Image Source: Pixabay

A “child allowance,” in the policy lingo, is a policy that provides a per-child payment to every family with children. The US has for some decades now has a “child tax credit,” which has reduced taxes and paid refunds to low-income families with children. But during the pandemic, this program was expanded temporarily in a way that nearly turned it into a full child benefit. The Annals of the American Academy of Political and Social Science has a 13-paper symposium in its November 2023 issue on effects of this expansion of the child tax credit.

(For reasons I don’t intend to figure out, the papers for this November 2023 issue were mainly published for the first time in September 2024.

Megan Curran, Hilary Hoynes, and Zachary Parolin write “The Consequences of the 2021 Child Tax Credit Expansion: An Introduction to the Volume.” From their abstract:

The American Rescue Plan Act of 2021 temporarily transformed the Child Tax Credit (CTC) into a more generous cash benefit that was more frequently distributed to families with children in the U.S. From July to December 2021, the families of more than 90 percent of U.S. children received monthly cash payments of up to $250 per child (or $300 per young child under six); and at tax time in 2022, families received lump-sum tax refunds of up to $1,500 per child (or $1,800 per young child). Many of these families had not previously had access to the full credit because their incomes were too low. The temporary expansion was not made permanent, and the CTC returned to its pre-expansion structure in 2022. 

What are some of the effects of the expansion?

Children seem better-off, especially in low-income families. Anna Aizer  Adriana Lleras-Muney, and Katherine Michelmore write in “The Effects of the 2021 Child Tax Credit on Child Developmental Outcomes:“

Child poverty fell to historic lows in 2021, in large part due to the temporary expansion of the Child Tax Credit (CTC). We consider the possible implications of this expansion on children’s short- and long-term development. To do so, we review the available short-run evidence from the 2021 expansion and the existing research evidence on the longer-run effects of similar income transfers in childhood on child health and human capital. We conclude that the CTC likely improved child health and well-being in the short and long run, with greater impacts for poor children and modest or nonexistent effects for nonpoor children. Moreover, the effects might be more substantial for younger children and for those in places with weaker safety nets.

Labor force participation was not broadly affected, although Diane Whitmore Schanzenbach and Michael R. Strain point out in “Employment and Labor Supply Responses to the Child Tax Credit Expansion: Theory and Evidence”: “However, we see some evidence that employment was reduced among unmarried mothers with relatively low levels of education and young children—the demographic group that was most affected by the CTC expansion.

The general sense of the discussion is that a full child allowance across all income levels is relatively expensive, with relatively small gains for children in higher-income families. However, the 2021 experience (along with earlier evidence) makes a case for a substantial expansion of the existing child tax credit.

Elizabeth Ananat and Irwin Garfinkel describe some of earlier estimated of an expanded child tax credit in “The Potential Long-Run Impact of a Permanently Expanded Child Tax Credit.” They describe the design and potential effecs of a roughly $100 billion per year expansion of the child tax credit. They write:

We estimate that the net cost of the permanently expanded CTC [child tax credit] is $96.8 billion per year. Of this, $63.8 billion is predicted to go to families with incomes below $50,000, $23.1 billion to families with incomes between $50,000 and $100,000, and $9.8 billion to families with incomes above $100,000. …

Children’s future earnings in adulthood rise by a present discounted value of $202 billion, over twice the initial outlay. These increased earnings generate $57 billion in higher tax payments that benefit taxpayers. Even larger than the increased earnings are the health and longevity benefits, which represent a gain to society of $420 billion using conventional valuations. Improved health saves taxpayers an additional $13 billion in avoided health care costs (including more than $4 billion of reduced health insurance premiums). Taxpayers also save more than $300 billion due to reduced expenditures on police, courts, incarceration, and most important, victim costs of crime, along with $4 billion from avoided spending on child protective services. Children’s increased schooling costs society $70 billion. Children and their parents live longer, which increases Medicare and Social Security costs for taxpayers by $49 billion, a cost offset by benefits to recipients.

On net, the present discounted value of benefits for society is $929 billion, nearly 10 times the initial costs. Taxpayers net $243 billion above their initial $97 billion investment. This return is consistent with the large returns from other investments in children …

I haven’t studied the background calculations and assumptions behind their scenario, and as they acknowledge, there’s room for dispute here. But one thing about investing in children is that the stream of potential benefits can last for a very long time.

More By This Author: