Expanded Child Tax Policy Slashed Child Poverty

https://www.npr.org/2022/01/27/1075299510/the-expanded-child-tax-credit-briefly-slashed-child-poverty-heres-what-else-it-d

by mensetmanusman • 4 years ago

81 116 4 years ago

npr.org

tamaharbor• 4 years ago

I wonder how much of an impact the printing of additional money to fund this experiment had on inflation.

throwaway67342• 4 years ago

No different than any other federal program.

Revenue neutral versions of CTC policies have been proposed (like Mitt Romney's)

weaksauce3• 4 years ago

long term probably a lot less than bombing and occupying other countries so our hegemony can be asserted all over the place... we have 330 million people and spend more than every other country in the world combined on war. A list including china that has 1,440 million people and india which has 1,400 million people.

Seems when the question is war the answer is always yes but when the question is can we help our citizens the answer is how can we pay for it?

The long term compounding benefits of children not being in poverty is a huge win on a society.

josephcsible2• 4 years ago

We bombed Nazi Germany during World War II, and then occupied much of it for a while afterwards. Did we do that "so our hegemony can be asserted all over the place"? If so, then I think asserting our hegemony is a good thing. If not, then what definition/test of it are you using that the wars you don't like count, but that one doesn't?

catawbasam• 4 years ago

This was a pretty small slice of the stimulus.

czbond• 4 years ago

https://fred.stlouisfed.org/series/M1 https://fred.stlouisfed.org/series/M2SL

Look for vertical - and you'll see it wasn't a small slice.

bglazer• 4 years ago

3 million children lifted out poverty but chicken wings are now more expensive. Impossible to say if it was a good policy.

Seriously, how do weigh the consequences of actions like this? On the one hand you have a certainty: many children plunged into deprivation by an unavoidable pandemic. On the other hand you have an almost unknowable risk of influencing worldwide macroeconomic trends. Is the second worth more to you than the first?

wolverine8764• 4 years ago

Sorry if you are being sarcastic, but to respond literally, there is almost no inflation impact from this amount of money. Are we going to ask that for every expense? I imagine some people will - a great way to push small government and against any investment in our country.

almost unknowable

We know quite a lot about economics, especially inflation and the money supply.

many children plunged into deprivation

Many children were in deprivation already, and by investing in them we not only help them, we end up with more productive citizens later. Poverty can be devastating.

pmorici• 4 years ago

You seem to be trying to trivialize inflation by implying it is only effecting goods that are not essential, ie: chicken wings. The reality is the inflation has been broad across a lot of essential goods that a family needs. So to the extent that rising costs of food, energy, and housing have driven families on the bubble into poverty it seems like a reasonable thing to discuss.

wolverine8764• 4 years ago

Probably a lot less impact on the economy than child poverty, especially for those children.

Galanwe• 4 years ago

How did you come to the conclusion that the money was printed...?

gruez4• 4 years ago

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

tootie• 4 years ago

Some but supply chain is still the real killer. Inflation is global and in fact much worse in some other countries.

TrispusAttucks• 4 years ago

Exactly. How many additional children will now be in poverty because inflation put so much out of their reach. It's reverse ends justify the means. Do the means justify the ends?

wonderwonder4• 4 years ago

The 2008 bank bailout cost 700 billion. Almost all of that money went to rich banks and bankers.

The child tax credit costs ~100 billion a year. The payments cut monthly child poverty by roughly 30%. We have direct evidence that growing up in poverty dramatically reduces your odds of graduating high school, going to college or getting a well paying job later in life. So I would posit that pulling kids out of poverty has a long term net positive effect on the economy. Also its just the right thing to do if we can.

As a comparison, ~$76 billion in PPP loans were fraudulent. ~250 billion of covid relief benefits went to the rich and corporations. https://www.propublica.org/article/the-cares-act-sent-you-a-...

But its the poorest of us that are causing inflation...

refurb4• 4 years ago

The $700B in bank bailouts were paid back and the government profited.

neilwilson2• 4 years ago

Given that particular belief has been debunked by ten years of QE, it's not really a consideration is it.

All government spending occurs by 'printing money' because that's how bank clearing works. Balance sheets expand during the day and then shrink back at settlement time - but often not quite as far as they expanded. That's how a growing economy is accommodated.

When money is created, it will always either instantly pay off other loans somewhere or end up entirely in tax, unless somebody along the way doesn't spend it the instant they get it. That's because income, less tax and net loan repayments -> spending -> somebody else's income, less tax and net loan repayments.

To notice "printing money", it has to have been saved not spent somewhere along the spending chain. Therefore the real question we need the answer to is why certain people believe saving causes inflation?

In reality it is the deflationary drag of excess saving that is offset by 'printing money'. They are two sides of the same accounting journal.

DonnyV• 4 years ago

And then the government stopped it and now it will go back up.

votepaunchy2• 4 years ago

Not only that, the administration overpaid ($1500 on a $1000 increase per child 6+, $1800 on a $1600 increase per child 5 and under) so most will see a much smaller refund in the coming months.

h0l0cube9• 4 years ago

To phrase child welfare in terms of a capitalist mindset: if you care about expanding your business and keeping labor costs down, you care about the size and quality of the domestic labor pool, and thus you care about the access to education, the stable living arrangements, and mental welfare of your fellow country people and their families, and thus you support welfare to your poorest country people. To do otherwise, is to not just be heartless, but also foolish.

There's nuance to this, like the effects of immigration and outsourcing, but with a high dollar, you need highly skilled labor to create export goods and for national security, and talent doesn't emerge in a vacuum.

29athrowaway• 4 years ago

Unless your business is extracting something from the ground, like oil, diamonds or gold, without the help of the majority of the population.

From "The Rules for Rulers" by CGP Grey, an adaptation of "The Dictator's Handbook" https://www.youtube.com/watch?v=rStL7niR7gs

h0l0cube9• 4 years ago

Mining and extraction does seem to have a Baumol effect, and it's a problem for those countries to justify expenses like health, education and housing when easy money is being made.

davmar2• 4 years ago

If the capitalist mindset you described were accurate, then we would have the kind of society you described because we’ve had a very capitalist economy from the start. But that’s not what we see, so unfortunately what you assert cannot be true.

However, you’re right that we live in capitalism. And it creates child poverty.

zaroth• 4 years ago

That [some] child poverty exists in a capitalist society does not mean that capitalism creates child poverty.

xyzzyz• 4 years ago

However, you’re right that we live in capitalism. And it creates child poverty

You don’t have to create child poverty, as child poverty is the natural state of nature.

h0l0cube9• 4 years ago

I'm couching a problem in a capitalist frame, I made no assertion that we live in a perfectly capitalist economy. The irony is that China understands the economic value of quality of life better than the US, with the latter making a lot of fuss about the primacy of economy in decision making.

AmericanChopper• 4 years ago

I don’t think any sensible capitalist would disagree with this. But the implication that follows, which is “therefor the government should collect more taxes to finance more programs…” is not so obviously a good idea. The government is the least efficient resource allocator ever created. If you ask the government to do something, it will deliver the lowest possible quality outcome, and the highest possible price. Basically your comment basically misses all of the politically controversial aspects of policies like this, in my opinion.

Daishiman• 4 years ago

The failures of private schooling in many places I. The world don't bear this out. In many parts of the world, public education is much more effective per dollar spent than private alternatives. Same with health care.

The idea that government is particularly ineffective is not an absolute. We'd do well with dropping it as an assumption and instead question why certain governments fault to produce good outcomes.

sofixa3• 4 years ago

The government is the least efficient resource allocator ever created.

Why? And are you sure? Are there any statistics on the matter regarding this particular program?

gruez4• 4 years ago

I don't doubt that redistributing income to "poorest country people" helps in "expanding your business and keeping labor costs down" in some amount, but is it a net positive? ie. if the government levies a 10% tax to give to the poor, can you expect your revenue to increase by 10% to offset that?

h0l0cube9• 4 years ago

In an advanced economy you need skilled workers. Skilled work needs a healthy population, enabled and motivated to learn the skills necessary. The US can try to compete on low-skilled manufacturing jobs, but the high dollar gets in the way of that.

Whether there's a net increase in GDP or government revenue, I'm not qualified to even guess, but if I'm running a business and I can benefit from human resources on-site, or need them to have deep cultural knowledge to fulfil my business needs, a local talent pool increases competition, reduces my expenses, and ensures timely and potentially revenue-generating improvements to my enterprise.

bandyaboot2• 4 years ago

Sorry kids, Joe Manchin is concerned about entitlements.

js22• 4 years ago

He’s even worse than that:

Publicly, his biggest gripes are about the cost of the bill. But privately, Manchin has told his colleagues that he essentially doesn’t trust low-income people to spend government money wisely.
In recent months, Manchin has told several of his fellow Democrats that he thought parents would waste monthly child tax credit payments on drugs instead of providing for their children, according to two sources familiar with the senator’s comments.

https://www.huffpost.com/entry/joe-manchin-build-back-better...

sofixa3• 4 years ago

So he's assuming all poor people with children are drug users? That's not very nice.

refurb4• 4 years ago

According to “two sources familiar with js2’s” comments, he feels like babies would benefit from regular doses of cocaine.

See how easy it is to make things up about your enemies?

Not shocked the HuffPost publishes it though.

dlp2112• 4 years ago

While this is terrible, let's remember that there are 50 Republican Senators, many who profess the need for the US government to help everyday American families, who also don't support the expanded CTC.

kevin__2• 4 years ago

The fact that this article even needed to be written says a lot about the state of politics in America.

I don't think I will ever wrap my head around the fact that there are politicians who seem to sincerely believe that the best way to decrease poverty is to give tax cuts to the rich and huge corporations, instead of actions like what's described in the article.

RALaBarge• 4 years ago

They don’t actually believe it though - they get paid either directly or indirectly by the rich they are giving tax breaks to.

heavyset_go3• 4 years ago

Many of politicians are significant asset owners, and asset owners' interests typically align with those whose absurd wealth is derived from asset ownership.

ip26• 4 years ago

I think you are straw-man'ing a bit. Of course giving people money results in them having more money. News at 11.

But it's reasonable to question whether that's a good solution, a band-aid, or perhaps a short-term hack with future blowback, etc.

Direct cash transfers are not exactly some foolproof, no-brainer solution to poverty. We've made a real mess in some third world countries with the cash spigot.

sofixa3• 4 years ago

We've made a real mess in some third world countries with the cash spigot.

Has there been a comparable scenario of direct cash transfers to poor people?

User23• 4 years ago

The real issue is that the ledger game is a dynamic system. Just because the currency issuer credits certain persons’ accounts in one round doesn’t mean that those accounts won’t sooner or later be depleted in future rounds. The obvious example is how a UBI will assuredly drive up rents as landlords move to capture the additional capacity to pay. Frankly, the day that UBI passes Congress will be the day the rentier class realizes this.

To use Taleb’s terminology, the rentier class have made themselves antifragile. Look how they’ve benefited from political chaos be it financial crises or pandemics.

kevin__2• 4 years ago

The thing is, we have actual data on a lot of these policies. And we know what works and doesn't work.

1 dollar spent on increasing food stamps increases GDP by something like $1.75. For something like an expanded child tax credit, it's more like $1.25. And for tax cuts for top earners, it's around $0.30. Even just looking at it from a purely economic standpoint, one policy is drastically better than the other. But more importantly, the first two policies also have enormous positive and direct benefits - they drastically decrease things like child poverty.

These are some of the most obvious public policy choices for any wealthy country, and for whatever reason we just refuse to take action until there's a massive recession or a global pandemic, and even then it's for like 6 months or a year.

heavyset_go3• 4 years ago

Direct cash transfers are not exactly some foolproof, no-brainer solution to poverty. We've made a real mess in some third world countries with the cash spigot.

There's a huge difference between giving poor people some money with no strings attached, versus giving governments and ruling classes money with or without expectations, or IMF and World Bank-style economic imperialism.

mensetmanusman3• 4 years ago

Actually, we made a real mess of things in other countries by attempting everything except direct cash payments.

There is really interesting history around the food rationing program from the Red Cross that actually just increased human trafficking.

It may turn out that direct cash payments are the most efficient means because then you parallelize the distribution of decisions.

bluedino• 4 years ago

Expanding income tax credits to people who don't earn income is just as strange to me

zozbot23410• 4 years ago

Milton Friedman came up with that idea. The EITC was a compromise solution because Friedman's approach seemed too radical.

colechristensen• 4 years ago

Yes, if you draw a line in the sand as to what does and doesn't count as poverty and then give away a marginal sum of money, suddenly many people cross from nearby one side of that line to nearby the other.

Surely this makes a difference in the lives of these people but on large scales, how much of a difference have you actually made?

Effectively what you've erected is a subsidy for high rent and low wages which target the poor, there must be better solutions than solidifying the systematic problems which capture this segment of the population.

frgtpsswrdlame• 4 years ago

Surely this makes a difference in the lives of these people but on large scales, how much of a difference have you actually made?

Judging by the article, quite a large difference.

there must be better solutions than solidifying the systematic problems which capture this segment of the population.

We're talking about poor children here. The systemic problem of this segment of the population is that they are poor. It's easy to talk about poor adults and prescribe behavioral adjustments, it's a way of assigning desert. It's much harder to talk about poor children because it's obvious that no child deserves to be poor.

zozbot23410• 4 years ago

on large scales, how much of a difference have you actually made?

Giving cash to liquidity- and asset-constrained folks with high-value spending needs (like raising a kid) makes a huge difference if you can even roughly target the intervention to them. It's almost impossible to theoretically bound the benefit, it could be very large indeed. Even if some money were wasted on "bad" spending, and even though redistributing it is inherently costly, it's the kind of thing that's absolutely worth trying. It has all the well-known benefits of UBI, except on an even larger scale.

rr808• 4 years ago

You're over simplifying but yes, many people believe strong and profitable companies and entrepreneurs create a wealthier society that creates benefits for just about everyone. Compare that to communism which does spread wealth more fairly but ends up running the economy into the ground. In the end people move from the "fair" communist countries to the "unfair" capitalist ones.

rootusrootus• 4 years ago

Talk about over simplifying. We could move a very long ways to the left in economic policy and still be nowhere even remotely approaching communism.

devwastaken• 4 years ago

Economics theory as taught in U.S. universities literally says that tax cuts to the rich are overall beneficial, that welfare is bad and unemployment is bad, it actually states that equality is opposite of economic efficiency.

Capitalism is a religion, they believe because they grew up told to believe it. We have found out that the theory is almost entirely made up and rarely reflects reality.

supernova87a4• 4 years ago

I have to admit I'm a confused mix of beliefs right now.

I agree that funding for children is among the best return on investment [1] (to the point that I think we should rank initiatives and spend on kids first before anyone else gets their turn in line for the same ROI), but I can see that purely dumping money into people's bank accounts is a rough tool to do it.

In fact, our recent history has shown that any kind of allocation of money to some goal mostly leads to the thing being targeted simply getting more expensive (higher education I'm looking at you), given how practiced private equity is at exploiting these things. And the other poster above is correct, of course you're going to see some number of people previously on the edge move into positive territory as soon as you roll out any measure like this.

The question is how efficient and effective can you make the expenditure of tax dollars? And how free market vs. controlling you have to be to do it?

So if some service (child care, health, education) is so important and we want to be efficient about it, doesn't that call for some public entity to provide some basic level of service that people can opt out of and pay more for privately if they want? So that we don't get private enterprise just sucking at the teat of free government money, inflating prices, and at last some guarantee of us getting what we allocated tax money for?

[1] https://www.impact.upenn.edu/early-childhood-toolkit/why-inv... and some other articles I've seen on the topic, will try to find and edit comment

throwaway67342• 4 years ago

but I can see that purely dumping money into people's bank accounts is a rough tool to do it.

Why? We do it with social security and that seems like a well liked program. Individuals are generally pretty good at deciding what they need

supernova87a4• 4 years ago

I commented in reply also above. Giving money to people who are reasonably well equipped to spend it on things that there are mature and reasonably efficient markets for is fine. No one has trouble finding groceries and standard items needed for living with their SS checks.

When you give money to people to spend on say, childcare, and there is not the built up social / labor infrastructure to do it, private enterprise often will just exploit the infusion of money to jack up prices and not actually provide more of the service desired.

Come to think of it, if you go back to the Social Security example, giving people more money because they can't afford housing is not going to magically create housing on its own. It will just produce more expensive housing as people try to outbid each other. We've all seen how that plays out.

zozbot23410• 4 years ago

Giving money to households with no strings attached is the polar opposite of "private enterprise just sucking at the teat of free government money". I'm not sure why you think one would follow from the other. Public services have even poorer incentives than subsidized private ones (which again, this is not), they're only acceptable when the private sector alone will absolutely never provide that service under competitive conditions.

supernova87a4• 4 years ago

I don't think you got what I'm saying. I mean that when you simply give money to people where there may not be efficient markets for some needed good (which you wanted the money spent on), private enterprise often will just exploit the infusion of money to jack up prices and not actually provide more of the service desired.

gonzo41• 4 years ago

You can regulate things like higher education. IF you limited the size of loans, or made them government loans you could cap the price. You could also control interest rates with regulation.

Using Australia as an example, I went to a good University and had a government loan for the courses. I am 2 months away from paying it off (humble brag for me). But it was a government loan with no interest. So this is a good example of government offering a service to a point, that the private sector wouldn't ever touch.

If the US government offered a 0% loan for education up to 50K and required payment only after reaching a certain income threshold, that policy would put top down pressure on expensive courses. They'd still exists but the bulk of everyone would be doing a course they could pay off and the competition would change the market.

Likewise, I've recently been thinking about labor productivity with women returning to the workplace. Having kids is bad for families budgets (child care is a killer). Caring for kids keeps women out of the workforce.

I think if public schools offered pre K care from about 18 months to kinder then you'd have parents being able to get back to work and you'd permanently reduce childcare costs. I suspect it'd pay itself off a few times over. Similar to building quality infrastructure.

The problem with that second idea is that it would cost a ton upfront and the payback would be over the medium to longer term, like infrastructure.

People are bad at long term choices and there's the trend of populism in politics at the moment. Which doesn't help anything.

david38• 4 years ago

This is why I believe in universal food stamp cards. Have some regulations attached of course, like nutrition classes, but it takes the place of what some of the money buys, only better.

Child nutrition is probably the single best ROI you can get anyway. Why everyone doesn’t have such a card is beyond me.

wavefunction• 4 years ago

How outrageous to have to advocate for the public good for children. I simply cannot reconcile any opposing stance in any way.

simonsaysstop• 4 years ago

This article looked fishy to me, so I looked into the papers it cited in the food insufficiency section. Turns out that, as always, journalists cannot be trusted to accurately summarize a paper, nor can one expect readers to bother checking it.

1) 25% reduction is a relative number.

There was a 3.7–percentage point reduction (95% CI, –0.055 to –0.019 percentage points; P < .001) in household food insufficiency for households with children present in the survey wave after the first advance payment of the Child Tax Credit, corresponding to a 25.9% reduction, using an event study specification. Difference-in-differences (−16.4%) and modified Poisson (−20.8%) models also yielded large estimates for reductions in household food insufficiency associated with the first advance payment of the expanded Child Tax Credit.

For ~3 percent to be a 25% relative reduction, the starting value is about 12% households with food insufficiency.

2) What are the patterns of insufficiency rates historically?

Households with children were most affected—food insufficiency in households with children peaked at 18% in December 2020 and remained at 14% through June 2021, compared with approximately 3% among all households during 2019.

I'd guess the pandemic (esp. lockdowns) did the most harm here. Note that the payments started in July 2021 (per the paper), so the fluctuations in rates of insufficiency in the period before are higher than the estimated CTC-caused reduction.

3) Disparities are because of racism?

Structural racism has shaped disparities in food insufficiency, with children in Black non-Hispanic (19.2%) and Hispanic (22.0%) households experiencing food insufficiency at almost triple the rate of children in White non-Hispanic households (7.0%) as of June 2021.

Asians? What Asians? We're talking about structural racism here! They don't count because they usually screw up the narrative.

4) What is child food insufficiency?

The outcome was household food insufficiency, based on the survey item “Getting enough food can also be a problem for some people. In the last 7 days, which of these statements best describes the food eaten in your household?” We coded our outcome as 1 if respondents reported sometimes or often “not [having] enough food to eat” in the last 7 days, and 0 otherwise (“enough of the kinds of food [I/we] wanted to eat,” and “enough, but not always the kinds of food [I/we] wanted to eat”). This coding is the same as others using the Household Pulse Survey data in recent studies during the COVID-19 pandemic.

Thankfully, it's more focused than the catch-all of "food insecurity."

Hypothesis: News and fear over the next pandemic wave causes people to stock up. This causes temporary shortages. Then, when asked if they had been unable to buy what they need, people say "yes."

*Important*: this pertains to the food insufficiency paper --- I didn't look into the child poverty reduction paper.

Regarding the child poverty reduction, I also would be interested in comparisons of child poverty rates and fluctuations re. the CTC. My cynical self views it like this: 1. There is a distribution of income. 2. One threshold in that distribution is called the poverty line. 3. Give people money, and it shifts the mean of the distribution. The integral between the threshold and (threshold - stimulus) on the curve is the people 'lifted out of poverty.'

Seems like a shell game to me. Less so than the EITC, though. It's not that people through the CTC are now able to climb the ladder to job and economic security and achieve the American dream (TM). My sense is that they are still treading water, albeit at a different level, all while the credentialed class congratulates itself over its magnanimity.

If anyone has papers (peer-reviewed papers, not journalists' hot takes), I'd like to read them. Thanks.

mrkentutbabi• 4 years ago

Why not just give everyone equally? Why just give to the people earning less than $35000.

I know the answer, no need to reply to me. Regardless. Give everyone equally.

zozbot23410• 4 years ago

It's a wash. If you "give the money to everyone equally", you'll just be clawing it right back by raising taxes on higher-income folks. Theory suggests that you'll want to phase out the aid quite aggressively as income increases (though not by anything near 100%) because this is where the tightest constraints on spending are no longer binding, so the potential benefit is not that worthwhile.

medvezhenok• 4 years ago

The result is the same but the details matter.

One is having to prove you are under threshold (documentation, paperwork etc) - the other, everyone gets it, so much less overhead for the poor (the overhead is on the side of the people who can afford it - the VAT tax or whatever is on the other side)

It’s about who has to deal with the paperwork

Expanded Child Tax Policy Slashed Child Poverty

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