Reforming the United States Child Tax Credit to Create a Universal Child Allowance

Background and Purpose: The idea of a universal child allowance, which provides regular monthly cash grants to all families with children, has garnered attention from researchers and policymakers. In many developed countries, the universal child allowance is viewed as a core element of modern social policy, and one that substantially reduces the rates of child poverty and helps all families with children to meet their children’s needs. The U.S.’ current Child Tax Credit (CTC) may serve as a mechanism to bring the country closer to a universal child benefit. Under the current structure of the credit, many low-income families are left out (the credit also phases out for families with higher incomes). Approximately 1/3rd of all children are in families who earn too little to get the full $2,000 per child tax credit. One proposal is to convert the Child Tax Credit into a universal child benefit. This presentation will examine results from a simulation of this universal child benefit in the United States. The simulation is designed to predict the poverty impacts and costs of these universal benefits.  

Methods: This presentation will focus on results from a microsimulation built using data from the Current Population Survey. The outcome variable of focus will be national- and state-level child poverty rates measured using the Supplemental Poverty Measure (SPM), an improved measure of poverty that accounts for in-kind transfers and taxes in the tabulation of household resources, and adjusts for the regional housing costs.

Results: Results from our simulation show that a universal child allowance in the United States would reduce child poverty by nearly 50 percent and redress racial inequalities that are embedded in the structure of the Child Tax Credit.

Conclusions and Implications: The Child Tax Credit is the closest policy that the U.S. currently has to a universal child allowance. Our results show that building off of the existing Child Tax Credit to establish a universal child allowance in the United States would be an efficiently targeted and effective method for reducing child poverty.