Niskanen Center’s Sam Hammond on Mitt Romney’s plan for ‘Social Security for kids’
There’s been enormous energy on both sides of the political aisle in the early months of 2021 on passing an expanded Child Tax Credit or new child allowance, with a variety of far-reaching proposals already on the table. Niskanen Center Director of Poverty and Welfare Policy Sam Hammond helped author one of those proposals, Sen. Mitt Romney’s Family Security Act, which would replace the CTC with a flat, universal child allowance equal to $4,200 for children ages 0 to 5 and $3,000 for ages 6 to 17. Hammond spoke to Spotlight about the proposal as well as the new focus among some on the right on a variety of proposals that would appeal to working class Americans. The conversation has been lightly edited for length and clarity.
Before going into the proposal specifically, give us a little background on how this came about.
The Niskanen Center Poverty and Welfare program was launched in 2016 with me as the director. Our first publication was “Toward a Universal Child Benefit,” and ever since we’ve been working to promote a fully refundable child tax credit on both sides of the aisle. We’ve worked with Sen. (Marco) Rubio (R-FL) on the Tax Cuts and Jobs Act, we worked with Sens. Michael Bennet (D-CO) and Sherrod Brown (D-OH) on the American Family Act and then most recently with Sen. (Mitt) Romney (R-UT) on the Family Security Act. So, it’s been a long time coming and really the culmination of new thinking on both the left and the right about their economic agenda. On the left, you have more moderate Democrats like Michael Bennet being a champion of what would be a major anti-poverty initiative, and on the right you have a growing interest in policies that would support working class families and family formation.
How did the connection with Sen. Romney come about?
That goes back to the budget deal in 2019. If you recall, there was a big omnibus spending deal and Sen. Romney and Sen. Bennet put out a compromise proposal that included a fully refundable Child Tax Credit., That was the first instance of a Republican supporting a fully refundable Child Tax Credit, though in the context of a negotiation. Then 2020 happened, and in the early days of the pandemic, Sens. Romney, (Tom) Cotton (R-AR) and (Josh) Hawley (R-MO) were the first voices out of the gate calling for direct payments to families. And ever since, the Overton Window as to what is actually possible and appropriate for government policy has been blown open, and you see this in a bunch of different domains. You see Republicans proposing to raise the minimum wage, you see Republicans proposing large wage subsidy programs, we saw Sen. Rubio spearhead the Paycheck Protection Program, which is a very ambitious payroll rebate scheme for small businesses. So, across the board, conservatives have shown a willingness to think much more outside the box than they have in recent years, and the same is true for Democrats.
Give us an overview of the Romney proposal itself
Let’s start with what’s in the relief bill. The Biden child tax credit is essentially the American Family Act worked into the context of this reconciliation bill, and would only be for one year. What it proposes to do is increase the $2,000 Child Tax Credit from its current, partially refundable state to $3,600 for young kids, $3,000 for kids 6 to 17, and to be fully refundable, meaning no phase-in. They also intend to do monthly or quarterly payments through the IRS if the agency has the resources.
What Romney has proposed in some ways comes over the top of the Biden proposal. It is larger for young kids — $4200 rather than $3600 — and he proposes doing it monthly through the Social Security Administration, so for young kids that would be $350 a month and for older kids it would be $250 a month. It’s fully universal on the front-end, so everyone from a low-income single mom to Elon Musk would be getting the same amount every month based on the number of kids they have, and only on the back-end would it be taxed back at incomes above $200,000 for single households and $400,000 for married households. If the Biden plan is trying to create a child allowance out of a tax credit, the Romney plan is leapfrogging directly to a child allowance, with what is essentially Social Security for kids.
A couple of follow-ups. Why universal?
One reason for universality is that this is, from the conservative perspective, a family support program that has anti-poverty impacts, in much the same way that Social Security is a retirement security program that happens to be one of the most effective anti-poverty programs. Reducing child poverty is an important goal but not the only goal and therefore it’s not so narrowly focused on means-testing and targeting. The second factor is that it really wants to communicate, especially when we get into the discussion of its consolidations, that raising a family is a valid and important thing to do whether you’re poor or middle class, and for that reason it’s something we should be supporting through a common program rather than having very bifurcated system in which middle-class families get a simple tax credit and poor families get shunted into welfare bureaucracies.
And what’s the rationale for keeping it at the IRS, as the Biden plan calls for?
The key argument is path dependency; the child tax credit is already something the IRS has done and for that reason, at least in the first year, it would have lower start-up costs. The child tax credit goes to 90% of taxpayers with kids so the IRS knows most of those households. But there is the problem of people who don’t regularly file taxes and how to reach those households, which tend to be the most vulnerable. But from the starting gate, the IRS knows the majority of those households and there will be kinks to work out. I’m personally concerned about mis-payments and issues resulting from the fact that tax returns are by nature annualized and throughout the year people can have all sorts of things happen, whether a birth or a death, a change in marital status, or a change in living arrangements. It will be challenging for the IRS to keep up with all that and make those mid-year adjustments.
The pay-fors in the Romney proposal have been a sticking point for some on the left. What’s the reasoning there?
Romney proposes to pay for the entire expansion to keep it deficit neutral, which is really important if you want to make it a permanent program. But it’s also out of a sense of good government; that every now and then it’s appropriate to step back and look at the suite of programs we have for families and children and ask how we can reform the system in a more comprehensive way rather than being merely additive. In Romney’s proposal, the largest pay-for by far is ending the state and local tax deduction, which represents a tax hike on the wealthy. The remainder comes from a reform to simplify the Earned Income Tax Credit to make it more of a worker credit rather than a credit that is both for earnings but also embeds a child benefit. The idea here is, we have the Child Tax Credit, we have the Earned Income Tax Credit; the EITC for historical reasons is discussed as an earnings subsidy but when you look beneath the surface it’s really a child benefit. And if we can roll some of that per-child variation into a child allowance then that would allow the EITC to be more focused on incentivizing work for people with children and without children, and at the same time lead to dramatic simplifications in the lives of low-income families, many of whom are eligible for the EITC but never receive it because of the complexity.
I think all the proposals out there on this topic are viewed as bold. What led to this moment, and how much did the pandemic and the legislative response to the pandemic lead to where we are?
I would say the two big epochal shifts have been the election of Donald Trump and the pandemic – and both might be thought of natural disasters in their own right. What they have done is force a massive rethink on the conservative side, in particular, about where they stand on a number of issues. In the case of Donald Trump, regardless of how he governed, he at least campaigned on promises of protecting Social Security and Medicare and transcending the kind of libertarian economics of the conservative movement. He obviously didn’t govern that way, but the fact that he could win with that message really altered perceptions about what the electorate actually believes and values, and that maybe for a long time, especially with the Tea Party, we were projecting a conservative philosophy that the electorate didn’t’ really hold. As (Rep.) Thomas Massie (R-KY) once put it, they were just voting for the craziest guy in the room.
One of the thing the pandemic revealed was just how critical social insurance is as a form of public infrastructure. In the early days of the pandemic, Congress hastily put together a program for sick leave because it was realized that having employees who are potentially contagious come to work has big negative externalities. There’s been a dawning realization that social insurance programs from paid leave to unemployment insurance to how we support small businesses are a package deal with a robust market economy, and are important for people of low income and high income alike. In the years leading up the pandemic, unemployment insurance in the United States had been repeatedly cut because it had been perceived as a welfare program. But it turns out that lots of middle-class people can lose their jobs, too.
And do you expect to see this willingness to try new ideas on the right extend to other issues. You mentioned minimum wage, but there seems an opening for bipartisan action on paid leave and childcare as well.
Absolutely. In general, Republicans feel like they have more permission to venture outside their orthodoxies. And every time someone does, whether it’s Romney or Tom Cotton or Hawley, these are all areas where’s there’s space for bipartisanship but also the sense on the right that if they’re going to expand their coalition, they have to respond to the material interests of working class families.
And finally, just the state of play on the Hill right now on the child tax credit/allowance issue. Where do you see things?
There’s always surprises with a reconciliation bill, but the core of the $1.9 trillion relief bill has the votes to pass. Whether it ends up being $1.9 trillion or $1.5 trillion, or if they move around state and local aid, remains to be seen and there are still a few other things they might move around. When it comes to the child credit, though, it’s in and happening one way or the other. One of the things I’ve been trying to communicate, particularly to Republicans, is that the Child Tax Credit was pioneered by the Republican party. It was part of (former House Speaker) Newt Gingrich’s Contract For America and most recently raised by Donald Trump. The Child Tax Credit is something that Republicans have painted themselves as champions of and it’s going to be awkward a year from now when Biden’s expansion is up for renewal and Republicans are in the position of opposing payments to families. That’s not the position you want to be in, particularly ahead of the midterms. It in some sense short circuits the purely oppositional politics that we’re used to, in which the minority party just campaigns on the majority party’s failures. Take Senator Marco Rubio, for example. He’s up in 2022 and if he’s on the debate stage with his Democratic opponent and has to explain why he opposed the monthly checks that are flowing to Floridian families, he does not want to be in that position. And no Republican on the ballot ought to be in that position. So, they need to stop standing athwart history and rally around Romney’s plan as the principled conservative alternative.