Mental Illness Among the Poor
Cash for Kids
Heather Harper, UCSD
To: U.S. Senate Finance Committee members; U.S. House of Representatives House and Ways Committee members; Xavier Becerra, Secretary of the Department of Health and Human Services
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Scope of the Problem
In comparison to other OECD countries, the U.S. has one of the highest child poverty rates. While fewer than one in ten children live in poverty in Denmark, Germany, Switzerland, Sweden, and Ireland, approximately one in five children in the United States lives in poverty (Smeeding and Thevenot 2016). These estimates typically use a quasi-relative measure of poverty whereby a threshold is constructed based on a percentage of national annual median incomes, and they take into account post-tax and post-transfer adjustments. In other words, after considering the affects of social policies, children from the poorest families in the U.S. fair far worse than most of their counterparts in other OECD countries. When measuring poverty using a relative poverty measure—which takes into consideration changes in standards of living—estimates are even higher for the United States (Iceland 2013). The United States’ relative performance on child poverty is particularly troublesome given that overall poverty rates have dropped significantly in the United States since the mid-twentieth yet child poverty rates still remain relatively high. Additionally, most of the improvement in overall poverty has been driven by successful policy interventions for those 65 years and older. For instance, between 1969 and 2011, poverty among seniors dropped from around 30% to less than 10% (DeNavas-Walt, Proctor, and Smith 2012). Policy interventions for children have been less successful, resulting in only a drop from around 22% to 15% in the same period (ibid.).
While poverty for any person is detrimental to their well-being and life chances, it is particularly the case for children. For instance, children who grow up in poverty are much more likely than their more-advantaged peers to be poor as adults (Wagmiller and Adelman 2009). Poverty in childhood is also correlated with physical and mental health problems, lower test scores, and diminished social and emotional well-being, all of which strongly predict income in later life (Moore et al. 2009; Evans and Cassellls 2014). In addition, there is evidence that the chances of poor children overcoming disadvantage in adulthood are shrinking over time (Reardon 2011). Thus, reducing childhood poverty is also critical for increasing social mobility and income inequality, more generally.
Research on the Efficacy of The Earned Income Tax Credit
The most common policy strategy to combat childhood poverty is to offer means-tested tax credits to parents that provide direct cash to families with children. Examples of such policies include the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). Recent evidence has shown that programs like the EITC can have a significant impact on reducing child poverty. For example, Eamon, Wu, and Zhang (2009) found that the EITC tax program reduced child poverty by 18.3% in 2004 and 19.5% in 2005. The EITC, by reducing child poverty, has also been shown to improve the educational achievement and the health of children from families who receive the tax benefit. For instance, one set of studies (Hoynes, Miller, and Simon 2015; Dahl and Lochner 2012) looked at the effects of an income increase as a result of EITC expansions in the 1990s. These studies found that increased income from the EITC was associated with improved health and higher test scores. For example, a $1,000 increase in EITC income was found to reduce the probability of low birth weight by 2 to 3 percent, and to raise math and reading test scores by 6 percent of a standard deviation.
While the EITC has been shown to reduce child poverty and improve the health, wellbeing, and educational performance of children, there are several policy design issues that result in it being less successful than it, and other tax-based policies, could be as a targeted policy strategy to reduce child poverty. For instance, many benefits available to families with children go to those that are not poor (Bitler and Hoynes 2016). Specifically, the $1,000 per child annual CTC and the $4,000 per child annual tax exemption, available to those who file (and owe) taxes, primarily go to families with incomes well above the poverty line. Additionally, children from families that do not file taxes often do not receive any support from these types of programs. Plueger (2005) found that over 15 percent of those who are eligible for the EITC, and two-thirds of those who are eligible but do not participate, do not file taxes. This means that a large portion of families who should be receiving aid through tax-based programs is not.
In addition, children without a parent in the workforce do not benefit from work-based income supports, such as the EITC. This is illustrated through a comparison of poverty rates in the United States to other countries in the Organization for Economic Cooperation and Development (OECD). Before taxes and government transfers are considered, there is little difference in poverty rates. However, as shown in Figure 1, once all available income supports in a given country are included, the United States has a higher child income-poverty rate than most other countries, and a higher overall poverty rate than all but two countries. One of the reasons for this difference is that many other OECD countries provide some type of universal child allowance, available to all families with children regardless of their income and whether or not their parents work.
As the research discussed above demonstrates, attempts to reduce child poverty through tax credits, exemptions, and other tax-based benefits often leave out the most vulnerable. Specifically, those living in extreme or deep poverty—normally calculated as those with incomes at 10% or 20% of the national median annual income—from families that do not work, and those who do not file taxes (many of whom are experiences homelessness or in precarious living situations) often do not receive direct income benefits, even though they often need it the most. Additionally, the patchwork of policies available to poor families is often difficult to understand and thus make use of. For all these reasons, I propose supplementing or replacing the current complex and hard to access system of income supports with an annual universal child benefit of $2,000 per child. This reform would be simpler and more equitable than the current system, and could be implemented without any additional funding by redistributing current spending. Because it would be universally available, it would carry no stigma. The benefit would be distributed monthly to provide income stability, and would not require a tax return to be filed. The program would be much simpler than the current complicated system of tax credits and deductions, both from the perspective of administrators and of the families receiving the benefit.
There are a number of barriers that such a policy may face in terms of gaining public and legislative support. For instance, there is still a great amount of controversy over providing cash assistance to individuals and families. Many Americans believe that “welfare programs” encourage dependency and create disincentives to work. Additionally, the U.S. policy process is biased towards the status quo due to the many veto points available to possible opponents making policy change of any sort an uphill battle. Not only this, but there is also a high level of competition among social problems and policies that do not benefit powerful economic and political interests may face even greater challenges being selected and promoted by members of the media and policymakers (Hilgartner and Bosk 1988). For all these reasons, making changes to existing anti-poverty programs will be difficult.
To overcome these barriers, it will be important for claimsmakers to dramatize their claims in order to get coverage from the media and thus attention from policymakers (Best 2013, Ch. 5). They can do so by highlighting a typifying example (Best 2013, Ch. 2), such as a family experiencing extreme poverty that is not able to access current programs, or highlighting the large number of children that still experience poverty. Claimants should also work towards convincing the public to support a universal child allowance by framing claims in ways that will resonate with the values of a large swatch of the population. Preventing harm to children is a valence issue (Best 2013, Ch. 2) in the United States and poverty certainly is harmful to children. Thus, claims should focus on the importance of protecting and providing for children. With these strategies, it might be possible to pass major reform and help alleviate poverty for millions of children in the U.S.
Bitler, M. and H. Hoynes. 2016. “The More Things Change, the More They Stay the Same? The Safety Net and Poverty in the Great Recession.” Journal of Labor Economics 34(1):403-444.
DeNavas-Walt, Carmen, Bernadette D. Proctor, and Jessica C. Smith. 2012. “Income, Poverty, and Health Insurance Coverage in the United States.” Current Population Reports, U.S. Census Bureau pg. 60-243.
Eamon, Mary Keegan, Chi-Fang Wu, and Saijun Zhang. 2009. “Effectiveness and limitations of the Earned Income Tax Credit for reducing child poverty in the United States.” Children and Youth Services Review 31(8): 919-926.
Evans, G. W. and R. C. Cassells. 2014. “Childhood Poverty, Cumulative Risk Exposure, and Mental Health in Emerging Adults,” Clinical Psychological Science 2(3) 287–296.
Iceland, John. 2013. Poverty in America: A Handbook. Berkeley: University of California Press.
Moore, K.A., Z. Redd, M. Burkhauser, K. Mbwana, and A. Collins. 2009. “Children in Poverty: Trends, Consequences, and Policy Options.” Child Trends Research Brief No. 2009-11.
Plueger, D. 2009. “Earned Income Tax Credit Participation Rate for Tax Year 2005.” IRS Research Bulletin, pg 151–195.
Reardon, S. F. 2011. “The Widening Academic Achievement Gap between the Rich and the Poor: New Evidence and Possible Explanations,” in Whither Opportunity? Rising Inequality, Schools, and Children’s Life Chances, eds. G. J. Duncan and R. J. Murnane. New York, NY: Russell Sage Foundation.
Smeeding, T. and C. Thévenot. 2016. “Addressing Child Poverty: How Does the United States Compare with Other Nations?” Academic Pediatrics 16(3):67–S75.
Wagmiller, R.L. and R. M. Adelman. 2009. “Childhood and Intergenerational Poverty: The Long-Term Consequences of Growing Up Poor,” Columbia University Academic Commons, National Center for Children in Poverty