How to Tell Whether the Child Tax Credit Is Working

The first checks paying out the administration’s enhanced child tax credit go out this week. A quarter-century after former President Bill Clinton ended “welfare as we know it,” President Joe Biden is (sort of) bringing it back.

Granted, it’s a short-term experiment scheduled to end in December. But the debate over whether to extend or abandon it has already begun, with various factions offering their preferred metrics of assessment. The question is whether broad-based entitlement-like support to families can work. And how you judge this experiment depends mostly on why you support (or oppose) it.

In general, the idea of expanding support for families commands strong bipartisan support. Supporters of an increased child tax credit often cite four distinct but overlapping objectives.

First, there are those who view an expansion of the credit as a way to quickly reduce poverty. Children are a major driver of poverty in the U.S., for the simple reason that they increase a family’s material needs but not its income. This expansion of the credit addresses that issue directly by making the credit fully refundable.

So for progressive politicians and thinkers such as Senator Michael Bennet of Colorado and Matt Bruenig of the People’s Policy Project, the main question is whether the program reduces child poverty. If it did, that would be proof that the tax credit was working.

Then there are those who argue that the most effective poverty reduction programs are those that encourage employment, such as the earned income tax credit. Staying attached to the job market might be a struggle for some parents, especially those with substance abuse problems, analysts such as Scott Winship of the American Enterprise Institute suggest this effort pays double dividends for children who grow up not only with more material resources but also with greater social capital.

For anyone with this perspective, conclusions about Biden’s program will be a long time coming. They need to see the trends in intergenerational poverty over the next few decades.

An emphasis on work is crucial to many but not all Republicans. Senator Mitt Romney has proposed a plan that, like Biden’s, provides support for families with low or no income. Unlike the president’s plan, however, Romney’s would continue providing support to families making up to $400,000 a year.

That plan is more popular with pro-natalists such as Lyman Stone of the Institute for Family Studies, who sees the child tax credit as means of combating declining fertility. Stone makes the point that U.S. women increasingly have fewer children than they would like, and this is in part due to financial uncertainty.

That uncertainty is most pronounced for lower income families — but it doesn’t go away for the middle class. The Romney-style plan provides support for any parent or expecting parent who could plausibly be insecure about the financial impact of another child.

Biden’s program, by contrast, is more limited in scope, phases out in a complex way, and could leave some parents with a tax bill in April. If Stone is right, that kind of uncertainty means it will be less successful at raising the fertility rate than simpler, more universal alternatives.

Lastly, there are those who see enhanced support for children as a way to encourage the traditional family structure. Many of them come from the conservative side of the spectrum, such as Reihan Salam of the Manhattan Institute — yet they take inspiration, believe it or not, from Democratic Senator Elizabeth Warren. In her book “The Two-Income Trap,” she argues that competition for scarce resources — such as a house in a desirable school district — forces both parents to work even if one would prefer to stay home. Surveys  do show that mothers in particular report working more than they would like.

These conservatives are more likely to support something like Senator Josh Hawley’s parent tax credit. It gives $6,000 to single parents for each child they have under 13 and $12,000 to a married couple filling jointly, with no phase-in or phase-outs. That’s a strong subsidy for marriage. For these conservatives, success would mean fewer single-parent families and — most controversially — fewer married mothers in the workforce. There is little expectation that the Biden plan will achieve either of those objectives.

Some 25 years after the end of Aid to Families with Dependent Children, politicians and policy wonks alike are coming around to the idea that greater direct support for families is a good idea. But the reasons they changed their minds vary widely — and so too will their judgment about whether Biden’s child tax credit is a success or a failure.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Karl W. Smith is a Bloomberg Opinion columnist. He was formerly vice president for federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina. He is also co-founder of the economics blog Modeled Behavior.

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