A guaranteed annual income — at least for children — is likely to be a big campaign issue in 2022. With opposition to aggressively higher corporate and personal income taxes on the wealthy emerging among some moderate Democrats, a focus on benefits—specifically, an unrestricted allowance for raising children — funded by more limited tax measures could move to center stage.
The American Recovery Act sent $1,400 to every resident earning up to $75,000 a year — on top of the $600 provided by the December 2020 pandemic relief bill. Plus, for 2021 only, it bumps up the Child Tax Credit to $3,000–$3,600 for children under 6 — from $2,000 and makes it “refundable” — parents don’t have to work to get it.
Big talking point
The two recent stimulus measures plus the existing CTC benefit could send a family of four with children ages 4 and 8 earning twice the median household income up to an additional $14,600. The law also enhances the Child and Dependent Care Tax Credit and the earned-income tax credit.
Together these costs about $570 billion but importantly, larger benefits only last one year.
Enhanced benefits once offered are tough to take away and making permanent a refundable tax credit for children is likely to be a big talking point for Democrats after we get past the president’s infrastructure bill.
Democrats could pass a program through reconciliation that costs $200 billion, “taxes the rich” and then hammers “selfish” Republicans in virtually every senatorial race and congressional district.
If you don’t think that will work in conservative-leaning jurisdictions, consider that voters in Florida went for Donald Trump in 2020 but also approved a $15 an hour minimum wage.
As importantly, Utah Republican Sen. Mitt Romney has proposed even more generous child allowances — $4,200 a year for each child 5 and under and $3,000 for those 6 to 17 — for families with annual incomes less than $200,000. That likely means Senate Majority Leader Chuck Schumer has the 51 votes for making permanent a child-support allowance, and other moderate Republicans would pile in lest they be painted as anti-child in 2022.
Romney’s plan would add $112.5 billion to the cost of the CTC as it was before the ARA and be again in 2022 without any other legislative action. It would be awfully tough for Republicans to deny cries to end preferential tax treatment for capital gains, for example, to fund it.
It would encourage families with several children to work less. The combined effects of Biden’s proposed taxes on high-income earners, capital gains and estates would raise the intergenerational taxes on high-tech startups to about 70% for California residents.
Fewer people working and less investment in high tech is how the European Union became a welfare state that can’t grow or provide young people with enough meaningful work. And that appears to push down birthrates more than child benefits do to boost it.
While guaranteed incomes for most children are not quite the same thing as guaranteed incomes for all Americans, it is very tough to separate such generous benefits for children from the realized income of their custodial adults.
Effect on work
Progressives are busy rolling out studies that purport to show guaranteed incomes have little significant effect on people working. Those examine U.S. and Canadian programs such as the Stockton experiment, which gave 125 individuals $500 a month for two years, and the Alaska Permanent Fund Dividend. Those benefits are sometimes temporary, generally not large enough to live on and only marginally impact on employment, but hours worked is quite different from whether someone is employed at all.
Encouraging more part-time work offers fewer opportunities to enhance skills and rise out of poverty, but the Stockton experiment illustrated that it takes a lot of effort to be poor. The recipients were able to better handle termination of utility service from unpaid bills, deal with unexpected problems such as car repairs, and generally do what is necessary to find some kind of employment.
However, those experiments don’t justify a large, refundable and permanent CTC as that would reduce employment — likely by a lot.
Instead, it would make sense to replace the personal and corporate income tax with a 14% value-added tax and offer every child $4,000 a year.
That would eliminate taxes altogether on work and do less to discourage startups and productive investment than the current tax morass — more on that in my next column.
Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist. He tweets @pmorici1.
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