The New Government Basic Income

 


The history of government entitlements is that they inevitably expand, often into something far different than how they began. There’s no better example than the “child tax credit” that Democrats are now expanding into a costly guaranteed basic income for families with children. This is an enormous change in social policy and the role of government, and it’s moving through Congress with no scrutiny.

In March as part of their Covid relief bill, Democrats expanded the credit for 2021 to $3,600 for children under age six and $3,000 for older dependents. That’s up from the $2,000 Republicans offered as part of tax reform in 2017, which was an increase from $1,000.

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The Democratic budget reconciliation bill would extend these provisions through 2025, and the political expectation is that they will be extended after that and never be repealed. That’s a safe bet. Democrats would also keep the full credit “refundable,” which means it is paid in a check to those who don’t owe any income tax. The Internal Revenue Service in July started paying part of the credit in monthly checks, all the better to get recipients hooked on regular government payments.

All of this means that what started as a $500 political sop in the 1990s is no longer really a tax credit. It has kicked free of any connection to income or taxes and is now a full-fledged entitlement. The credit was traditionally “phased in” as parents earned a modest amount of income, an attempt to ensure the benefit flowed to families with a working parent. No longer.


Democrats say a fully refundable benefit will cut child poverty in half. But Robert Doar, who ran welfare programs in New York, has warned on these pages about the risks of sending families checks without any insight into the needs or circumstances of a household. Checks that make families appear less poor on paper are no accomplishment if children are left in awful suffering—such as living with a parent who has an untreated mental illness or addiction.

Taxpayers should understand the magnitude of the benefits. Before the expansion, the average child credit for a family below 100% of the poverty line was about $975, according to estimates from the Congressional Research Service. Now it’s $5,421. That comes on top of other transfer programs such as food stamps and the earned-income tax credit.

The new child entitlement will reach well into the middle class, which is part of the political goal. A couple earning $100,000 that has three children ages 7, 4, and 2 would be eligible for $10,200 in payments. The original tax-credit rationale was to defray the costs of raising young children, but the Democratic bill also creates new entitlements for a separate child-care program plus paid family leave and universal pre-K education.

The only political cautionary word on all of this has come from Democratic Sen. Joe Manchin, who has warned about severing the benefit from work. He’s right, but his party doesn’t want to hear it. “I think that raising children is work,” Sen. Sherrod Brown sniped in HuffPost. But paid employment has been the anchor of welfare progress because the dignity and order of stable work is the most reliable path out of poverty.

Republicans have been missing in action on this seismic policy change, in part because their big-government wing has been pushing the family subsidy as well. We’ve long warned that Democrats would outbid the GOP once Republicans conceded the principle of making the tax code an engine of social policy, and here we are. The new child allowance will build in a trillion-dollar structural income redistribution into the IRS code that will make it far more difficult to cut tax rates or reform taxes in the future.

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Topping all of this off is the blatant fiscal dishonesty. Democrats end the payments after 2025 so they can make them fit in their 10-year budget window. This accounting fiction lets Democrats pretend the credits cost only roughly $556 billion over 10 years. The real cost will be twice that.

Millions of Americans have received checks from the IRS this year, and no doubt they like the money. But this is like free starter chips at the casino. The point is to condition American families to government benefits before the middle-class bill arrives in the future in the form of higher payroll, value-added, or energy taxes. There is no free entitlement state.

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