A thought about changing the CTC, couldn't you just tax it away from rich people instead of denying it to them?
That is, every parent gets CTC, even rich ones, but rich ones have their tax bill increase by the full amount of the CTC (so they get the money and then pay it back in taxes).
That would mean that instead of having to prove you were non-rich to get it, the IRS would have to prove you were rich to take it away.
The idea of phasing out personal tax benefits as income goes above a certain level is popular, though—lots of people don’t like the idea of the government giving money to people who don’t need it.
Also, you work out the phaseout percentage retrospectively when you know how much people actually earned, rather than prospectively on an estimated income, which means no messing about with tax adjustments between the estimate and the actual.
Give people the right to decline it and not pay tax, that way really rich people can decline it and make their taxes simpler.
Sounds like the UK system is rather different from the US system, though. Here, even poor people file taxes every year (if they work and have kids, they get a few thousand from Earned Income Tax Credit)
Yes, we pay things through the tax system too. But you don't file taxes to get them. Instead, your tax code (a number that is used to calculate your PAYE, for instance a standard code is 1257L, which means to treat the first 12570 you earn as tax free) gets adjusted, so your PAYE (what the US calls withholding) drops. You can literally get your PAYE negative in some cases, in which case your employer will deduct money from other employees' taxes in order that you receive more than they are paying you. In very rare cases, employers receive money from the tax system to pass on to employees because they net out as receiving more in credits than they are paying in tax.
So if you claim a specific credit, then HMRC will just increase your tax code.
In the UK there is a simple but mildly annoying system whereby anyone could claim child benefit without a means test, but if you are over the income limit for the benefit (about $70k p.a.) it would just be taxed back at 100% at the end of the year. Same result, but no mandatory means test for Child Benefit. You can opt out of the benefit if you don't want the tax hassle
I didn't know UK did this but I was thinking as I read the article a system like this would make perfect sense. Anyone who makes too much money is going to be filing taxes (or else there are bigger problems here with that person)
As it happened the filing taxes bit was the annoying side of it - because if you are at $80k in the UK you don't really have much of a need to 'file taxes' as such - the tax system for regular people is relatively simple and automated. That's why they added the option to voluntarily waive child benefit, to avoid having to file a tax return!
What is the chance that the CTC gets made permanent? It seems like having a large number of families receive actual money from a program that already polled pretty well before it was implemented bodes well for its future.
Is there anybody working to merge all federal benefit programs to make enrollment and distribution easier?
The UK did that, moved to 'Universal Credit'. There are substantial risks. It's very heavy lifting on the IT side - it's proved 6 x more expensive than expected and still not done. More seriously, it means that there is a single point of failure for claimants. If there's an admin snafu (very common) then a recipient doesn't miss out on part of their benefit - they get *nothing* for a number of weeks (at first a 5-week wait was standard), which means they have to turn to loansharks and foodbanks. There's been thousands of terrible cases. In the olden days one of the benefits would usually kick in earlier and offer some relief.
The better approach, AIUI, is to have multiple means tests but when one grants you benefits and determines that your income is X then the others have to accept that your income is also X and have to start paying out on that basis.
Like a credit check, once the first credit is issued, it's easier to get the others, once you've convinced bureaucracy A that you're poor, then bureaucracy B has to accept it.
We shouldn't not do something just because we assumed we can't do it well. Every tech company seems to have solved the issue combined user-profiles and certain ones like Google and Facebook use that to provide a profile to the rest of the internet.
Centralizing federal databases should make things easier long term and the US is fortunate enough to have access to some of the best tech talent in the world, I am sure some of them could figure it out.
"What is the chance that the CTC gets made permanent?"
I would tend to support candidates who would make it an actual poverty program. That is, phase it out *way* below the current threshold. If that could only be accomplished by eliminating the entire program so be it.
Getting rid of a program that lifts millions of kids out of poverty to avoid some middle-class people with kids also getting a small amount of money seems wildly misguided.
What's the actual value that you see in lowering the phase-out threshold? To me, it seems marginal, and not worth worrying about when compared to the importance of getting the money to the families that need it.
This is a program that alleviates poverty for millions of children, if you don't support this it seems like, in practice, you don't support poverty programs.
The current benefits start to phase out at a $150K for a married couple, I don't see why wanting that to be lower means that you don't support poverty programs across the board.
(For the record, I personally am against means-testing this kind of program and subscribe to the idea that the administrative burden of means-testing isn't worth the budgetary savings in a lot of cases.)
The easiest way to tell if someone doesn't support poverty programs is to see if they support poverty programs. In this case, we have a pretty clear answer.
You are saying you "would support an actual poverty program" while not being supportive of this very real poverty program. You can call that whatever you want.
If you put the threshold too low, you create a poverty trap, where the effective marginal tax rate (combining taxes with benefit phase outs) gets very high (often over 80%, sometimes over 100%) for people still earning below the median wage.
That creates either a strong disincentive to work, or a strong disincentive to work more.
The Laffer curve is real, the peak is somewhere between 60 and 80 per cent, and thresholds should be high enough and spread out enough (ie not all programs should be at the same threshold so they aren't all simultaneously phasing out) that you don't get a massive poverty trap.
CTC really does need to have the threshold high enough that TANF and food stamps and medicaid and so on have all phased out for every possible exceptional case before you take a penny out of CTC.
"...for people still earning below the median wage..."
Do you realize that the payout doesn't even begin phasing out until you get to a household income that's 218% of the median? And doesn't go away entirely until a household income that's a whopping 582% of the median?
As an anti-poverty program, perhaps, but the general idea of CTC is as a lateral subsidy from people without children to people with comparable incomes with children, to encourage middle-class people to have kids and help them when they do.
It's not meant solely as an anti-poverty program, but as a pro-child program.
I'd rather err on the side of giving money to too many people than too few.
And, uh, yes, something like that. Upper-class is people with enough wealth to never need to work again. Middle-class is people who are comfortably off as long as they don't lose their job, lower-class is people still struggling even while they have a job.
Somewhere about 400k your savings from your income will generate enough income in a short period of time that you'll be upper-class soon if you aren't already.
What's the final ACA marketplace subsidy phase-out? 400% of the FPL, IIRC. That seems like a reasonable place to start the CTC phaseout. That would be $70k for a single-adult, single-child household in the contiguous US. Two adults and two children would be $106k.
There are other arguments, both philosophical & practical. In my country taxes are high - I have a good income and I pay about half my total income in taxes (more if you include sales/value-added taxes). I do so without complaint. Civilisation costs money. But in return I do think it is fair that my household should get universal benefits where relevant. My children are citizens, why should they get less because of my income? It feels petty and exclusionary to spend money to weed out children like them, particularly as it would cost almost as much to do so as it would be just to leave it as universal. I would rather pay yet more taxes to keep the solidarity with all citizens.
Also, this way I am regularly exposed to the government's benefits system - and I am probably relatively good at finding people to complain to if the systems I use are not good enough (they is currently very good). Whereas the condition of some of the systems that only serve the very poor here has recently been found to be absolutely scandalous, because the poor here, as almost everywhere, are marginalised.
Is that your only goal? Raising the living standards of children and avoiding both administrative costs and some truly poor slipping through the cracks seems like a worthy secondary goal.
And that's a value judgment that many of us don't share. Looking at the history of America's federal welfare programs from 1935 to the present, I know that any "narrowly focused" or "means tested" program will inevitably be killed within a decade.
Better to give it to everyone or nearly so, so that it has a broad base of support, then tax it back from those who don't need it.
It's counterintuitive, but that is also simpler and vastly more efficient from a bureaucratic standpoint as well; rather than creating a vast bureaucracy to enforce means testing, we simply bake it into the existing tax enforcement infrastructure.
Surely that last point is something you see value in?
Ehh, the jury is entirely out on that as yet, to me.
And even there, it seems a natural counterpoint to say that Medicaid expansion was part of a larger healthcare bill that had a much broader impact and was much less means-tested. Not enough, but less.
Any means testing at all requires that bureaucracy, so if you do any means testing ("better to give it to everyone *or nearly so*"), that argument against a lower phase-out starting point loses some of its power. Even if you have a phase-out starting point of like $1 billion a year, you still have to make every recipient prove they're not Jeff Bezos.
Honestly, the easy way out is probably to describe it as being "for families with incomes under X", then write the bill with no means-testing and claw-back taxes above X"
*****“Why will people work if they can get money whether or not they work?”*****
This utterly inane question often asked by right wingers is seldom uttered in good faith (unless they're a lot stupider than I think; which I doubt is the case). People work -- even when the government gives them money regardless of their employment strategy -- because they'll enjoy a much higher standard of living if they do so.
The answer, of course, is that the right wingers who most often espouse this position are really mad when workers have options, and having a baseline level of subsistence money saps from the pool so desperate to work that they will work at Hardees for a tyrant at 7.25 per hour.
As far as I can tell, there is not a single critic of the expanded CTC who engages with the point Matt offers here (on the difference between this and old welfare) in good faith.
I’m not embarrassed to say that I don’t like to see tax dollars go to people with six-figure incomes. Especially when politicians are claiming this is an anti-poverty program.
I pressed Kaus on this point and he came up with a few citations from conservative economists that somehow don't think that the elimination of implicit high marginal tax rates under the expanded CTC is a big deal:
Mickey Kaus policy_wank • 2 days ago
I'm not convinced marginal tax rates are that big a deal. See eg https://www.cbpp.org/resear... The results from the guaranteed income experiments weren't very consistent https://aspe.hhs.gov/report... It's true that those experiments didn't test programs with a marginal rate of 0% over a wide range. On the other hand child tax credit recipients are likely to participate in other programs, like the EITC and food stamps, that add in their own marginal rates and swamp the 0%. Upshot is I need to ask Gary Burtless, who is the expert in these things.
Scott Winship also seems to think the effect of marginal rates isn't a big deal--see pages 10 and 11 here https://www.aei.org/researc...
Gloves off for a minute, because this is getting old:
One assumes, based on this, that you are entirely opposed to the 2017 tax cuts, as 66% of the benefits went to the top income quintile, which currently begins at about 250% of median household income.
By your own definition elsewhere, they do not need that money: "A household making more than 200% of the median income doesn’t need it."
The CTC is LITERALLY a goddamned tax cut. It's just one that goes to ordinary people. Those of us for whom most income comes from work, instead of capital ownership.
I agree with the general idea of this from a moral perspective, but do want to point out that the CTC is refundable, so can result in net payments from the federal government to taxpayers, unlike the 2017 tax cuts. The other argument you're going to get is that owners of capital will use their money better than the typical citizen and should receive favorable treatment by the tax code. I couldn't disagree with this more, but it is intellectually consistent.
As for the second... I mean, there's so much excess capital sloshing around in the private sector that money-losing enterprises have to fend off hundreds of millions, real interest rates for any asset-backed debt or government debt are negative, and prices for high-end housing and a range of luxury goods have inflated far beyond the baseline rate for necessities as more money chases a fixed supply.
Meanwhile, the US has not brought online a major physical infrastructure system in decades, existing physical infrastructure has a trillion-plus of deferred maintenance needs, intangible infrastructure is in pieces, we underinvest in children and the elderly, hard/non-commercial research expenditures are at historic lows...
America's rich are fools, frankly. Idiots, almost every single solitary one of them. They'd prefer to live in gated communities in a nation like the Philippines or Chile instead of contributing wealth which is entirely a number on paper to ensure they continue to enjoy an incredibly luxurious existence in a nation like the US or UK.
We're rapidly reaching a point where social ills and climate change will start eroding even their privileges quite rapidly. There's no way, for instance, to buy your way out of a breakthrough COVID infection after being vaccinated.
Yet they're still desperately attempting to preserve a number in a bank balance that can never be spent, rather than allowing it to be invested in desperately needed public goods.
The good news, of course, is that that sort of esoteric argument carries little weight with the electorate. Whereas "I gave you working folks a nice tax cut and fucked over richy-rich over there" is something a lot of ordinary voters can get behind.
Frankly, I'm becoming more and more certain that the Democrats need to talk up the latter half of that equation. It seems clear after the last couple of years that there's a goodly chunk of the electorate who are swing voters and just want to punish someone for all the shit that's rolled downhill on them. If we can redirect that ire from unproductive targets like "immigrants" and "liberals" to "asshole rich people", we can win elections even without talking up all the great ways in which we used the money we soaked from them.
I’m not saying people who oppose this are evil or anything, and they can justify this in all sorts of ways, but do they realize how awful it sounds to the rest of us when they say “children shouldn’t get money because we don’t want to discourage their parents from working”?
I think it sounds as bad or worse when you put those word in their mouth, because it poisons the terms of the debate. And it probably should be "children should grow up in poverty" or something to sound awful, not "not have money", 10 year olds really don't need money, they need parents that can take care of them".
I don't know enough about this program to have a strong opinion either way. And these sorts of things are so complicated that their effects, over time and over the entire country, are often very unpredictable.
But there are lots of reasonable reasons to have concerns about the effects of welfare. You don't know anyone who abuses / wastes or misuses a government programs? I know several people in my extended family who've used government assistance to avoid work and / or feed their drug addiction. It's certainly at least debatable whether or not the assistance helped or hurt them
Taking care of kids costs money. Food and housing aren’t free, if nothing else. Saying “it’s not about giving kids money, it’s about giving kids care” is a dubious distinction.
I'm not saying you creating a straw man, but there's both straw and clothes missing...
Children don't get money from the government. Parents or guardians do. Maybe I'm a tiny minority, but if the government paid me enough money, I would stop working. (e.g. add a zero to those numbers and I have enough kids that it would be worth no longer working and becoming a "homemaker").
That’s why I said people who oppose this aren’t evil and that I was only talking about the optics.
Kids need their parents to have money so that they can eat, have a roof over their heads, get a decent education, have care while the parents are working, etc. Saying they shouldn’t have access to that because of hypothetical disincentives it places on the parents is a very difficult argument to make without sounding like a complete ogre. I don’t envy the people who are trying to make it.
If your point is that "for the children" is a great marketing strategy, then sure I agree with you. All kinds of great and terrible things are done with that slogan.
Nor is it unique - you can substitute other things for children - "Adults need to have money so they can eat, have a roof over their heads, get a decent education, take care of their children or parents."
Or replace kids with puppies -
"Puppies need their parents to have money so they can eat, have a roof over their heads, go to doggy day care while their parents are working."
You can frame all kinds of things are vital and important and the people who oppose it as ogres. That doesn't actually make something good policy and a positive for society. (Doesn't it mean its not a good policy either just that optics are not reality)
Great article. The new CTC should be the model for reform of the entire social safety net. In my opinion, the biggest difference between the new CTC (pro-work) and the AFDC (anti-work) is the way benefits are structured. Under the AFDC beneficiaries faced punitively high benefit reduction rates, which they continue to face under TANF. Under the CTC low-income parents who want to work face no benefit reductions. (For a full discussion of the impact of benefit reduction rates and effective marginal tax rates, see http://tiny.cc/wkin .)
Who exactly drops out of the work force because of “macroeconomic conditions?”. I’m not disputing the statistics, it just seems like a pretty wrenching thing to do. I can imagine some wives dropping out of the work force when hubbie gets a big raise, but that would happen more often during flush times. Male home makers are still pretty rare, but the same dynamic would apply. I can also imagine young single mothers living with their parents rather than working. That is pretty sensible— the cost of maintaining your own household is high, child care is really expensive, and unless you have great credentials it’s hard to pay for a household and childcare and kids all on your own. Flush times might allow slightly more young mothers to maintain their own households, but that is a high bar to clear even on $20 an hour. Is it mainly older workers with some savings who drop out? The disconnect there is unemployment tends to hit unskilled workers the hardest and they have few savings. I don’t recall any friends or family members saying “I’ll wait til the next boom to work,” it’s always “we can scrape by on one income until the kids are in school” or “our portfolio did well enough we can retire early.”
Fairly common in the small towns near where my mom grew up in Middle-of-Nowhere, PA.
Folks lose work; often that's because a local employer has gone or drastically cut back. They hunt locally until unemployment runs out, consider moving to find work but family and community ties hold them back, get desperate as they eat through savings and the generosity of their friends, and eventually give up and a find sympathetic doctor and SSDI mill law firm to help them get disability even if not really warranted.
Sometimes they rebound in the other direction when employment becomes available, as or more often not.
Discouraged workers; People at the bottom end of the income distribution often find it the hardest to find jobs, and for some people the extra income from a job simply doesn't justify the search effort. Both the income from a typical job decrease and the requisite search intensity increase during recessions.
It seems to me like one way to soften the political blow of "raising taxes" is just to call this particular tax hike "means testing." (And do it over and over and over like Republicans do.) Money is fungible, so it really wouldn't be a lie.
In fact, it's probably possible to structure the tax hike so that that is precisely what it is. That is, all and only the folks who would be phased out now have to pay the tax hike and the hike is equivalent to the current reduction. (For example, we got about $600 for our three kids, but under this system, we would get the full $900 but pay $300 extra in taxes.)
1) For increased autonomous income through an expanded CTC to *not* have an effect on labor supply requires one to assume a weird utility function. One can demonstrate this graphically using econ-101 style indifference maps.
2) In a world of no externalities and competitive markets, this would only increase welfare. But we don't live in a world without externalities; work always produces positive externalities because every worker is a taxpayer.
With regards to 1, I'd think it's pretty obvious that $3,600 annually will provoke at most some edge-trimming with regards to work preferences. The person with a $12/hr job who currently works 10 hours of overtime each week might drop to 6 hours instead with the additional money and the regularity with which it comes in.
It verges on (is, if I'm being uncharitable) deliberately disingenuous to compare that to the old set-up, which kept (was designed to keep) individuals out of the workforce entirely. Matt has already outlined the only case in which that might happen under the new one, which is a very, very marginal case indeed.
As to 2, I suppose, but that's a very thin reed to lean on. If you're earning $25,000 a year, the only taxes you're paying are consumption taxes anyway.
Chances that someone my age sees a full SS old age benefit are... slim.
Morally speaking, that's probably a reason to give them something now to make their lives easier rather than just sending their money to vastly better off Boomers.
Practically speaking, isn't the point to prop up birthrates at higher than the current 1.7, thereby allowing Social Security to survive in some form?
Not sure that’s right. Demographics make delivering the full benefit more expensive, but it also means that seniors become an ever-increasingly important voting block, adding voltage to the Third Rail. W Bush recoiled fairly swiftly from cutting SS, and Trump never so much as proposed it…trend seems clear
Hard to say. I agree that it would be nearly impossible to meaningfully cut benefits deliberately, but in the absence of some fairly comprehensive reforms (tax increases, mostly), it might end up being a paper benefit that’s already been gutted by inflation.
There are a bunch of issues with this that I'm too lazy to go into as I'm still working at 10:30 and want to be done.
But, to digress for a moment:
Every time someone cherry-picks the hell out of their data and arguments to try to show how even the most basic social programs and public goods are utterly unaffordable, my response is not to believe them, but to say:
"Well, if capitalism sucks so horribly that workers in the richest country on earth can't afford housing, there's no food for our children, our public schools are unsafe and low-quality, and we cannot provide even basic medical coverage for our citizens and a damned old-age pension, then fuck it, let's just burn it to the ground. Communism surely can't do any worse."
“ Here’s a simplified example. Say a married couple with two children over age 5 and $220,000 of income got a $500 refund for 2020. Their 2021 income is similar, so that’s too high for this year’s extra child credit. But they’ll still get permanent credits totaling $4,000—and receive half of that in prepayments this year of about $333 a month.”
You’re getting the same money you always did. Just not in a lump sum.
It partially replaces the old CTC (i.e., gives it early), so be careful if you itemize or your taxes could go up unexpectedly.
I certainly get where you're coming from, but the point is that means-testing hurts the people who need it most. I don't need the money, either. But what convinced me to oppose means testing (and think that they should just raise my taxes instead) is the fact that there are real administrative costs to imposing means testing on the front end that make it less likely the people who need it most will get it. If you feel guilty, you can always donate it a charity that reduces child poverty (and thereby get a tax benefit to boot!).
A thought about changing the CTC, couldn't you just tax it away from rich people instead of denying it to them?
That is, every parent gets CTC, even rich ones, but rich ones have their tax bill increase by the full amount of the CTC (so they get the money and then pay it back in taxes).
That would mean that instead of having to prove you were non-rich to get it, the IRS would have to prove you were rich to take it away.
Why shouldn't someone making $250,000 not pay an incrementally smaller amount of tax if they have kids?
The idea of phasing out personal tax benefits as income goes above a certain level is popular, though—lots of people don’t like the idea of the government giving money to people who don’t need it.
But taxing the benefit IS "phasing it out." You're just using the tax code to do it, is all.
Also, you work out the phaseout percentage retrospectively when you know how much people actually earned, rather than prospectively on an estimated income, which means no messing about with tax adjustments between the estimate and the actual.
Give people the right to decline it and not pay tax, that way really rich people can decline it and make their taxes simpler.
So have a system where they have to refuse to take it, and if they don't, then they pay 100% tax on it.
(or even 110% tax if you want to be punitive)
I 100% agree with this as a policy solution, but the politics of means-testing is weird, and I'm not sure which version voters prefer.
Would you be required to pay estimated tax in this scenario?
Yes, that's the UK system. Works fine
Sounds like the UK system is rather different from the US system, though. Here, even poor people file taxes every year (if they work and have kids, they get a few thousand from Earned Income Tax Credit)
Yes, we pay things through the tax system too. But you don't file taxes to get them. Instead, your tax code (a number that is used to calculate your PAYE, for instance a standard code is 1257L, which means to treat the first 12570 you earn as tax free) gets adjusted, so your PAYE (what the US calls withholding) drops. You can literally get your PAYE negative in some cases, in which case your employer will deduct money from other employees' taxes in order that you receive more than they are paying you. In very rare cases, employers receive money from the tax system to pass on to employees because they net out as receiving more in credits than they are paying in tax.
So if you claim a specific credit, then HMRC will just increase your tax code.
In the UK there is a simple but mildly annoying system whereby anyone could claim child benefit without a means test, but if you are over the income limit for the benefit (about $70k p.a.) it would just be taxed back at 100% at the end of the year. Same result, but no mandatory means test for Child Benefit. You can opt out of the benefit if you don't want the tax hassle
I didn't know UK did this but I was thinking as I read the article a system like this would make perfect sense. Anyone who makes too much money is going to be filing taxes (or else there are bigger problems here with that person)
As it happened the filing taxes bit was the annoying side of it - because if you are at $80k in the UK you don't really have much of a need to 'file taxes' as such - the tax system for regular people is relatively simple and automated. That's why they added the option to voluntarily waive child benefit, to avoid having to file a tax return!
I was a bit skeptical of CTC versus AFDC before but this post convinced me.
Definitely worth the $0.27 I paid to Slow Boring today. Or even more!
What is the chance that the CTC gets made permanent? It seems like having a large number of families receive actual money from a program that already polled pretty well before it was implemented bodes well for its future.
Is there anybody working to merge all federal benefit programs to make enrollment and distribution easier?
The UK did that, moved to 'Universal Credit'. There are substantial risks. It's very heavy lifting on the IT side - it's proved 6 x more expensive than expected and still not done. More seriously, it means that there is a single point of failure for claimants. If there's an admin snafu (very common) then a recipient doesn't miss out on part of their benefit - they get *nothing* for a number of weeks (at first a 5-week wait was standard), which means they have to turn to loansharks and foodbanks. There's been thousands of terrible cases. In the olden days one of the benefits would usually kick in earlier and offer some relief.
The better approach, AIUI, is to have multiple means tests but when one grants you benefits and determines that your income is X then the others have to accept that your income is also X and have to start paying out on that basis.
Like a credit check, once the first credit is issued, it's easier to get the others, once you've convinced bureaucracy A that you're poor, then bureaucracy B has to accept it.
We shouldn't not do something just because we assumed we can't do it well. Every tech company seems to have solved the issue combined user-profiles and certain ones like Google and Facebook use that to provide a profile to the rest of the internet.
Centralizing federal databases should make things easier long term and the US is fortunate enough to have access to some of the best tech talent in the world, I am sure some of them could figure it out.
"What is the chance that the CTC gets made permanent?"
I would tend to support candidates who would make it an actual poverty program. That is, phase it out *way* below the current threshold. If that could only be accomplished by eliminating the entire program so be it.
Getting rid of a program that lifts millions of kids out of poverty to avoid some middle-class people with kids also getting a small amount of money seems wildly misguided.
I disagree. And I think I pretty clearly stated that I would support an actual poverty program.
What's the actual value that you see in lowering the phase-out threshold? To me, it seems marginal, and not worth worrying about when compared to the importance of getting the money to the families that need it.
“What's the actual value that you see in lowering the phase-out threshold?”
More than zero.
“…not worth worrying about when compared to the importance of getting the money to the families that need it.”
You only draw the comparison because this is a bad policy.
This is a program that alleviates poverty for millions of children, if you don't support this it seems like, in practice, you don't support poverty programs.
The current benefits start to phase out at a $150K for a married couple, I don't see why wanting that to be lower means that you don't support poverty programs across the board.
(For the record, I personally am against means-testing this kind of program and subscribe to the idea that the administrative burden of means-testing isn't worth the budgetary savings in a lot of cases.)
The easiest way to tell if someone doesn't support poverty programs is to see if they support poverty programs. In this case, we have a pretty clear answer.
So I’m lying?
Whatever.
You are saying you "would support an actual poverty program" while not being supportive of this very real poverty program. You can call that whatever you want.
If you put the threshold too low, you create a poverty trap, where the effective marginal tax rate (combining taxes with benefit phase outs) gets very high (often over 80%, sometimes over 100%) for people still earning below the median wage.
That creates either a strong disincentive to work, or a strong disincentive to work more.
The Laffer curve is real, the peak is somewhere between 60 and 80 per cent, and thresholds should be high enough and spread out enough (ie not all programs should be at the same threshold so they aren't all simultaneously phasing out) that you don't get a massive poverty trap.
CTC really does need to have the threshold high enough that TANF and food stamps and medicaid and so on have all phased out for every possible exceptional case before you take a penny out of CTC.
"...for people still earning below the median wage..."
Do you realize that the payout doesn't even begin phasing out until you get to a household income that's 218% of the median? And doesn't go away entirely until a household income that's a whopping 582% of the median?
It's absurd.
As an anti-poverty program, perhaps, but the general idea of CTC is as a lateral subsidy from people without children to people with comparable incomes with children, to encourage middle-class people to have kids and help them when they do.
It's not meant solely as an anti-poverty program, but as a pro-child program.
So you define middle class as households with an annual income of $400k or less?
I'd rather err on the side of giving money to too many people than too few.
And, uh, yes, something like that. Upper-class is people with enough wealth to never need to work again. Middle-class is people who are comfortably off as long as they don't lose their job, lower-class is people still struggling even while they have a job.
Somewhere about 400k your savings from your income will generate enough income in a short period of time that you'll be upper-class soon if you aren't already.
What's the final ACA marketplace subsidy phase-out? 400% of the FPL, IIRC. That seems like a reasonable place to start the CTC phaseout. That would be $70k for a single-adult, single-child household in the contiguous US. Two adults and two children would be $106k.
I agree that the ACA is an appallingly badly written law.
The more people who benefit from it the more popular it is, which also helps keep it intact.
There are other arguments, both philosophical & practical. In my country taxes are high - I have a good income and I pay about half my total income in taxes (more if you include sales/value-added taxes). I do so without complaint. Civilisation costs money. But in return I do think it is fair that my household should get universal benefits where relevant. My children are citizens, why should they get less because of my income? It feels petty and exclusionary to spend money to weed out children like them, particularly as it would cost almost as much to do so as it would be just to leave it as universal. I would rather pay yet more taxes to keep the solidarity with all citizens.
Also, this way I am regularly exposed to the government's benefits system - and I am probably relatively good at finding people to complain to if the systems I use are not good enough (they is currently very good). Whereas the condition of some of the systems that only serve the very poor here has recently been found to be absolutely scandalous, because the poor here, as almost everywhere, are marginalised.
I’m curious: What is the total population in your country?
18 million. Not as rich as the US, so we have less resources for this kind of thing. Still works though
I can imagine a fairly efficient system at that scale. But not at twenty times larger.
And the more wasteful it is. I don't think the popularity comes even close to justifying the waste.
There is a difference between "wasteful" and "not strictly necessary to prevent children from living in destitution". This program is the latter.
“There is a difference between ‘wasteful’ and ‘not strictly necessary to prevent children from living in destitution’”
If your only goal is to prevent children from living in destitution, any money spent that does not directly contribute to that goal is wasteful.
Is that your only goal? Raising the living standards of children and avoiding both administrative costs and some truly poor slipping through the cracks seems like a worthy secondary goal.
*On the margin of where it would phase-out. At the lower end, it is necessary to prevent children from living in destitution.
And that's a value judgment that many of us don't share. Looking at the history of America's federal welfare programs from 1935 to the present, I know that any "narrowly focused" or "means tested" program will inevitably be killed within a decade.
Better to give it to everyone or nearly so, so that it has a broad base of support, then tax it back from those who don't need it.
It's counterintuitive, but that is also simpler and vastly more efficient from a bureaucratic standpoint as well; rather than creating a vast bureaucracy to enforce means testing, we simply bake it into the existing tax enforcement infrastructure.
Surely that last point is something you see value in?
I sympathize with you a lot, but means-tested programs can be more popular than you (and frankly, I) think. See the Medicaid expansion for example.
Ehh, the jury is entirely out on that as yet, to me.
And even there, it seems a natural counterpoint to say that Medicaid expansion was part of a larger healthcare bill that had a much broader impact and was much less means-tested. Not enough, but less.
Any means testing at all requires that bureaucracy, so if you do any means testing ("better to give it to everyone *or nearly so*"), that argument against a lower phase-out starting point loses some of its power. Even if you have a phase-out starting point of like $1 billion a year, you still have to make every recipient prove they're not Jeff Bezos.
Honestly, the easy way out is probably to describe it as being "for families with incomes under X", then write the bill with no means-testing and claw-back taxes above X"
“…then tax it back from those who don't need it.”
A household making more than 200% of the median income doesn’t need it. Not even close. Yet this plan does not tax it back from them.
But if they were to introduce the tax raises to do exactly that, you'd be the first to line up and yell about them, FFS!
"...as Richard Gadsden notes, a low phaseout implies..."
What's a "low phaseout"? Median income? Double the median? 217% of the median?
“…so it's not much of an anti-poverty program…”
I agree that this a lousy poverty program. That’s why I would support candidates for federal office that would fix that.
“Just cut everyone a check and raise marginal tax rates above the cutoff”
Everyone, of just everyone with kids?
*****“Why will people work if they can get money whether or not they work?”*****
This utterly inane question often asked by right wingers is seldom uttered in good faith (unless they're a lot stupider than I think; which I doubt is the case). People work -- even when the government gives them money regardless of their employment strategy -- because they'll enjoy a much higher standard of living if they do so.
The answer, of course, is that the right wingers who most often espouse this position are really mad when workers have options, and having a baseline level of subsistence money saps from the pool so desperate to work that they will work at Hardees for a tyrant at 7.25 per hour.
As far as I can tell, there is not a single critic of the expanded CTC who engages with the point Matt offers here (on the difference between this and old welfare) in good faith.
Well, it's embarrassing to say that you're worried that money will go to the 'wrong' people...you know, 'those people'...
comedians?
Yes them, Bob. Those goddamned comedians always on the government dole.
It's hard to stay ahead of all the funny business comedians are up to
I’m not embarrassed to say that I don’t like to see tax dollars go to people with six-figure incomes. Especially when politicians are claiming this is an anti-poverty program.
I assure you that most children do not have six-figure incomes.
The money does not go to children.
I pressed Kaus on this point and he came up with a few citations from conservative economists that somehow don't think that the elimination of implicit high marginal tax rates under the expanded CTC is a big deal:
Mickey Kaus policy_wank • 2 days ago
I'm not convinced marginal tax rates are that big a deal. See eg https://www.cbpp.org/resear... The results from the guaranteed income experiments weren't very consistent https://aspe.hhs.gov/report... It's true that those experiments didn't test programs with a marginal rate of 0% over a wide range. On the other hand child tax credit recipients are likely to participate in other programs, like the EITC and food stamps, that add in their own marginal rates and swamp the 0%. Upshot is I need to ask Gary Burtless, who is the expert in these things.
Scott Winship also seems to think the effect of marginal rates isn't a big deal--see pages 10 and 11 here https://www.aei.org/researc...
Full links:
https://bloggingheads.tv/videos/62120
https://www.cbpp.org/research/policymakers-often-overstate-marginal-tax-rates-for-lower-income-workers-and-gloss-over#_ftn22
https://aspe.hhs.gov/reports/overview-final-report-seattle-denver-income-maintenance-experiment
https://www.aei.org/research-products/report/the-conservative-case-against-child-allowances/
I criticize it because too much money is squandered on people who do not need it.
Gloves off for a minute, because this is getting old:
One assumes, based on this, that you are entirely opposed to the 2017 tax cuts, as 66% of the benefits went to the top income quintile, which currently begins at about 250% of median household income.
By your own definition elsewhere, they do not need that money: "A household making more than 200% of the median income doesn’t need it."
The CTC is LITERALLY a goddamned tax cut. It's just one that goes to ordinary people. Those of us for whom most income comes from work, instead of capital ownership.
Heaven forbid!
I agree with the general idea of this from a moral perspective, but do want to point out that the CTC is refundable, so can result in net payments from the federal government to taxpayers, unlike the 2017 tax cuts. The other argument you're going to get is that owners of capital will use their money better than the typical citizen and should receive favorable treatment by the tax code. I couldn't disagree with this more, but it is intellectually consistent.
The first point is, indeed, a valid point...
As for the second... I mean, there's so much excess capital sloshing around in the private sector that money-losing enterprises have to fend off hundreds of millions, real interest rates for any asset-backed debt or government debt are negative, and prices for high-end housing and a range of luxury goods have inflated far beyond the baseline rate for necessities as more money chases a fixed supply.
Meanwhile, the US has not brought online a major physical infrastructure system in decades, existing physical infrastructure has a trillion-plus of deferred maintenance needs, intangible infrastructure is in pieces, we underinvest in children and the elderly, hard/non-commercial research expenditures are at historic lows...
America's rich are fools, frankly. Idiots, almost every single solitary one of them. They'd prefer to live in gated communities in a nation like the Philippines or Chile instead of contributing wealth which is entirely a number on paper to ensure they continue to enjoy an incredibly luxurious existence in a nation like the US or UK.
We're rapidly reaching a point where social ills and climate change will start eroding even their privileges quite rapidly. There's no way, for instance, to buy your way out of a breakthrough COVID infection after being vaccinated.
Yet they're still desperately attempting to preserve a number in a bank balance that can never be spent, rather than allowing it to be invested in desperately needed public goods.
The good news, of course, is that that sort of esoteric argument carries little weight with the electorate. Whereas "I gave you working folks a nice tax cut and fucked over richy-rich over there" is something a lot of ordinary voters can get behind.
Frankly, I'm becoming more and more certain that the Democrats need to talk up the latter half of that equation. It seems clear after the last couple of years that there's a goodly chunk of the electorate who are swing voters and just want to punish someone for all the shit that's rolled downhill on them. If we can redirect that ire from unproductive targets like "immigrants" and "liberals" to "asshole rich people", we can win elections even without talking up all the great ways in which we used the money we soaked from them.
“One assumes, based on this, that you are entirely opposed to the 2017 tax cuts, as 66% of the benefits went to the top income quintile…”
No, I opposed the 2017 tax cuts because they were not offset by commensurate spending cuts.
Ok. And where would you have liked those spending cuts to come from?
Or, put differently, how low is "low enough" for upper income earners?
How much would it take?
To do what? Maintain developed world infrastructure, defense, and public education? Or to do everything else our government does?
The former alone is 20% of GDP. No one manages to do it for less.
With the rest added on? 40-45% of GDP at least.
Hence the question: if you want to reduce tax receipts, what are you proposing to remove from the list of expenses?
I’m not saying people who oppose this are evil or anything, and they can justify this in all sorts of ways, but do they realize how awful it sounds to the rest of us when they say “children shouldn’t get money because we don’t want to discourage their parents from working”?
I think it sounds as bad or worse when you put those word in their mouth, because it poisons the terms of the debate. And it probably should be "children should grow up in poverty" or something to sound awful, not "not have money", 10 year olds really don't need money, they need parents that can take care of them".
I don't know enough about this program to have a strong opinion either way. And these sorts of things are so complicated that their effects, over time and over the entire country, are often very unpredictable.
But there are lots of reasonable reasons to have concerns about the effects of welfare. You don't know anyone who abuses / wastes or misuses a government programs? I know several people in my extended family who've used government assistance to avoid work and / or feed their drug addiction. It's certainly at least debatable whether or not the assistance helped or hurt them
Taking care of kids costs money. Food and housing aren’t free, if nothing else. Saying “it’s not about giving kids money, it’s about giving kids care” is a dubious distinction.
No, they're evil.
I'm not saying you creating a straw man, but there's both straw and clothes missing...
Children don't get money from the government. Parents or guardians do. Maybe I'm a tiny minority, but if the government paid me enough money, I would stop working. (e.g. add a zero to those numbers and I have enough kids that it would be worth no longer working and becoming a "homemaker").
That’s why I said people who oppose this aren’t evil and that I was only talking about the optics.
Kids need their parents to have money so that they can eat, have a roof over their heads, get a decent education, have care while the parents are working, etc. Saying they shouldn’t have access to that because of hypothetical disincentives it places on the parents is a very difficult argument to make without sounding like a complete ogre. I don’t envy the people who are trying to make it.
If your point is that "for the children" is a great marketing strategy, then sure I agree with you. All kinds of great and terrible things are done with that slogan.
Nor is it unique - you can substitute other things for children - "Adults need to have money so they can eat, have a roof over their heads, get a decent education, take care of their children or parents."
Or replace kids with puppies -
"Puppies need their parents to have money so they can eat, have a roof over their heads, go to doggy day care while their parents are working."
You can frame all kinds of things are vital and important and the people who oppose it as ogres. That doesn't actually make something good policy and a positive for society. (Doesn't it mean its not a good policy either just that optics are not reality)
Great article. The new CTC should be the model for reform of the entire social safety net. In my opinion, the biggest difference between the new CTC (pro-work) and the AFDC (anti-work) is the way benefits are structured. Under the AFDC beneficiaries faced punitively high benefit reduction rates, which they continue to face under TANF. Under the CTC low-income parents who want to work face no benefit reductions. (For a full discussion of the impact of benefit reduction rates and effective marginal tax rates, see http://tiny.cc/wkin .)
Who exactly drops out of the work force because of “macroeconomic conditions?”. I’m not disputing the statistics, it just seems like a pretty wrenching thing to do. I can imagine some wives dropping out of the work force when hubbie gets a big raise, but that would happen more often during flush times. Male home makers are still pretty rare, but the same dynamic would apply. I can also imagine young single mothers living with their parents rather than working. That is pretty sensible— the cost of maintaining your own household is high, child care is really expensive, and unless you have great credentials it’s hard to pay for a household and childcare and kids all on your own. Flush times might allow slightly more young mothers to maintain their own households, but that is a high bar to clear even on $20 an hour. Is it mainly older workers with some savings who drop out? The disconnect there is unemployment tends to hit unskilled workers the hardest and they have few savings. I don’t recall any friends or family members saying “I’ll wait til the next boom to work,” it’s always “we can scrape by on one income until the kids are in school” or “our portfolio did well enough we can retire early.”
Fairly common in the small towns near where my mom grew up in Middle-of-Nowhere, PA.
Folks lose work; often that's because a local employer has gone or drastically cut back. They hunt locally until unemployment runs out, consider moving to find work but family and community ties hold them back, get desperate as they eat through savings and the generosity of their friends, and eventually give up and a find sympathetic doctor and SSDI mill law firm to help them get disability even if not really warranted.
Sometimes they rebound in the other direction when employment becomes available, as or more often not.
Discouraged workers; People at the bottom end of the income distribution often find it the hardest to find jobs, and for some people the extra income from a job simply doesn't justify the search effort. Both the income from a typical job decrease and the requisite search intensity increase during recessions.
It seems to me like one way to soften the political blow of "raising taxes" is just to call this particular tax hike "means testing." (And do it over and over and over like Republicans do.) Money is fungible, so it really wouldn't be a lie.
In fact, it's probably possible to structure the tax hike so that that is precisely what it is. That is, all and only the folks who would be phased out now have to pay the tax hike and the hike is equivalent to the current reduction. (For example, we got about $600 for our three kids, but under this system, we would get the full $900 but pay $300 extra in taxes.)
2 points:
1) For increased autonomous income through an expanded CTC to *not* have an effect on labor supply requires one to assume a weird utility function. One can demonstrate this graphically using econ-101 style indifference maps.
2) In a world of no externalities and competitive markets, this would only increase welfare. But we don't live in a world without externalities; work always produces positive externalities because every worker is a taxpayer.
With regards to 1, I'd think it's pretty obvious that $3,600 annually will provoke at most some edge-trimming with regards to work preferences. The person with a $12/hr job who currently works 10 hours of overtime each week might drop to 6 hours instead with the additional money and the regularity with which it comes in.
It verges on (is, if I'm being uncharitable) deliberately disingenuous to compare that to the old set-up, which kept (was designed to keep) individuals out of the workforce entirely. Matt has already outlined the only case in which that might happen under the new one, which is a very, very marginal case indeed.
As to 2, I suppose, but that's a very thin reed to lean on. If you're earning $25,000 a year, the only taxes you're paying are consumption taxes anyway.
“If you're earning $25,000 a year, the only taxes you're paying are consumption taxes anyway.”
They also pay $3,825 in FICA tax. And an additional several hundred in unemployment taxes.
Point.
Chances that someone my age sees a full SS old age benefit are... slim.
Morally speaking, that's probably a reason to give them something now to make their lives easier rather than just sending their money to vastly better off Boomers.
Practically speaking, isn't the point to prop up birthrates at higher than the current 1.7, thereby allowing Social Security to survive in some form?
Not sure that’s right. Demographics make delivering the full benefit more expensive, but it also means that seniors become an ever-increasingly important voting block, adding voltage to the Third Rail. W Bush recoiled fairly swiftly from cutting SS, and Trump never so much as proposed it…trend seems clear
Hard to say. I agree that it would be nearly impossible to meaningfully cut benefits deliberately, but in the absence of some fairly comprehensive reforms (tax increases, mostly), it might end up being a paper benefit that’s already been gutted by inflation.
There are a bunch of issues with this that I'm too lazy to go into as I'm still working at 10:30 and want to be done.
But, to digress for a moment:
Every time someone cherry-picks the hell out of their data and arguments to try to show how even the most basic social programs and public goods are utterly unaffordable, my response is not to believe them, but to say:
"Well, if capitalism sucks so horribly that workers in the richest country on earth can't afford housing, there's no food for our children, our public schools are unsafe and low-quality, and we cannot provide even basic medical coverage for our citizens and a damned old-age pension, then fuck it, let's just burn it to the ground. Communism surely can't do any worse."
“ Here’s a simplified example. Say a married couple with two children over age 5 and $220,000 of income got a $500 refund for 2020. Their 2021 income is similar, so that’s too high for this year’s extra child credit. But they’ll still get permanent credits totaling $4,000—and receive half of that in prepayments this year of about $333 a month.”
You’re getting the same money you always did. Just not in a lump sum.
https://www.wsj.com/articles/child-tax-credit-payments-11626294557
It partially replaces the old CTC (i.e., gives it early), so be careful if you itemize or your taxes could go up unexpectedly.
I certainly get where you're coming from, but the point is that means-testing hurts the people who need it most. I don't need the money, either. But what convinced me to oppose means testing (and think that they should just raise my taxes instead) is the fact that there are real administrative costs to imposing means testing on the front end that make it less likely the people who need it most will get it. If you feel guilty, you can always donate it a charity that reduces child poverty (and thereby get a tax benefit to boot!).
You’re getting over your skis.