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Many countries pay parents for having kids in an effort to reduce poverty

May 31, 2016

State of Opportunity has talked a lot about childhood poverty, its effects, how to deal with it, and theories on how to fix it. And while there is no solution for poverty, many countries have found ways to reduce it.

One way I read about today in a post on VOX is how dozens of countries – including almost every country in Europe – have some type of benefit policy that provides cash to parents.

That's right. No-strings-attached money, just for having kids. Usually all that's needed to collect is a birth certificate. Some are universal, meaning that all parents get the same amount of money, and some are based on income, with poorer families receiving more money.

These child care benefits, also known as a "child allowances," are basic incomes that go only to families with kids. Unlike the Earned Income Tax Credit and Child Tax Credit in the U.S., families get them regardless of whether they work. And it doesn't matter if they plan to spend the money on child care, or food, or housing.

The rationale for the policy is that additional cash income allows parents to invest more in their children, in whatever way they see fit.

Credit Javier Zarracina / VOX

Child benefits have been found to substantially reduce childhood poverty. A universal benefit was introduced in the U.K. in 1999. The measure was part of a set of proposals meant to tackle child poverty, including tax credits, means-tested programs, a national minimum wage, a workers' tax credit, universal pre-K, expanded child care, and longer parental leave. By 2009, absolute poverty fell by more than half:

Credit VOX

Research shows that as a result of these policies, material hardship, such as food scarcity and financial worries, is reduced, and families increase their savings. Health insurance and dental care purchases also go up.

The benefits of additional cash income can affect a kid's whole life. Evidence suggests programs that give families more cash in their hands help boost kids' test scores, make them healthier, and promote higher earnings once they start working. And psychological stress for parents associated with poverty is reduced, leading to parenting that is more nurturing.

And although the EITC and CTC aren't really "child allowances," research shows even these policies help families at every stage of life including:

  • Improved infant and maternal health;
  • Better school performance;
  • Greater college enrollment;
  • Increased work and earnings in the next generation; and
  • Boosted Social Security retirement benefits.

But while child cash allowances can be paid out monthly or weekly, tax credits are only distributed annually. Families cannot easily budget for their EITC or CTC benefits when they need to pay rent at the end of the month or buy groceries every week.

Weak labor markets for people in the U.S. with low skills and little education can prevent low-income parents from getting steady work, and limit their benefits from the Earned Income Tax Credit and Child Tax Credit. Creating a universal benefit in the U.S. would offer thousands of dollars to struggling families outside the labor force, letting them escape deep poverty, and letting some escape poverty altogether.

The change could also enable tax simplification. According to VOX:

Currently, the Earned Income Tax Credit aims to both reward work and provide additional support to families with more children; a child benefit would let it focus on the former, and enable a transformation into a streamlined work credit that helps childless workers, who currently get basically nothing from the EITC. You could probably also do away with the non-refundable Child and Dependent Care Credit, head of household filing status, and the dependent exemption, all three of which are tax benefits reserved for families with positive income tax bills — that is, not the poor or lower middle class.

Those changes, along with getting rid of the child tax credit, would save about $100 billion a year, which could be used to partially fund a new universal child benefit, according to VOX.

What do you think about child allowances? Let us know in the comments below.