whether or not to enter the labor market should not be exclusively available to people with partners who are wealthy, allowing them to stay home with their children.
Time with parents is invaluable. While the logic behind concerns from conservatives such as Oren Cass or Senator Mike Lee about doing away with a parent’s responsibility to provide for their children is clear, it is also heartless and undercuts their own cultural messages.
First of all, both tax credits could not replace an entire family income and create the welfare dependency that conservatives fear could come back. Second of all, policymakers should not be socially engineering something as personal as how parents raise their children, in particular, ones such as Cass and Lee who hold the family as a sacred institution that should not be interfered with. The worries of all single mothers, who are put in tough economic and emotional positions with raising children on their own, should be alleviated and not ignored because they do not work. Especially when discussing the costs of raising a child, which is in the government’s best interest to support.
Obstacles to Having Families
The benefits of expanding Child Tax Credit extend beyond helping people in poverty. The very first newsletter I wrote was focused on the declining economic mobility in the US, an issue adjacent to our declining family formation. The factors that affect economic mobility are the same factors that discourage people from marrying and starting families, due to high costs of child care, higher education, and housing, as well as competition for educational opportunities that often favor people who are previously at the top of the economic ladder. Such costs are extremely discouraging for people thinking of starting families but can be supplemented with the additional income that comes in from the CTC and EITC.
Stronger safety nets need to be built for families because, without them, only richer people could even afford or have a chance at having children that are, at the least, just as well-off as them. Market societies themselves do not encourage family creation due to the natural income distribution across one’s lifetime, as blogger Matt Bruenig, who has influenced a lot of this article, points out. Couples tend to have children when they are still earning entry-level salaries and those children tend to become adults when their parents earn their highest salaries. So when the children need the most care, their parents often have little savings and less income. When parents do amass savings and earn greater incomes, children become adults and require less care.
Economically, it is healthy to replace your country’s population to avoid having too few people to pay for and take care of the welfare of older generations, declines in productivity, less consumption, and a smaller tax base. Japan’s aging population has been well-documented and tied to the deflationary monetary pressures from having fewer consumers, economic stagnation, and rising economic insecurity among younger generations, which is not exactly the recipe for family creation and more babies being born.
The economy and families are inextricably linked. America is experiencing declining birth rates, which researchers say is linked among many things to the state of the economy. COVID-19 did not exactly do wonders for our economy, and apparently, every 1 percent that the unemployment rate goes up reduces births by 1 percent. More important than the economy, however, is the social costs of less family creation.
Strong families can bring people purpose, comfort, and genuine happiness. They are the core unit that powers local communities, from youth basketball leagues to volunteering at food drives. They preserve culture and impact one’s identity and values more than any school, university, a Twitter thread about socialism, or Ben Shapiro YouTube subscription can. They can help compensate for living in a subpar school district or a rough neighborhood. Strong families can help one another enjoy highs and rebound from the lows of life.
Governments can never replace the function that families perform, but they can and should do everything in their power to support and encourage them.
So why wouldn’t we pay people so they can have families?