Solving the mystery of childhood poverty - Michigan Future Inc.
Child poverty rates in the United States are often treated as a mystery. How can so many children be poor in a nation this wealthy?
But as it turns out, reducing child poverty is no great mystery at all – just ask the United Kingdom.
Historically the U.S. and the U.K held the dubious distinction of having some of the highest child poverty rates among wealthy nations. While a booming economy and tight labor market sent child poverty rates in both countries into decline in the late nineties, by 1999 the rates were still inexcusably high: 19% in the UK and 16% in the US.
From that point on the paths of the two nations diverged. The U.S. continued to depend on the labor market to alleviate poverty through welfare reforms that pushed individuals from welfare to work. The U.K. took a different route, significantly increasing spending on anti-poverty programs, led by Prime Minister Tony Blair's pledge to halve child poverty in ten years.
What happened next was predictable. As the U.S. economy slowed, child poverty slowly rose before topping out around 20% during the Great Recession, where it has remained. In the U.K., on the other hand, in spite of a sluggish economy followed by a recession of its own, the child poverty rate dropped rapidly, from a high of close to 20% down to almost 10%, on track to hit the target set by Blair.
And what's so interesting about this decline is that there was nothing particularly innovative about Britain's approach – they simply dedicated the necessary public resources to make far fewer families poor. According to research from Timothy Smeeding of the University of Wisconsin and Jane Waldfogel of Columbia University, the Blair government spent an additional 0.9% of GDP on programs for low-income families between 1999 and 2003, the time-period that saw the largest drop in childhood poverty.
And they spent the money to expand many of the same programs that we already have in the U.S. They increased the minimum wage, increased their version of the EITC to incentivize work, increased cash benefits regardless of employment status, provided universal childcare, and introduced regulations to allow for flexible work schedules for parents of young children. In short, they delivered more resources, both cash and in-kind benefits, directly to low-income families.
What would it look like for the U.S. to do what Britain did, and increase spending on antipoverty programs by 1% of GDP? And how should the money be spent?
One solution, explored in two recent articles in the New York Times, is a universal child allowance given to every family with children, regardless of income. This would take the place of the current child tax credit and deduction, which provides very little money, on average, to poor families. Research (by Waldfogel and Smeeding, the same researchers that studies the U.K.'s antipoverty efforts) finds that an annual allowance of $3,000 per child would reduce the child poverty rate by 40%, with a larger credit leading to larger reductions. And while it sounds expensive, a credit of this size would still be relatively less than the increased investment the U.K. made in anti-poverty programs, coming to roughly 0.5% of U.S. GDP after eliminating the child tax credit and deduction.
And regardless of federal action, there's more we could be doing for poor families in Michigan right now. As I wrote in a previous post, through the TANF program we have $1.3 billion annually in federal and state matching funds to be spent on low-income families, yet only a tiny fraction of this money ends up in programs supporting those families. If we devoted all of those funds to antipoverty initiatives, that would amount to 0.3% of Michigan's annual GDP. Not quite the investment that was made in the UK, but it's a start. And it would have significant positive impacts for Michigan children.
While the best path out of poverty for families is still a good paying job, the past twenty years have shown that we can't rely solely on the labor market to alleviate poverty. Poverty is a measure of resource deprivation, and the U.K. showed that the extent to which we decrease poverty is directly correlated to the public resources we provide to poor families. So the choice is either to continue treating childhood poverty as a mystery that can't be solved, or dedicate the resources needed to give all children a fair shot.