Washington can help families without spending more

If we are living in a golden age, where’s the cash? Ask a parent: It’s not in their pockets. Nor is it sitting in federal coffers. Future taxpayer dollars have already been spent to the tune of $1.9 trillion, creating a deficit that will grow to $3.1 trillion in 2036, according to the Congressional Budget Office.

New programs can better support families, but they too often cost a lot to get relatively little. Consider that the two largest transfers to American children this year (except for changes in overall tax brackets) are the $1,000 in seed money for Trump Accounts and a $200 child tax credit expansion indexed to inflation.

The amounts given to each family are relatively small considering their impact on the federal budget. Trump Accounts will cost around $15 billion over the next decade (the costs are curbed because the accounts aren’t funded beyond the end of Trump’s term), according to CBO estimates. The permanent increase in the maximum child tax credit from $2,000 per family to $2,200 indexed to inflation nears $1 trillion through 2034, according to the Tax Foundation.

This is the problem with spreading taxpayer dollars out across such a broad population. It dilutes the benefits. Meanwhile, many acute problems like child poverty, high-cost child care and the lack of paid parental leave are left unsolved. And so the calls continue for spending more federal money to address those problems.

And at some point — I’d argue we are nearly there — the calls for more cash transfers become disingenuous. We are toying with creating a fiscal crisis (if not for us, then certainly for our children) that such stocking stuffers won’t buffer against.

But what if the amount given to support families wasn’t either a trickling faucet struggling to keep up with inflation or a budget-exploding flood of spending? Something like a fire hose — powerful yet targeted — that could actually douse the affordability fires families are facing?

I’m thinking about a bipartisan proposal now long forgotten. The Advancing Support for Working Families Act of 2019 would have allowed parents of a newborn or newly adopted child (under age six) to receive a lump sum of $5,000 immediately, paid for by a commensurate 10% reduction in child tax credit benefits thereafter.

At the time, the proposal was panned because it was framed by its co-sponsors — former Arizona Sen. Kyrsten Sinema and Louisiana Sen. Bill Cassidy — as providing paid leave, which it most certainly did not. Then it got pushed aside by the COVID pandemic and the controversy of souped-up monthly child tax credit payments, a program resembling universal basic income.

But the idea of front-loading these payments is nevertheless a good one. Research consistently shows the benefits of financial investment in children early in life. Unfortunately, most parents tend to have higher earnings when children are older.

From a budgetary perspective, it’s a wash. The money is already committed. We don’t think of the American government as particularly generous to children — and relative to our global peers, it’s not. But nevertheless, the cumulative amount of money provided to families through the child tax credit is expansive. Families who can claim the maximum credit receive $2,200 every year of a child’s life from age 0 to 17, totaling more than $37,000, and that’s not accounting for the inflation-based increases. For families only able to access part of the benefit, the maximum refundable portion is still near $30,000.

What if more of that money could be put into play sooner? Front-loading these benefits could be used to seed Trump Accounts for families who didn’t immediately need the cash. Or a $37,000 check would indeed allow for wage replacement to take paid leave for 6—12 months or to help fund child care.

If so much money up-front is problematic — nudging some people to have a baby for the payout, which the pronatalist crowd might cheer but raises serious ethical and practical questions — policymakers could cap the amount pulled forward to $10,000 for the first three years. You’d still be talking about an annual cash payment to families that exceeds anything that’s been discussed lately, even in our populist policy environment.

Some might argue that we shouldn’t take tax money from nonparents to fund such benefits. I’m empathetic on this point, but we already do — and we aren’t increasing the benefits allocated to each child just by allowing parents to take the payments over a shorter span of time.

Others might argue a front-loaded credit is somehow changing the purpose of the benefit; I disagree. It’s just increasing the benefit’s flexibility so that it can help the most during the years children are the most expensive, whichever years those are for each family — no one would be forced to take the benefit early.

I have had my qualms with the child tax credit in the past for the reasons mentioned above. I’d prefer more targeted investments in kids with measurable results. But sometimes the answer — from Washington to kitchen tables — is not to buy an expensive new solution. Sometimes it is to better manage what we already spend.

This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Abby McCloskey is a columnist, podcast host, and consultant. She directed domestic policy on two presidential campaigns and was director of economic policy at the American Enterprise Institute.