Joe Manchin, the Child Tax Credit, and an Unlikely Ally in the Fight Against Child Poverty
The Biden White House’s signature program is the Build Back Better plan, which includes a variety of programs that would combat climate change, make healthcare more affordable, expand affordable housing, and invest in childcare. The bill is incredibly ambitious, aiming to combine several of Democrats’ most highly emphasized issues into one gargantuan bill. Progress on the bill has stalled in recent months, however, due to opposition from a single swing vote in the Senate: Joe Manchin.
Manchin went on Fox News in December to voice his opposition to the version of the bill originally passed by the House. His concerns include the overall cost of the bill, as rising inflation in the United States has increased his skepticism about government spending, as well as several key provisions. His main objection is the continuation of the expanded Child Tax Credit. This expanded version, initially passed in the COVID stimulus bill of 2021, raised the yearly credit given to families with children from $2,000 to $3,600 for young children and $3,000 for older children. Additionally, it made half of the credit payable monthly to families, rather than providing it as a single refund after tax filing.
Despite his broader concerns about inflation, Manchin’s main objection to the Child Tax Credit seems to be its design rather than its cost. In a counteroffer he made to the White House just days before negotiations between the two parties broke down in December, Manchin was willing to stomach the same overall cost (around $1.8 trillion) to support climate investment and an expanded universal pre-K program. The one thing that he left out, however, was any continuation of the extended child tax credit.
The political winds are not in Manchin’s favor. The Expanded Child Tax Credit is incredibly popular: 59 percent of Americans support its continuation, in a poll from September of 2021. It even outperforms Republican support for Biden by a factor of four: 11 percent of Republicans support Biden, but 45 percent support the Child Tax Credit. Biden touted it among the first of his achievements in a triumphant review of his first year in office. Nevertheless, the policy expired in January, right in time for disgruntled parents to voice their complaints in the midterm elections.
Their concerns are well-founded. If passed into law, the child tax credit would permanently catapult millions of children out of poverty, alleviate stress on working parents, and have long-lasting and far-ranging positive effects on the economy and society. Even the year-long temporary expansion has already transformed America, leading to a 40 percent spike in child poverty after the expiration of the credit in January. Given the well-documented detrimental effects of poverty on children, a permanent extension of the Child Tax Credit could be transformative.
Poverty is Bad, Actually
Child poverty has long been a problem in the United States, especially when compared with other countries. As of 2012, child poverty was 20 percent in America, compared to an OECD average of 13 percent. Younger children bear the largest burden: using the same relative measures, 24 percent of children under six and 21 percent of children younger than 18 live in poverty, compared to 17 percent of people in the United States overall.
The youngest children also have the most to lose. Poverty leads to lower cognitive and language skills in children compared to those never in poverty, with cognitive gaps never closing between those experiencing early poverty and those never experiencing poverty. Critically, early childhood poverty has the same effect on later outcomes as recent temporary poverty. In fact, differences in cognitive abilities between poor children and their peers have been shown to materialize as early as age two.
Researchers propose thinking of negative child poverty outcomes as ‘investment gap’ problems, where poor families have fewer resources and less time to invest in their children’s development. Substantial gaps in cognitive stimulation and affection persist between families, based on factors such as education level and mental health of parents that are intimately tied to income level. Gaps in academic achievement by socioeconomic status have already formed by age six as children enter school. Models proposed by economists and social scientists present a diminishing rate of return on investment in education and human capital development as children become older and neural plasticity decreases. Child poverty is thus not only a sign of structural material inequality, but a cause as well. The mental and psychological damage that it inflicts can be hard to rectify after childhood, perpetuating inequality across generations.
These psychological inequalities and achievement gaps also directly inhibit the growth of the American economy. A 2007 study from the Center for American Progress found that child poverty inhibits GDP growth by an estimated 4 percent of GDP per year. This occurs through three main mechanisms: reduced economic productivity from inhibited cognitive development, increased cost of crime, and higher healthcare expenditures in later life associated with child poverty. If anything, this is an underestimate of the true costs of poverty, as it fails to consider the cost of the actual suffering of poor people themselves.
Advocates of welfare programs such as the Child Tax Credit often point to the tangible reduction in poverty rates that accompany such programs. These results should be emphasized and applauded as a way to ease suffering and improve material outcomes for the most vulnerable among us; poverty reduction should be sought for its own sake. However, it is important to note the numerous other benefits that accompany poverty reduction programs.
Just Give People Money
The Canada Child Tax Benefit program, or CCTB, has existed in the country for the past few decades. It consists of payments to families with children aged 0-18 calculated based on previous year’s tax returns, payable monthly and phasing out with income. A study beginning its analysis in 2005, when yearly payments were equivalent to $1300, found significant benefits for children, ranging from improved academic achievements and health to reductions in maternal depression. Smaller studies of trial programs for policies like UBI have shown similar benefits, including increased happiness and reduced crime among beneficiaries. These improvements are generally thought to result from two changes: decreased ‘cognitive load’ among parents, allowing them to engage in more attentive parenting, and increased access to necessities like food, clothing, and housing.
Policymakers such as Joe Manchin, however, have reservations about income assistance. Specifically, Manchin himself has worried that an expanded child tax credit would discourage work by parents and be used for illicit purposes such as drugs and alcohol. This has led him to propose means testing the program and adding other limitations.
His concerns have some empirical basis. Studies have indeed shown that additional income can reduce hours worked and induce a small number of women, but not men, to leave the labor force. However, such effects are relatively minimal: when analyzing a $250 per month plan, the study found that most parents reduce their labor by less than one hour per week. Only 35 percent of single women, 25 percent of married women and 20 percent of married men would decrease their labor by more than one hour per week. Additionally, the evidence on the academic and behavioral benefits for children suggests that at least some of this time is invested in parenting.
Concerns over the use of government money for illicit purposes, however, are misguided. Economists, including UChicago’s own Richard Thaler, have furthered a ‘labeling’ hypothesis, which argues that recipients of money are more likely to increase spending on certain things if the additional income is given to them with that specific purpose in mind. This hypothesis has borne out in the context of the ‘Kindergeld’ program, a German counterpart to an expanded CTC. One study found that parents who received the benefit, especially those in lower income households, increased spending on food and housing by significantly more than families who received additional money from other sources. Additionally, the study found no significant effects of the program on the drinking or smoking habits of parents.
The arguments against an expanded child tax credit are relatively easy to disprove, at least empirically. However, even though Joe Manchin may be misguided on the issue of the child tax credit, the fact remains that he is the 50th vote in the Senate and has the final say on the passage of the CTC. If the entire Democratic party has not been able to convince him, this column will not be able to either. What, then, are the options available to the White House?
Don’t Let Good be the Enemy of the Okay
The most obvious answer to the Child Tax Credit conundrum is that something is better than nothing. While the CTC may be at the top of the President’s agenda, a failure to pass it into law should not preclude Democrats from passing other important parts of the Build Back Better plan. In recent weeks, key Democratic legislators have rallied behind a less ambitious version of the original bill that reduces the deficit as a concession to Manchin. Though it does not have a CTC component, it does contain significant investments in healthcare, child-care, and emissions reductions programs.
Commentators who emphasize the importance of addressing child poverty have also pointed out that a middle ground on the CTC could possibly be reached with Manchin. Reducing the benefit amount, adding work requirements, or lowering phase-out thresholds, while not ideal, would still go a long way toward cutting poverty and improving children’s lives. These are tough compromises to make, however, and would leave many Democrats disappointed after the more generous package passed in 2021. Is there a better option?
Maybe We Can Have Good Things
In the discussion surrounding the child tax credit, leading legislators have focused on Joe Manchin. This makes sense; he is the most conservative Democrat in the Senate and a constant swing vote on any major legislation. On the particular issue of the Child Tax Credit, however, the White House should turn to a different swing vote Senator, one who has often bucked his party as well: Mitt Romney.
Senator Romney’s office released their own proposal for an expanded child tax credit a year ago, in the middle of the Biden White House’s initial push for a pandemic stimulus plan. The plan was initially praised by many commentators, due both to its sheer generosity and the fact that it came from a Republican. The possibility of its passage was quickly doomed, however, as it became clear that Romney himself was the only Republican who would actually vote for the bill. This was an annoyance for the Biden White House at the time; in order to placate Romney and make the expanded child tax credit ‘bipartisan,’ they would have had to restructure key provisions of the American Rescue Plan to align with the preferences of the Utah Republican. There were also considerable disagreements about the proposed policy itself.
However, circumstances have changed in the intervening year: Democrats are now exactly one vote short of passing a transformative CTC program, and midterms may soon make the math considerably less favorable. Senator Romney could now make or break the future of child poverty in the United States. By assuaging Romney and accepting his package, the White House could essentially substitute him for Manchin, giving them a conservative legislator willing to vote with them.
Officially called the Family Securities Act (FSA), the Romney Child Tax Credit is crucially different—and in many ways better—than the Biden CTC, due to its generosity, administration, and budget neutrality. The Family Security Act pays for itself by cutting or scaling back several other existing welfare programs aimed at families: Temporary Assistance to Needy Families (TANF), the existing Child Tax Credit (CTC), and parts of the Earned Income Tax Credit (EITC). Additionally, the proposal eliminates certain tax credits, such as the head of household filing status and the State and Local Tax Deduction (SALT). By eliminating programs that already serve working families, the FSA should really be understood as a consolidation of various other policies.
Initial reservations from Democrats stemmed from the FSA’s cuts to pre-existing programs; these policies, however, are flawed in various ways. TANF, similar to SNAP, is a program of temporary ‘in-kind’ benefits to parents that provides cash assistance for housing, clothing, and food needs. It also applies a work requirement for its recipients, despite their ineffectiveness when it comes to reducing poverty or increasing employment. The Earned Income Tax Credit (EITC) is a tax credit paid out yearly to poor families, which also has a work requirement. It is even more inefficient than the TANF program: eleven percent of the money spent on the policy goes to administrative costs and its reduction in poverty rate is estimated to be lower than one percentage point.
The Family Security Act represents an efficiency gain relative to the programs it would replace. It would be administered through the Social Security Administration instead of the IRS, since the SSA is experienced with sending out monthly Social Security checks. Giving the task of monthly distribution to an agency that has already proved competent at doing just that makes a lot of sense; in contrast, the IRS usually only sends out yearly tax returns. Additionally, many poor families don’t file taxes, so navigating the SSA, which maintains 1500 offices throughout the country, would be much easier than going through the IRS.
Lastly, the Family Security Act is actually more comprehensive than the Biden Child Tax Credit. It includes prenatal benefits, which have been shown to positively affect newborn brain development. The FSA also has higher benefits from age 0-6, when research shows the financial assistance matters the most to children’s long term mental and physical health. Finally, the FSA has a higher lifetime assistance per child than Biden’s CTC, making it more generous overall.
Even though the FSA involves no net increase in overall spending, it would still decrease poverty substantially. Its percentage reduction of deep child poverty is comparable to the Biden plan, and its reduction in normal child poverty is only 6 percentage points less than the Biden plan. What it lacks in effectiveness, however, it makes up for in longevity.
From the People’s Policy Project:
From the Niskanen Center (Samuel Hammond and Robert Orr):
The final crucial benefit of the Family Security Act is its budget neutrality. While this does limit the real reduction in poverty when compared to the Biden Tax Credit, it also makes the FSA much likelier to become a lasting part of the United States welfare infrastructure. Due to arcane Senate rules, laws affecting U.S. budget outlays can only be passed by simple majorities through reconciliation bills. This type of bill, a way to avoid the filibuster, cannot substantially affect government deficits ten years after passage. For that reason, recent major financial bills such as the Trump tax cuts and the American Recovery Act, both of which increased budget deficits in the short term, have had “sunset clauses” that limit their duration. Biden’s CTC expansion was designed with a similar clause, as it was included in the ARA. The hope among policymakers is that once the public sees the effects of the policy and it becomes more popular, the bill will either be extended through the reconciliation process or made permanent through full, filibuster-proof votes in the Senate.
Such tradeoffs, however, always involve gambles. They project into the future, and assume that public support for the policies will be strong enough to overcome institutional inertia and potentially hostile future legislatures. The institutional effort required to pass or repeal a law is much greater than the effort it takes to let it expire. Considering the current polarization in United States politics, it would be unwise to assume that a bill with only one Republican supporter will somehow find broad bipartisan support ten years from now. In this way, although the Family Security Act will not reduce U.S. poverty by quite as much, it has the potential to make the reduction much more lasting by establishing itself indefinitely through the reconciliation process .
In analyzing the Family Security Act, it is important to consider how it would be better and worse than the Biden Child Tax Credit, which was the predominant welfare policy in the United States for the past year. However, given Joe Manchin’s obstinate opposition to the expanded CTC, it has become clear that the real alternative to the Family Security Act is no longer the Biden CTC, but rather the status quo. Now, support for the Family Security Act should become a no-brainer; the bill would massively reduce child poverty in the United States, giving parents cash payments with no strings attached, all while paying for itself. With midterms bearing down upon them, Democrats must reach across the aisle before a once-in-a-generation opportunity to fight child poverty slips away.
The image used at the top of this article was taken by Gage Skidmore in 2011. It is licensed under an Attribution-ShareAlike 2.0 Generic License and can be found here.