If you were going to create a monthly child benefit, what would be the best way to administer it? This is a question policy writers have been talking about for the last couple of weeks (I, II) in light of the fact that there are currently two proposals to create such a benefit, with one of the proposals (Brown/Bennet/Biden/Neal) administering the benefit through the Internal Revenue Service (IRS) and the other (Romney) administering it through the Social Security Administration (SSA).
In our view, the SSA would be a better at administering the benefit for the following four reasons.
1. The SSA Already Administers Monthly Benefits
As a general matter, the SSA has a lot of expertise in paying out monthly benefits. Indeed, in the last year, it paid benefits to 69 million people every single month. The IRS has no experience paying out monthly benefits. This is not to say the IRS could not learn to do it. But the SSA already knows how, which clearly gives it an edge in the competition between the two.
2. The SSA Already Administers Monthly Child Benefits
People normally think of the SSA as an agency that provides benefits to retired people and disabled people. But it actually does more than that.
One of the other things it does is provide benefits to the minor children of retired workers, disabled workers, and deceased workers. Another of the things it does is provide benefits to certain disabled children through the Supplemental Security Income (SSI) program.
Adding these four benefits together reveals that, in December of last year, the SSA paid a total of $2.5 billion of benefits to 3.8 million children below the age of 18 (I, II, III, IV).
The main reason this is important is that paying monthly benefits to children comes with a number of unique challenges, especially when it comes to things like custody changes and identifying the appropriate payee. The SSA already has rules, forms, and processes for these challenges.
The Neal bill that administers the benefit through the IRS directs the agency to create an “online portal” to handle things like reporting custody changes. But the SSA already lets you do that on its website and also allows you to do it via telephone, mail, or in-person at a Social Security office.
3. The SSA Has 1,500 Offices
According to its last Agency Financial Report, the SSA has over 1,500 offices that serve the public. Individuals looking to sign up for child benefits or adjust their benefits due to changing circumstances would be able to access this network of offices in order to get in-person assistance.
I could not find any IRS documents detailing the number of IRS offices in the country. But the agency does maintain an online office locator that tells you what the closest IRS offices are for any given zip code. I wrote a script that ran every zip code through the form and found 259 unique IRS offices, less than one-fifth the number of SSA offices.
In general, the IRS does not help the public directly, but has instead outsourced that function to private companies like H&R Block and Liberty Tax Service. These companies only operate for part of the year and, when dealing with poor people, make their money by snagging a large percentage (13 to 22 percent) of the tax credit benefits they receive. This is not a good model for enrolling people into a monthly child benefit program.
4. Many Poor Families Do Not File Taxes
According to the 2019 ASEC, around 5.5 million (7.5 percent) of the nation’s 73.1 million children live in tax units that did not file taxes that year. Prior research linking the ASEC to IRS administrative data shows that the ASEC tends to understate the number of non-filers, meaning that this estimate is probably conservative.
These 5.5 million non-filing kids are concentrated at the bottom of the income ladder. Over 1 in 3 poor kids are non-filers while over 1 in 2 kids living in deep poverty are non-filers.
Of course, with a fully refundable Child Tax Credit on the line, some of these non-filers will become filers, though exactly how many is unclear.
In general, if your goal is to ensure that the benefit makes it to the poorest kids, relying on a tax-filing system that we know the poor have limited interaction with seems less than ideal.
To be sure, the SSA currently has even less interaction with children. The only children it keeps tabs on are the 3.8 million that are currently receiving benefits paid by the agency. But the SSA is unique in that parents already register their kids with the SSA at birth. This means that, in the longer run, the SSA is well-positioned to enroll all kids in a child benefit program, including those that live with non-filers.
We Need a Simplified Benefit
Elaine Maag and Howard Gleckman’s analysis (I, II) of this question seems to me to be incomplete in what all it considers, but it does make one very important point that is worth emphasizing here: the Child Tax Credit, and especially the advanced monthly version of it being proposed by the Democrats, is an overcomplicated mess. Indeed, it’s so overcomplicated that the IRS’s existing familiarity with its contours may be enough to overwhelm all of fundamental administrative advantages that the SSA has over the IRS.
Under the advanced monthly CTC, the monthly benefit for each kid will depend on (1) the income of their tax unit, (2) the marital status of their tax unit, and (3) which tax unit the kid lives in for the majority of the year. These pieces of information will only be known on the last day of the year, even though benefit payments based on them will already have gone out. Absent a time machine, no agency can actually execute this kind of program well. So it becomes a question of which agency can fail the most elegantly. And insofar as tax unit variables drive this ridiculous design, the IRS may be the agency that can fail the best at running the program.
Here’s Gleckman saying essentially the same thing:
“If you do what Mitt Romney wants and get rid of all the income requirements, and you had none of these phase-outs — maybe, in that case, the Social Security Administration could do it. But that’s not going to happen. Congress is not going to do that. So we’re building on the existing child tax credit program, which has a lot of constraints.”
Gleckman takes for granted that Congress is simply not going to pass a good benefit that is well-designed. Democrats have control of both chambers and the recent history of the party does seem to suggest that they love designing policy badly. So Gleckman may very well be right about what kind of design we are going to see and what that entails for what agency should be tasked with administering the child benefit we end up getting.
But I am not so sure we should throw in the towel just yet. A simple universal child benefit, like the one Romney proposes (though even his is more complicated than it needs to be), that is administered by the SSA is the best way to reach the most kids and especially to reach the poorest kids that Democrats are focusing most of their messaging on. If the Democrats really care about fighting child poverty, then perhaps they could be convinced of this right now or, if not now, then when it comes time to make the benefit permanent less than a year from now.