A Simple Approach to Ending Extreme Poverty

Buried deep in the latest pandemic stimulus package is a transformative idea for helping families.

illustration: dollar bill on yellow background with adult shape cut out holding hand of child
Guillem Casasús

This article was published online on May 3, 2021.

On August 14, 1935, President Franklin D. Roosevelt signed into law one of the most successful anti-poverty programs in the nation’s history. The Social Security Act’s old-age benefit was founded on a moral certainty: It was wrong that elderly Americans might suffer destitution when they were no longer able to work. The act promised that every worker would be able to count on support as they aged, however their fortunes might change. The program was contentious at the time, but its passage was enabled by the rare circumstance of the Great Depression. The benefit for older Americans has expanded over time to become part of the basic infrastructure of American life. By one estimate, nearly 40 percent of all elderly people today would fall into poverty without it.

Buried deep in President Joe Biden’s pandemic stimulus, the American Rescue Plan, is the seed of a similarly transformative government program. This program holds the promise of dramatically cutting child poverty and effectively eradicating its most extreme forms, nationwide. The expanded, fully refundable child tax credit sounds complicated, but the ideas behind it are simple, and its design has been tested in many other countries. It’s based on the principles that children deserve the opportunity to thrive, and that money can help.

Biden’s plan is to send money each month, in the amount of $250 a child—$300 for young children—to help parents cover rent or utility bills; buy underwear, diapers, or toothbrushes; pay for child care; save for college; or whatever else they need most. Biden’s plan treats poor and middle-income kids equally: Except for those in families with the highest incomes, every child of a given age gets the same amount. This may be its most important feature. It neither stigmatizes the poor nor leaves them vulnerable to resentments about special benefits. It says, instead, that raising kids is difficult and expensive, and that government has reason to support parents in this work. This measure could prove to be a temporary anomaly during an unusual time. Or, if made permanent, it could begin a new era in the fight against child poverty in the United States.

We described the previous era of poverty and anti-poverty policy in our 2015 book, $2.00 a Day: Living on Almost Nothing in America. The book follows the lives of eight families trying to survive on cash incomes of $2 per person per day. Most claimed government food assistance, and some had housing aid. Yet we found that much of their lives was consumed by the work of just trying to get by. Family members sold their blood plasma, helping fuel a growing, multibillion-dollar worldwide industry that has come to depend on the desperation of America’s deeply poor. The families bounced from couch to couch, shelter to shelter, and sometimes adults traded sex in exchange for food or a place to stay. They needed cash for the rent or utilities, or for one more night in a motel. They illegally traded their food stamps for cash at 50 cents on the dollar. The money was needed to buy uncovered basic necessities such as toilet paper—or interview-worthy clothes that would offer the chance of landing the job that could get them to a better place.

The parents we met were trying to care for their kids on little more than pocket change. But they also saw themselves first and foremost as workers. Our data on families in poverty showed that most parents who slipped into a spell of $2-a-day poverty had, in fact, been working and lost a job. Travis Compton worked at a fast-food joint until his hours were cut to zero when foot traffic slowed for the winter; when we met, his family was surviving on the little bit of cash his wife, Jessica, earned from selling her plasma. Jennifer Hernandez was cleaning boarded-up, foreclosed homes on Chicago’s South Side until the work made her so sick that she quit. And Rae McCormick had climbed into a truck she shared with family members to go to her job at Walmart when she found that the tank was empty. Her uncle had used up all the gas over the weekend. Her manager told her that if she couldn’t make it to work that day, she shouldn’t bother coming in again.

The number of families with children going for periods of time with virtually no cash income—$2-a-day families—more than doubled after 1996; as many as 3 million children lived under those conditions in 2011 and 2012, at the height of poverty following the last recession. According to our research, this rise was linked to the welfare-reform law of 1996, which slashed America’s cash safety net for families. That law dismantled a program called Aid to Families With Dependent Children (AFDC), itself a part of the same 1935 Social Security Act that had created a benefit for the elderly. AFDC provided a safety net, but its structure created problems. It cut benefits for every dollar a recipient earned on the job, reducing the positive impact of work. Many recipients who got married saw their benefits reduced or eliminated. The program had become so stigmatized that even many recipients hated it. In 1996, lawmakers replaced it with the Temporary Assistance for Needy Families (TANF) program. TANF created strict work requirements and time limits for recipients, and its provision as a block grant encouraged states to reduce enrollment as much as possible and keep any leftover money to use elsewhere. That incentive led to other restrictive eligibility requirements, regulations, and sanctions that make it difficult if not impossible for families in need to get help.

What most thought was a “work first” welfare program turned out to be a slush fund for state governments. Michigan, for instance, uses far more of its block grant to fund college scholarships (whose recipients include middle-income kids) than to provide cash aid to very poor families. Many states have become completely dependent on TANF dollars to plug holes in their budgets across numerous programs.

After the 1996 reform, the number of beneficiaries receiving cash welfare fell, from 14.2 million in 1993 to 2.9 million in 2019. There are now millions more postage-stamp collectors in America than there are welfare recipients. In multiple states in 2019, the caseloads were virtually zero. Cash welfare through TANF has continued to shrink during the coronavirus pandemic, falling to 2.7 million recipients as of September 2020. The program’s nonresponsiveness to one of the greatest economic crises of modern times is a testament to its practical and moral failure.

But as TANF floundered, something unexpected happened: Policy makers came together to build a cash-based social safety net, the likes of which the country has never seen. They expanded unemployment assistance to low-wage workers and those in nontraditional jobs, such as contractors and gig workers, who don’t typically qualify for unemployment insurance.

They sent stimulus payments to low- and moderate-income families. Even families with zero earnings in the previous year were eligible for the stimulus payments, families like those we profiled in $2.00 a Day. In this way, the federal government has sent tens of billions of dollars in cash—more money than the entire annual budget of TANF—to poor families since the crisis started. And while cash welfare was always largely disliked by the American public, stimulus payments have proved wildly popular, perhaps because the middle class has received them too. According to a poll taken at the end of January, nearly eight in 10 Americans were in favor of the $1,400 payments proposed in the American Rescue Plan. Another poll found that even a majority of Republicans favored them. And the evidence indicates that this approach has worked as well as anything we’ve ever done: All told, families with children have been far better protected during this downturn than during any that came before.

These payments, of course, are temporary. But Biden’s expanded child tax credit, passed in March and targeted directly at children, seems likely to be just as popular, and could form the basis of a permanent program. The full payment of $3,600 each for children under 6 and $3,000 each for all other children is the same for everyone below a certain income—$75,000 for a single filer and $150,000 for joint filers. Some administrative details are still being worked out; congressional champions intend for the credit to be paid monthly starting in July, but the IRS could delay that or make payments less frequently. The program has been approved for one year of funding. Unless it is made permanent, it will disappear in 2022.

When they start to receive the benefits, middle-income families will be able to use the money to pay for child care or after-school programs, to save for college or buy books. Poor parents can use it for the exact same purposes, but they can also ensure that the rent is paid and the lights stay on, or buy diapers or school supplies.

Despite the program not being targeted only toward low-income kids, our colleagues at Columbia University estimated that a child tax credit comparable to Biden’s would cut child poverty by 45 percent. It would cut poverty among Black children by 52 percent and among Native American children by more than 60 percent.

The idea behind the child tax credit isn’t new; scholars and some Democratic members of Congress have been talking about the promise of just such a policy for a long time. We joined the ranks of advocates for a “child allowance” after we published our book, as we continued to think about the best ways to help parents like Travis and Jessica Compton, Jennifer Hernandez, and Rae McCormick. It seemed obvious to us that the poorest families in America still needed the cash safety net that had been dismantled by welfare reform. Yet we also didn’t think the nation should return to the flawed program that existed before welfare reform.

The expanded child tax credit is a different animal from the old cash-welfare system. It has been built to avoid the pitfalls of the era before the 1996 law, and of the decades since. It is pro-work, because families don’t lose the aid by working until they reach the highest income levels. It is pro-family, because poor and middle-income kids keep the benefit even if a parent gets married, unless their spouse has a high income. It is pro-child, because it treats poor and middle-class kids exactly the same. Rather than stigmatizing families, it sends a message that our society acknowledges the hard work of parenting and says, We’re here to help.

Plenty of evidence from other countries shows us that the benefits of an expanded child tax credit can be sustained. The United Kingdom adopted a new child tax credit, among other poverty-reduction programs, in the late 1990s and saw its child-poverty rate fall by 50 percent. Canada greatly increased its child benefit in recent years and also saw its child-poverty rate fall dramatically. Some legislators worry that families will make bad choices with the cash, but evidence from Canada suggests that families reduced spending on things like alcohol and tobacco when they received child benefits, which supports the theory that substance use is sometimes a response to financial stress. Some legislators also worry about the cost of an expanded child tax credit—more than $100 billion a year. The amount seems high, but it is quite a bit less than we spend on health insurance for low-income families, the elderly, and individuals with disabilities through Medicaid. It’s also hundreds of billions less than the yearly costs of child poverty to our country—arising from health-care costs and lost productivity, among other factors. A large and growing body of evidence concludes that in the long run, the returns on this investment will far exceed the expense.

Child benefits in other countries have not led to a reduction in work; some analyses suggest that such a benefit could increase work among some parents. That’s the beauty of its design—unlike in the old welfare system, a poor family doesn’t lose benefits as their earnings increase. (There’s also not much evidence from other countries that a child allowance induces people to have more children. Having more babies to build the workforce wouldn’t hurt in the U.S., given its low fertility rate, but the child allowance probably isn’t going to help much on that front.)

One of the most important features of the child tax credit is its periodic payout. The federal government already helps low-income working families through the tax code, but that help is delivered in a lump sum at tax time, mostly in the form of the earned-income tax credit and a limited child tax credit that leaves the poorest families out. This lump sum can help families make big investments and plan for the future. But many poor families experience huge swings in income from week to week and from month to month, because of instability in jobs or family life. This means that a stable source of regular income is important.

The expanded child tax credit could effectively eliminate the kind of $2-a-day poverty that motivated our book. Rae McCormick could have used cash from the child benefit to put gas in her truck and keep her job. Then she might have avoided a fight with her uncle, which led her and her daughter to move, yet again, further destabilizing their lives. Jessica Compton might have used her child benefit to pay for basic necessities rather than resorting to selling her plasma twice a week. Or maybe she could have gone down to selling plasma one time a week to save her body from some of the strain. Jennifer Hernandez might have used the money to keep her family afloat while she recovered from illness. Their problems would not have all disappeared because of a few hundred extra dollars a month, but the money would have made a big difference. It would have provided a foundation to build on.

The Biden administration has taken the first step into a new and profoundly different future. The debate about the permanency of this new program has already begun in Washington. The moral case for continuing the program is unassailable. We would do well to ensure that the lessons we’ve learned during COVID‑19—about mutual vulnerability, structural inequity, the value of cooperation, and shared dignity—are not fleeting. We have the ability to wipe away the most extreme forms of child poverty with a simple policy. Perhaps in so doing, we might create the kind of transformative change for families that our grandchildren can take for granted.

This article appears in the June 2021 print edition with the headline “How to End Extreme Child Poverty.”