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America Can Completely Eliminate Extreme Poverty. Here’s How.

January 30, 2019

 

For a fleeting moment, the eyes of the wealthiest country in the history of the world were on Eastern Kentucky, the Mississippi Delta, and the fields of California: places left behind by the 1950s economic boom. Sen. Robert Kennedy may have been merely a month from declaring his intention to run for president, but the sense of duty to combat inequality and injustice that would earn him reverence in progressive circles was on full display in this 1967 “poverty tour.” Over the course of this tour, of one-room schoolhouses without restrooms or rundown and of dilapidated Delta houses without nearly enough space, Kennedy and Marian Wright Edelman (who would later found the Children’s Defense Fund) observed crumbling infrastructure and stunning malnutrition.

 

In a country home to millionaires and billionaires, Kennedy encountered a family of six who could only afford milk one day a month. He later explained that many families could not afford to provide more than 30 cents a day for food for their children. “I love these people,” he once said, “and it’s terrible to have all this in a country as affluent as ours.”

 

Fast forward more than a half century. Bob Kennedy is gone and income inequality is at a record high. As well-documented as the income gap between the top CEOs and the average American is, it is far from the only troubling inequality statistic.

 

The remnants of slavery and segregation and the enduring and ongoing legacy of housing discrimination and a broken criminal justice system have produced perhaps the single greatest economic epidemic currently facing the country: the racial wealth gap. For every $100 in wealth owned by a white family, the average black family owns a paltry $5.04. The average American woman receives 51 percent less than a man in income (with time with no income included).

 

Moreover, child poverty in the U.S. is an epidemic in its own right. An estimated seventeen percent of American children live in poverty today, with 4.5 percent living below 50 percent of the poverty line and 1.7 percent living on less than two dollars a day (what the United Nations deems extreme poverty). Child poverty is a multifaceted crisis; growing up in poverty as the brain develops has adverse impacts on education, depresses self-esteem, and increases the risk of heart disease. At the same time, child care costs grow exponentially.

 

In the modern American economy, it is becoming increasingly difficult to raise children, and poorer families are especially threatened. More and more children are growing up in poverty as more and more families struggle to afford such necessities as food, diapers, paper towels, textbooks, and transportation. While the Trump Administration continues to flatly and categorically deny the extent of poverty in what it dubiously calls the “wealthiest and freest” country in the world, potential 2020 Democratic presidential candidates are submitting proposals to address the problem. However, they have not gone far enough.

 

Before Sen. Kamala Harris (D-CA) announced her intention to run for president, she submitted the Livable Incomes for Families Today Act, or LIFT Act, to Congress. Harris’s plan effectively amounts to an expansion of the earned-income tax credit (EITC) by offering an additional $3,000 per year for an individual or $6,000 for a couple, with the payments phasing out once families with children begin earning $100,000 a year. The families could receive these tax cuts in the form of monthly payments or as a lump sum at tax time.

 

While the estimated cost of $2 trillion over 10 years will admittedly be significant (although the figure is comparable to the GOP tax cuts of 2017), the upside to the program is equally, if not more, significant. The Center on Budget and Policy Priorities, a progressive think tank based in DC, estimates that the LIFT Act will lift 9 million Americans out of poverty.

 

At the same time, however, the LIFT Act has significant shortcomings that hinder it from doing even more. There is a minimum income of $3,000 for an individual (or $6,000 for a couple) to qualify for the payments, which completely omits the most destitute. A growing number of Americans report $0 in income and earnings, many of them single mothers or disabled, and their omission from the LIFT Act limits it from fulfilling its purpose. Secondly, the bill largely focuses on adults and features no direct transfers to families with children, limiting its ability to fight generational disparities in wealth.

 

Sen. Cory Booker (D-NJ) comes closer to a more ideal anti-poverty fix. Booker’s plan would grant every American child a savings account with $1,000 in it at birth. Then, the government would add up to $2,000 per year to the account, with the exact number for each family dependent on its income. When the child turns 18, they are allowed to use the account for expenses such as college or housing.

 

The policy’s financial backing would come from an increase in the estate and inheritance taxes. The Booker policy attacks income inequality and the wealth gap by sending money to the people who need it, and by reducing the barriers that keep many Americans from “wealth-creating opportunities” such as college and home ownership. The problem is, it does not do so at the moment of maximum need.

 

The most economically unstable time for most Americans is when they have young children. In fact, the average two adult American household loses almost $15,000 when they have a child. That is a sudden and staggering 14 percent drop in income, which, for many families, is considerable enough to make raising a child unaffordable, or at least uncomfortable. By the time children get older, financial pressure tends to ease. But for the families that need the money the most, 18 years’ worth of savings may come too late. A more beneficial and ambitious proposal would send the money to families when they need it the most, not when they need it the least.

 

So what do we do? Just write families checks. Yes—it’s really that easy.

 

The most straightforward and comprehensive anti-poverty policy the U.S. could adopt is a child allowance. Usually, this comes in the form of a monthly cash benefit that would be paid out in a similar fashion as Social Security would. At least twelve other developed nations have already adopted the concept, among them Canada, France, Germany, the UK, Sweden, Norway, Finland, and Denmark. In every single one of the aforementioned countries with child allowances, the poverty rate is at least 3 percent below the 20 percent of the U.S., with Sweden, Norway, Finland, and Denmark in the single digits. But it is not only in the Nordic states where there is evidence of sweeping success. Before the introduction of the allowance, almost half of all the children calling the UK home suffered from malnutrition for at least five years, but now only about one in ten Brits is impoverished.

 

Of course, the first question that must be asked is “What would an American child allowance look like?” Well, there are two proposals that appear to be more competitive than the field. The first pays out a standard $250 monthly allowance to every child and a second would be tiered, with each child under the age of six receiving $300 per month. These payments would be made in a similar way to Social Security payments and paid for by increased marginal tax rates on the wealthiest Americans and/or an increase in taxes on investment income. The allowance would also replace existing tax credits for families with children.

 

Of both plans, policy experts deemed the tiered proposal most effective. One clear distinction from Booker’s plan is that this version would give money to families in their time of maximum necessity, and would allow them to save or pay for the increasing costs of child care and diapers. The families that need the money the most would not need to wait for their children to turn 18 to access it.

 

Research on the impact of a universal child allowance has been growing in recent years, and it points a promising picture. According to the Robert Woods Johnson Foundation, a tiered allowance would reduce child poverty from its current rate of 16 percent to 9 percent, a reduction of almost 50 percent. These numbers held across racial and ethnic lines, demonstrating an ability to reduce the racial wealth gap. Whereas the Child Tax Credit and previous policies most profoundly benefited multiple adult, middle income, and working households, they were less accessible to unemployed or underemployed and unmarried or single parent households. The universal child allowance would address these needs, as every American child would be eligible for the benefit, including those on the brink of poverty and those whose parents are unemployed and have no income alike. As for families with unmarried cohabitating partners, the Woods Foundation estimates a 9 percent reduction in the poverty rate from 21 percent.

 

Over the past half century, the number of people around the world living on two dollars a day has decreased dramatically. Yet that demographic still makes up an estimated 1.7 percent of the American population. However, even a $250 monthly child allowance would all but eliminate child poverty, bringing that number to just 0.1 percent.

 

For as much as the child benefit program contributes, it is true that it would cost a lot of money. Its critics would say that the cost would be astronomical. At $200 billion per year, it would not be cheap. However, that is still less than what Kamala Harris’s plan is estimated to cost, with more output, as well as less than the cost of the Trump tax cuts over the next three years.

 

The critics would then respond that the money spent would be wasted because it would go to poor parents who themselves would blow it on alcohol and drugs rather than taking care of their children. However, like many conservative fantasies surrounding welfare recipients, this has been proven to be objectively false around the world. Research has shown that recipients of the child benefit in England were able to spend more money on books, toys, and healthy foods for their children and in Canada, parents have actually spent less money on things like drugs and alcohol for every dollar they gained from child allowances.

 

Just as it was in 1967, American child poverty and the racial wealth gap are epidemics. Yet while much of the developed world found the antidote, the U.S. buried its head in the sand and ordered millions of Americans to pull themselves up by their bootstraps. But as Martin Luther King, Jr. so famously said, “It is a cruel jest to say to a bootless man that he ought to lift himself by his bootstraps.” Through the passage of the child tax exemption and the Child Tax Credit, the U.S. has demonstrated an intention to assist working families with childcare and the emotionally and financially demanding task of raising the next generation of Americans.

 

Now is the time to follow in the footsteps of Canada and Norway to ensure that those left behind by the backbreaking poverty of the Mississippi Delta, Appalachia, and urban opportunity deserts can live a dignified life and have access to opportunity.

 

Now is the time to recognize that family income instability does not only occur at tax time, and our anti-poverty programs ought to recognize the everyday struggle of working Americans who are trying to provide for their children a better life and a chance at the American Dream.

 

Now is the time that providing a basic level of income for American families to spare them from poverty’s cyclical and crushing grip is a moral obligation and a revenue generator.

 

Barreling over the barriers to opportunity and knocking down the doors to the American Dream requires substantial investment today, and the universal child allowance is the smartest investment America can make in its next generation today to ensure prosperity tomorrow.

 

Photo credit Dana Petersen, Creative Commons

 

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