A new study shows that big new federal payments will reduce the incentive to work
Democrats are deciding what to keep or cut in their $5 trillion spending bill, and here’s a proposal that should give Sen. Joe Manchin an excise tax: converting the child tax credit to a universal basic income, Which would discourage the work and advancement needed to survive. Poverty. New research out this week suggests the bill could remove more than a million workers from the labor force.
Democrats are offering a $3,600 allowance for children under the age of six and $3,000 for ages six to 17 through 2025 provisions passed in a COVID relief bill earlier this year. The allowance, which was previously $2,000, is “fully refundable” in 2021 for those who pay no income tax. Someone who earned $0 last year can receive $7,200 for two children under the age of six — part of it paid in monthly checks from the Internal Revenue Service.
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Democrats say it’s only about giving hardworking families extra cash for groceries and gas. “Millions of families are caught in a gulf between stagnant incomes and rising costs,” Sen. Michael Bennett (D., Colo.) recently wrote to us after criticizing this trillion-dollar authority. Sen. Sherrod Brown (D., Ohio) suggested that we were “out of touch,” arguing that it was ridiculous to think that families would leave a “job in draw” because of the check.
The gentleman is hiding the ball. Before the expansion, anyone with only $2,500 in annual earned income could begin qualifying for the credit, with up to $1,400 refundable per child. Profits became richer as parents earned more – to avoid punishing work. The $2,000 profit, once phased out, remained constant until a married couple earned $400,000.
Economists at the University of Chicago looked this week at how larger and fully refundable credit will affect the incentive to work. Result? About 1.5 million workers, or 2.6% of all working parents, may drop out of the labor force. Is this the definition of “droves,” Senator Brown?
Democrats are also wildly overshadowing their claims that the credit will end child poverty. “The decline in employment and the consequent reduction in earnings would mean that child poverty would decline by only 22% and with the expansion of the CTC, child poverty would not decrease at all,” the study said.
Such consequences would cost $1 trillion over 10 years, as these provisions will never be allowed to expire in 2025 as Democrats pretend in their bill. Matt Weidinger of the American Enterprise Institute pointed out that some $421 billion is an “outlay” of the $556 billion cost of credits officially created by the Joint Tax Committee. In other words, three-quarters of the cost is not “tax deductible” at all. This is a cash welfare payment, such as a food stamp or housing assistance.
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Sending an unconditional federal check would also interfere with state programs that make the difficult job of helping those in need find jobs, secure child care, or reliable transportation. These conversations are essential to help families identify child abuse or withdraw child support from an absent parent. Checking on autopilot would mean more children in homes turned away from society, in homes “with colors,” as Robert Doerr, who previously ran New York City’s welfare program, says.
Working in return for time-limited benefits was the living ethic of the 1996 welfare reform that was passed by a bipartisan Congress and signed by Bill Clinton. Welfare “should be a second chance, not a way of life”, as Clinton put it, and it was a landmark policy success. The welfare list declined and so did poverty.
Most Americans understand this principle. According to this week’s Morning Consult poll, only one-third of voters said the payment should be permanent, including only half of Democrats (52%). Half of the independents said the payment should not be permanent.
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They are wise to oppose a policy that would send millions of Americans, including vulnerable children, into lives of less opportunity. Perhaps the Republicans could also find the courage to follow the masses and make a moral case against this child poverty trap.