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Photo illustration by Rachel Gartz

Lifting the American family: Here are 3 potential solutions to give a financial boost

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SHARE Lifting the American family: Here are 3 potential solutions to give a financial boost

As the COVID-19 pandemic continues to disrupt lives and livelihoods, American families need help. A recent poll conducted by NPR, the Harvard T.H. Chan School of Public Health and the Robert Wood Johnson Foundation found more than half of households in the U.S.’s biggest cities are experiencing serious financial problems, and two-thirds in rural areas report the same. Much of the economic fallout is concentrated among ethnic and racial minorities, the Center on Budget and Policy Priorities reports.

Congressional relief packages provide a measure of immediate help, but too many families are in need of solutions that will outlive the pandemic. Nearly 212 decades have passed since major welfare and family aid reform was passed, and though a stimulus check could help with groceries and rent, it does little to lift children out of poverty.

Census Bureau data shows more than 11 million American children living below the poverty line, making up one-third of the country’s impoverished population. The most recent census suggested 42% of American children live in households struggling to pay for necessary expenses.

What can be done to make lasting impact?

Utah Sen. Mitt Romney made headlines earlier this month for his new family welfare proposal, the Family Security Act, which would give families a monthly payment for each of their children. Other policy proposals, like baby bonds or the Canadian child benefit program, have also garnered interest among policymakers.

Deseret News opinion writers Aubrey Eyre, Samuel Benson and Savannah Hopkinson dig into three proposals. Weighed against the principles of self-reliance, fiscal responsibility and equity, each presents a convincing case for strong consideration to lift families.

Family Security Act

By Aubrey Eyre

The Family Security Act would break the long-established molds of American benefit programs by proposing to give money directly to families rather than withhold or return taxes.

When compared to other propositions aimed at addressing America’s high child poverty rate, like Joe Biden’s America Rescue Plan and the proposed expansion of the child tax credit — being supported by Sen. Mike Lee, R-Utah, and Sen. Marco Rubio, R-Fla. — Romney’s Family Security Act is a new take on an old idea — direct support.

Families would receive a $250 monthly allowance for school-aged children and $350 for children 5 years old and younger (including prenatal children in the third trimester), with a maximum monthly payment of $1,250.

According to a Niskanen Center analysis of the program, the Family Security Act would “cut child poverty by a third, deep child poverty by half, eliminate marriage penalties and end welfare traps.”

While others like Angela Rachidi of the American Enterprise Institute, have argued that providing more benefits to impoverished families (especially in the form of direct payments rather than through tax breaks) will lower employment and increase government dependency, still others argue the Romney plan would have quite the opposite effect.

By putting money directly into the hands of middle and low-income families rather than relying on “dated and cumbersome programs” attached to complex tax codes for end-of-year reimbursements or tax breaks, the proposal ends old programs and consolidates their benefits in a way that is immediately available for those most in need.

Such changes would, according the Niskanen Center, offer a greater benefit to American families with an almost deficit neutral price tag, promoting fiscal responsibility for both the government and families. 

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Sen. Mitt Romney, R-Utah, holds an interview in his new office on Capitol Hill in Washington, D.C., on Thursday, Jan. 3, 2019.

Cheryl Diaz Meyer, for the Deseret News

Rather than funneling government money into programs that low-income families and individuals struggle to navigate, government contributions to the plan would be more predictable and easy to manage year over year.

The program would also raise the threshold for eligibility of benefits into the upper-middle-class income brackets ($200,000 for single-filers and $400,000 for joint-filers), which could potentially eliminate disincentives to work among low-income families.

With the stability of benefits available even as they move up the income scale, families are more likely to feel encouraged to continue to work and better their lives and become more self-reliant without fear that making more money will leave them in the dreaded limbo of not being eligible for support while also not making enough to reasonably get by.

Additionally, by removing current benefit program restrictions that penalize families with stay-at-home parents, as pointed out by both Rick Larsen of the Sutherland Institute and Yuval Levin of the American Enterprise Institute, the Family Security Act also promotes marriage and more equally distributes benefits for families in varying circumstances. At a time when the fertility rate is dropping, incentives for having children will strengthen families and in turn, the country.

The proposal hits all the right marks for alleviating child poverty among American families in both the immediate and long-term futures. It reaches all children equally, it provides a steady and reliable benefit and it doesn’t penalize people for their family makeup.

It offers a more generous lifetime benefit than Biden’s plan, meaning that the benefits won’t have the one-hit wonder ring that the pandemic stimulus payments had. Romney also proposes utilizing the power of the Social Security Administration for distribution rather than the already overburdened IRS.

As Ramesh Ponnuru, visiting fellow at the American Enterprise Institute, pointed out, these aspects would provide the most immediate relief to American families while simultaneously providing long-term benefits aimed specifically at children — America’s future.

“By receiving monthly payments, parents would have the ability to more predictably manage their budgets and expenses rather than dealing with complicated taxed-based benefits annually.” — Aubrey Eyre

By receiving monthly payments, parents would have the ability to more predictably manage their budgets and expenses rather than dealing with complicated taxed-based benefits annually. To practice fiscal responsibility and self-reliance, families need to know they can get by month to month.

Romney’s spokesperson, Arielle Mueller, told the Deseret News that The Family Security Act is “pro-work, pro-family, and pro-life.” She emphasized that by promoting the essential work that parents do in the home to raise their children, Romney’s plan doesn’t discourage work but would rather “make it easier for Americans to start and support their families.”

If The Family Security Act is enacted, Mueller said, “It would represent the boldest statement about the importance of families in American history.”

Want equality? Pay the babies

By Samuel Benson

The best idea for lifting families out of poverty might be paying the babies themselves.

Not literally, but close. Democratic Sen. Cory Booker’s “baby bonds” proposal would open a $1,000 savings account for every newborn in the U.S., called an “American Opportunity Account,” and an annual deposit (up to $2,000) would be added until the child turns 18. By that age, the child will have accrued a comfortable nest egg — as much as $50,000, Booker said, assuming an annual interest rate of 3%. 

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Sen. Cory Booker, D-N.J., speaks during a Senate Small Business and Entrepreneurship confirmation hearing on Capitol Hill, Wednesday, Feb. 3, 2021, in Washington. Booker’s baby bonds plan would establish savings accounts for every American newborn.

Tasos Katopodis, pool via Associated Press

The yearly price tag of $80 billion is less than a tenth of the annual cost of Social Security, and three times less than Romney’s Family Security Act. And unlike Romney’s plan, it is means-tested — it’s based on income class, so the annual investment amount is higher for children in poor families and lower for rich ones.

The caveat? There are restrictions. 18-year-olds aren’t able to go spend as they wish. The savings account, managed by the Treasury, would only be used for what Booker calls “wealth building” investments — education, purchasing a home, savings or entrepreneurship. 

While the accumulating nature of the baby bonds program does not benefit families until children are grown, its effect on closing income inequality — the racial wealth gap — could be astronomical. Data from the Brookings Institute suggests that the average net worth of white American families is 10 times that of Black American families. Researchers at Northwestern University and Duke University found in 2016 that Black families with children had one penny of wealth to every dollar white families with children had. Another 2018 study found that American families headed by a Black college graduate had one-third less wealth, on average, than a family headed by a white high-school dropout. A means-tested program like baby bonds, which lifts lower-income families, could go far to level the playing field within a generation.

Fighting the racial wealth gap is one of the main arguments for baby bonds, but hardly the only one. Thomas Paine, as early as 1797, proposed a similar program, offering 21-year-olds a cash payment to launch careers. In a free market system, baby bonds empower young adults with a launchpad of capital, and the rest is up to them.

“The idea is that even if you have a society where you want people to benefit off of their ingenuity, off of their hard work, without capital all we do is lock in inequality,” economist Darrick Hamilton explained.

“Done right, the baby bonds program would promote self-reliance for young Americans going forward.” — Samuel Benson

“There are a series of decisions that govern the passage into young adulthood that give them a much greater likelihood of economic success,” Ian Rowe, resident fellow at the American Enterprise Institute, explained to me. He calls those decisions the “success sequence” — education, work, marriage, then children, in that order — to help young Americans use the trust fund to launch a responsible life. 

A program like baby bonds would be most effective when aided by some national campaign promoting and teaching the success sequence. “There needs to be a coupling of public policy, as well as social campaigns, that are designed to influence behavior,” Rowe said.

Unlike other programs, like a child allowance or tax credit, baby bonds promote what Rowe calls a “future orientation.” Instead of parents spending money, they can help children prepare to tap into the fund at age 18 in a productive and intentional way. “It helps to shape a different kind of behavior, in my view,” Rowe said. “When you just give money real time to people, it’s very easy for that money to be misspent.”

If the problem at hand is breaking the cycle of intergenerational poverty, while empowering individuals to use their agency in the process, few solutions would be as effective, as quick, or as reasonably priced as baby bonds.

The great north

By Savannah Hopkinson

Among wealthy nations, the United States has the highest child poverty rate, costing the country between $800 billion and $1.1 trillion annually, according to a report from the National Academies of Sciences, Engineering and Medicine.

Among 12 other wealthy nations, including Great Britain, Ireland and Australia, the United States is the only one that does not provide some form of child allowance to assist with the financial needs of raising children. Our neighbors to the north — Canada — has one of the world’s most generous benefits, offering roughly $4,000 per child per year to parents.

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Canada has had some form of child allowance since 1945 with the Family Allowance, the country’s first universal welfare program.

Photodisc

The current allowance, the Canada child benefit, was implemented with the primary goal of halving the child poverty rate by 2030. 

The benefit is straightforward. The primary caregiver applies to receive a monthly allowance that is determined by the previous year’s net family income. Payments are made through the Canada Revenue Agency and are recalculated in July. As a tax-free program, the money received does not need to be declared on tax forms.

The Canada child benefit is a notable model for equity. Based on the previous year’s tax returns, the program is a phase-out model — the amount of monthly allowance phases out as income rises. It also takes into account the number of children in a household.

This ensures that the lowest income families receive the greatest amount — something the current U.S. tax credit fails to do.

Critics don’t much debate the benefit of the amount of allowance, but point to the initial cost to the government and the social impact it may have. Some say it will decrease labor participation, and unmarried or co-habitating partners may have less incentive to get legally married since joint tax filers receive less.

Notably, the CCB seems to be working to reduce child poverty. 

Between 2015 and 2017, the poverty rate in Canada fell by 20%. The Canadian government and experts agree that the CCB was a primary factor in this.

The downside remains that indigenous and minority children in Canada are still disproportionately affected, and even at the current rate it would still take more than 150 years to eliminate child poverty in Canada.

Sophie Collyer, a research director at the Center on Poverty and Social Policy at Columbia University, also reminded me that measuring poverty is difficult, since different organizations and countries have various thresholds and factors they include.

Researchers, including Collyer, ran a model of what a Canadian framework would look like in the United States, and said something of this size in the United States would cut the child poverty rate in half, and the poverty rate among Hispanic and Black children by more than half. 

“Something of this size in the States would cut the child poverty rate in half, and the poverty rate among Hispanic and Black children by more than half.” — Savannah Hopkinson

That’s fantastic news for struggling families. But what about the rest of the country? 

Collyer said the program in Canada has also been effective at supporting the middle class — more than 90% of Canadian families are recipients of this benefit.

Fiscally, the current version of the Canada child benefit was a massive expansion of its predecessors. The single program replaced existing programs, but still cost 22.8% more in the first year than the expected cost for previous programs.

To pay for the expansion, the government borrowed. A balanced budget wasn’t anticipated until 2040, but the recession brought on by the pandemic pushes that prospect even further out. Effectively, children of parents receiving benefits today may pay for this later.

Still, the Canadian plan is robust. It’s generous. It’s straightforward. And so far, it has done what it set out to do. It reaches those who need it the most — something the current American child tax credit does not — but also lifts the middle class. A gradual phase-out instead of hard cutoff encourages self-reliance by not leaving a gap in assistance.

Its initial outlays are problematic, but the United States could work to find a more gradual switch that could be fiscally responsible by not adding to the already gargantuan national deficit and still provide American families with needed support.

If the country wants a model for a program that truly lifts those in need, all it needs to do is look up.