A better way to help families
By Binyamin Appelbaum
For the past three decades, federal aid for lower-income families has largely consisted of handing out coupons: housing vouchers for families that need housing; food stamps for families that need food; Medicaid cards for health care.
Sometimes, however, what families need most is a little extra money they can spend as they see fit. Researchers have found that even small amounts of cash can make a big difference in the lives of children from lower-income households, improving their grades, their chances of graduating from high school and their income as adults.
In an important shift in poverty policy, some states are starting to provide that kind of financial aid. During the recently concluded spring legislative season, states including Minnesota, Colorado and Connecticut created programs to give people money.
“I think folks are turning to the idea that poverty and the financial precarity that has been increasing across all income levels is a policy choice,” said Halah Ahmad, vice president for policy at the Jain Family Institute, a nonpartisan research center in New York that works for the expansion of cash payments to families. “There’s decades of research that shows that cash works. And when you narrow the scope to helping kids in need, it’s even more popular.”
The proliferation of state programs has been sparked by the temporary expansion of the federal child tax credit during the pandemic. The credit, created in the mid-1990s, reduces the amount that families with children owe in federal income taxes. In 2021, Congress raised the maximum credit per child to $3,600 from $2,000. For the first time, it also authorized payment of the entire amount in cash to households that didn’t owe enough in taxes to fully benefit. It was a watershed moment. Until then, families that earned less money had received less help.
The change didn’t last. Republicans refused to extend the program. But for that one year, the government offered the same assistance for every eligible child.
“Life became much more manageable when we began receiving the monthly child tax credit payments for our oldest daughter,” Melissa Lester, a social worker from Columbus, Ohio, who has become a proponent for permanent expansion, testified Wednesday at a Senate Finance Committee hearing on using the tax code to support families.
“It gave us a little bit of breathing room,” she said. “Each month I was able to use the payments to help with various things like my daughter’s second-birthday party, holiday gifts, and when we took our first-ever family vacation, to Kitty Hawk, I was able to use the $300 toward some of those expenses. It helped relieve the constant stress over finances.”
Since then, Democratic majorities in seven states — often with support from Republican legislators — have created their own “refundable” child tax credits, the technical term for the policy of paying benefits in cash to families that can’t use the full value of a credit because they owe less than that amount in taxes. The only two states that had created refundable child tax credits before the pandemic, New York and California, both significantly increased eligibility.
The states hand out less money than did the federal government. The largest credit, which Minnesota created in May, offers up to $1,750 per child for households with incomes below $35,000 per year — roughly half the lapsed federal credit. But unlike the federal expansion, the state credits are meant to be permanent.
States are pursuing other ideas, too. In July, Connecticut will begin the nation’s first “baby bonds” program. Starting on July 1, the state will put $3,200 into a trust fund for each child born into a family enrolled in the state’s Medicaid program. The money will earn interest until the child turns 18, at which point the accumulated savings can be withdrawn and used to attend college in Connecticut or to purchase a home or start a business.
Washington, D.C., and California have approved similar programs, although California’s will start with a narrow focus on children in foster care and those who lost a parent to COVID.
Cash assistance remains a political live wire a quarter-century after President Bill Clinton delivered on his promise to “end welfare as we know it.” Providing the money through refundable tax credits, however, affords some insulation because the credits deliver benefits to a substantial share of the electorate. It also helps that the concept was dreamed up by influential conservative economist Milton Friedman in the 1960s and remains popular among Republicans. Twenty-seven states, including a number of Republican strongholds, have adopted refundable earned-income tax credits. Montana’s Republican governor, Greg Gianforte, proposed a $1,200 refundable child tax credit early this year that nearly passed before getting caught up in a broader budget fight.
But opposition persists, especially to helping families with little or no income. Plans to permanently expand the federal child tax credit foundered because Sen. Joe Manchin, D-W.Va., agreed with Senate Republicans that only people who work should qualify for help.
One frequently expressed concern is that people who get cash may become less likely to work. This is misguided. Most beneficiaries of the refundable credits do work, and those who don’t are often the most in need of help. An analysis by the Center on Budget and Policy Priorities, a left-leaning think tank, estimated that more than 95% of the potential recipients were either in the labor force or in categories that one might reasonably exclude from the labor force: over the age of 65, caring for a child under the age of 2, disabled or in school.
Any costs also need to be weighed against the considerable evidence that cash helps children.
Isolating the effects of individual programs isn’t easy, but researchers have found some clever ways to assess the impact of refundable credits. One recent study compared children born in December with children born in January. Because families with children born in December were able to claim a federal tax credit for that year, they were eligible to receive about $1,300 in aid that families with children born in January did not get. The researchers, who looked at children born in three December-January windows between 1981 and 1992, found that the December children were earning 2% to 3% more by their early 30s.
How does a little help now translate into a higher income decades later? It’s the money for a security deposit on an apartment in a better neighborhood. It’s the money to keep the car running, to put vegetables on the dinner table, to have broadband at home.