Ways To Improve The Brown-Bennet Child Allowance Proposal

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Senators Sherrod Brown and Michael Bennet released a child allowance proposal today. The relevant details are as follows:

  1. Children between the ages of 0 and 5 will get $300 per month.
  2. Children between the ages of 6 and 18 will get $250 per month.
  3. Benefits will phase out at a rate of 5 percent for earnings over $75,000 for single taxpayers and $110,000 for married taxpayers.
  4. Benefits will be paid out monthly only to those whose benefits exceed their expected federal income tax liability.

As someone who has been advocating for a $300 child allowance since 2014, this is naturally a very exciting development. In general, the large swing in favor of this idea during the last few years has been fun to watch.

With that said, this proposal is not ideal in a number of ways that could be improved.

1. The Social Security Administration should administer it.

The plan calls for the Treasury to administer this program. It should instead be administered by the Social Security Administration. The SSA has far more competency administering social benefits, as evidenced by the 61 million people already receiving monthly benefits from the agency. People currently register their children with the SSA as soon as they are born, which would make enrollment seamless. And, as a general matter, setting up the SSA as the unitary welfare institution in the country is better than fracturing payments across multiple bureaucracies.

2. The EITC needs to be reformed.

Right now, the Earned Income Tax Credit pays out benefits to low-earning families in a way that varies based on how many children they have. Below is a table of the maximum EITC benefits families can receive currently and the maximum benefits they would receive under another of Brown’s bills.

Current Maximum Credits vs. the Brown-Khanna GAIN Act

Type of household Current maximum amount of credit (2017 Tax Year) Maximum amount of credit under Brown-Khanna
Three or more qualifying children $6,318 $12,131
Two qualifying children $5,616 $10,783
One qualifying child $3,400 $6,528
No qualifying children $510 $3,000

If we are going to do a child allowance, it does not make sense to retain an EITC structure that varies payments based on the number of children you have. The child-related aspects of the EITC should instead be redirected into the flat child allowance amount.

What this means is that instead of having four EITC amounts (one for 0, 1, 2, and 3 children), there should be just one EITC amount that pays out the same benefit to all qualifying families regardless of the number of children they have. One easy way to do that would just be to say that, going forward, all qualifying earners will receive EITC payments equal to the current 2-child amounts regardless of the number of children they have.

3. The child allowance should not phase out.

Under this proposal, the child allowance phases out at a rate of 5 percent for earnings over $75,000 for single taxpayers and $110,000 for married taxpayers. There is no reason to phase the benefits out like this and there are many good reasons not to.

The purpose of a child allowance, among other things, is to ensure that when all families have children their disposable incomes increase, all else equal. This makes sure that having a child does not dramatically reduce their standard of living and that they remain at least somewhat on par with similarly-situated adults who do not have children.

So, for instance, a high-income family with two adults and no children should have less household income than a high-income family with two adults and one child who should also have less household income than a high-income family with two adults and two children, and so on. This is because the households with more children have to stretch their household income across more people.

The only way to achieve horizontal equality between families with different numbers of children is to ensure that as the number of children increases, so too does a family’s disposable household income.

The purpose of doing a phaseout is presumably to raise (or save) more money. But imposing a 5 percent surcharge tax only on high-income families with children is not a good way to do that. Instead, a child allowance plan should just raise taxes on all high-earning families regardless of how many children they have. This would raise the same money while also ensuring that high-earners with more children have more disposable household income than high-earners with less children.

Lastly, phasing out is going to make benefits administration far more complicated. People are going to have to submit income estimates in advance. If those estimates are too low, they’ll have to pay some back. The bureaucratic trouble just is not worth it.

4. Do not vary payment amounts.

The proposal currently would only make payments to people whose benefit amount is expected to exceed their income tax liability. So presumably the way this would work is you would estimate your federal income tax in advance and then communicate that estimate to the Treasury. Then the Treasury would give you monthly payments only if your child allowance benefits exceeded your estimated tax.

This is a completely unnecessary and unhelpful bureaucratic approach. Instead everyone should receive their $300 or $250 a month and pay their taxes normally. This achieves the same net outcome without requiring a complex upfront system of estimating taxes and income.

Even if you maintain the phase out (contrary to my advice in step 3), you should still not vary the payment amounts. Instead, there should be a special tax clawback starting at $75,000 of income for single filers and $110,000 for married filers that mimics the proposed phaseout. This way the means-testing is handled on the tax side, not the benefits administration side. It would be so much simpler to do it like this and having everyone receive the same monthly check is likely to secure much more support for the program in the long run.