A child allowance is a cash-based family support policy aimed at providing families with children with a consistent, recurring income supplement to prevent or mitigate poverty and defray the costs of raising a child.2 Most child allowances are disbursed on a per-child basis, so a family with two children would receive a larger benefit than a family with one child. In the international context, this policy is sometimes referred to as a universal child benefit (UCB) or unconditional cash transfer (UCT).3 Cash transfer programs can take many different forms, enumerated below. The evidence reviewed here focuses specifically on unconditional, recurring cash payment programs in the context of the US, with a particular focus on programs targeted toward families with children.
A child allowance is different from the policy known as a universal basic income (UBI) because a child allowance is only provided to families with children, whereas UBI programs provide a floor of income to all individuals monthly, regardless of family composition. However, UBI programs would likely benefit children as well because they would provide caregivers with additional resources that can be spent on children and can reduce overall family poverty. UBI funds can also help individuals access needed resources, such as education, nutrition, housing, and health care, before they choose to have children, which can lead to better parent health and family economic security in later years.58 Therefore, the potential impacts of UBI policies in the US are also discussed as part of this evidence review, although they are not the focus.
UBI and child allowance policies have drawn support from across the US political spectrum; some advocates emphasize that such policies would guarantee a minimum standard of living and dignity for all citizens and help them weather economic crises,15 and others highlight the potential for a UBI to streamline multiple welfare programsi into a single, more efficient cash transfer that gives families more choice and control over their expenditures, thus reducing paternalism.16 Economists, advocates, and policy scholars from Milton Friedman, to Martin Luther King, Jr., to 2020 presidential candidate Andrew Yang have contributed to popularizing various forms of universal basic income as a prudent social policy. Political leaders from multiple parties in the US developed competing child allowance proposals to include in the 2021 COVID-19 relief package, sparking vigorous discussion about the costs and benefits of such a policy for American families.61
It is important to distinguish a potential child allowance in the US from similar policies that seek to reduce child poverty through different mechanisms. For example, one similar policy is known as a conditional cash transfer or CCT. CCTs first became common in countries outside of the US in the late 1990s, specifically in Central and Latin America.4 This policy provides cash incentives to families to motivate certain behaviors, such as ensuring children’s school attendance or engaging in preventive health care activities. The goal of a CCT is to reduce poverty while simultaneously building human capital and encouraging positive investments in children’s and caregivers’ health and education. Experimental evidence on CCTs has found positive short-term impacts on poverty, health, nutrition, and education, whereas impacts on later employment and earnings continue to be studied as the first child participants transition to adulthood.4
The most well-studied CCT program is PROGRESA, which began in Mexico in 1997 and benefited 10 percent of all families in the country.6 Another CCT, in India, provides child benefits to families with daughters upon milestones such as school graduation and immunizations, with the goal of addressing gender inequities.3 Conditional cash transfers have been provided in experimental programs in the US as well. A randomized trial called Family Rewards, originally begun in 2007 with a follow-up iteration in 2011, provided participating families in New York City and Memphis, Tennessee with cash incentives for doctor’s visits, school attendance, and other child investment activities. Some outcomes, such as poverty, material hardship, and dental care receipt, showed improvements, but fewer positive impacts were found for other health and education outcomes.39 This evidence is less relevant for understanding the impacts of a US child allowance, however, because of the conditional nature of the cash disbursement.
Alaska is the only state in the US that currently has a statewide policy resembling a child allowance or UBI, called the Alaska Permanent Fund Dividend. However, this dividend was not originally intended to be an anti-poverty toolii (although it has indeed reduced poverty in the state50,53), and it is not targeted at families with children.56 Rather, funds from the investment revenues produced by Alaska’s oil reserves have been provided to every individual resident (including children) since 1982, as long as the individual has lived in Alaska for at least 1 year. Parents can claim the dividend on each minor child’s behalf, and some scholars have argued that the state should ensure that the dividends awarded to parents in a child’s name are actually spent on children.56 Currently, no such requirements exist. The payment level can change each year (as it is tied in part to the performance of stocks) but is now approximately $2,000 per person, and research on the dividend’s impacts is discussed in this review. The Alaskan payment is considered taxable income, whereas child benefits in many countries, such as Canada, are not taxed. Local child allowance and UBI pilot programs in cities across the US are also discussed later in this review (see the section of the review entitled “How Do Child Allowance Policies Vary Across the States?”).
In the US, a permanent statewide or federal unconditional child allowance policyiii has never been implemented, but rather a patchwork of employment-based and tax-based policies comprise the country’s anti-poverty social safety net. However, this patchwork leaves many of the poorest families without needed resources. For example, the US’s primary cash assistance program, Temporary Assistance for Needy Families (TANF), reaches fewer and fewer families each year. According to the Center on Budget and Policy Priorities, TANF supported 4.4 million families in 1996, but only 1.2 million in 2018.7 This decrease means that TANF reached 68 percent of families with children in poverty in 1996, but now reaches just 22 percent.8 The program only supports about one in five families in poverty who have an infant or toddler,9 and in 16 states, TANF only reaches one in ten families in poverty.10 Because TANF is awarded as a block grant from the federal government, states have considerable control over their TANF rules, and the percentage of families in poverty with infants or toddlers who benefit from the program varies widely from state to state—from 88.2 percent (in the District of Columbia) to 2.7 percent (in Idaho).9
In addition, TANF benefits are limited to 60 months total over a lifetime and states must enforce work participation requirements for portions of their caseload.11 Depending on state policy, individuals may lose their TANF benefits if they are not engaged in work- or education-related activities for a certain number of hours per week. The federal government requires that at least half of the families receiving TANF assistance engage in a work or training activity for at least 20 to 30 hours per week.11 States determine which individuals on their caseloads must participate in these activities. Many of the US’s other anti-poverty programs are tied to work as well; the federal and state earned income tax credits (EITCs) reward earned income with a refundableiv tax credit that has been shown to successfully incentivize employment, increase earnings, and improve health outcomes among families in poverty.v
The US child tax credit is another anti-poverty tool that excluded the poorest families—those with annual earnings of less than $2,500—prior to the passage of the American Rescue Plan (ARP) in March 2021.12 In its previous version, before the ARP, the US child tax credit eliminated up to $2,000 in federal income tax liability per child under age 17, and was refundable up to $1,400 per child for those whose tax liability was less than the full credit amount but who earned at least $2,500.vi,13 Families could receive a nonrefundable credit of $500 per child ages 17 and 18, as well as for dependents who are full-time students if they are ages 19 to 24.13
The $1.9 trillion stimulus package (ARP) passed in March 2021 to mitigate the economic effects of the COVID-19 pandemic included a temporary expansion to the child tax credit that makes the credit more closely resemble a child allowance, and the expansion has the potential to become permanent.64 Beginning in July 2021 and lasting for at least 1 year, families with children are eligible to receive a child tax credit of up to $3,600 for children ages 0 to 5 and up to $3,000 for children 6 to 17 (this is up from the previous cap of $2,000 for all children regardless of age, is newly inclusive of children age 17, and is no longer subject to the $2,500 earnings minimum to receive a refund).
Another key improvement is that the child tax credit will be fully refundable, whereas previously, only up to $1,400 could be returned to families who had less than the full credit amount of $2,000 in tax liability. In addition, half of the benefit will be disbursed through monthly checks from July 2021 through December 2021, and the remaining portion will be provided at tax filing time in 2022. The full expanded benefit (the additional $1,000 or $1,600) is available to single heads of household up to an adjusted gross income of $112,500, and for married parents up to $150,000. Single parents with an adjusted gross income of up to $200,000, or couples with children making up to $400,000, can continue to receive the original $2,000 child tax credit (with refundability up to $1,400). The credit phases out after those thresholds. The credit does not count as taxable income, so the additional resources do not count against families’ eligibility for other public assistance programs, such as SNAP benefits.
A permanent child allowance could build upon the US’s current anti-poverty programs, including the child tax credit expansion, by continuing to offer universal and recurring income support—covering all needy families, including those out of work, and offering benefits throughout the year, rather than just once at the annual tax filing time. A permanent child allowance in the US could be designed in a number of ways, and the international context provides a variety of models to consider in addition to the current version based on the child tax credit.
Key policy parameters that would need to be determined include (but are not limited to):
- How much each family would receive per payment;
- How often the benefit would be provided (monthly, quarterly, etc.);
- Whether the benefit would phase out for families with the highest incomes;
- Whether the same amount would be provided for each additional child;
- Whether payments would differ depending on children’s ages; and
- Whether other programs within the social safety net would remain the same and offer benefits alongside the child allowance, or would be replaced by the child allowance.
Countries with child allowance policies differ regarding the above parameters. For example, Denmark pays its benefit quarterly, whereas Canada provides its benefit each month.3 In Austria, the benefit is paid to all resident children up to age 18 and can be extended to age 24 for young adults in training or education, whereas in Finland, the benefit is paid up to age 17.3 The value of the benefit also varies, from 2 percent of the average wage in countries such as Estonia, the Netherlands, and Norway, up to 7 percent of the average wage in Ireland.3
Who Is Affected by a Child Allowance?
If a child allowance were implemented as a universal policy, as it is in most countries that have such an allowance, the benefit would impact all (or almost all) families with children.vii In 2019, 3.7 million babies were born to parents in the US.57 A child allowance would benefit these children and their families beginning in the infant and toddler period and throughout childhood. Such a policy would have the greatest impact on families in or near poverty. The US currently has one of the highest child poverty rates among wealthy peer countries, at approximately 14.4 percent based on 2019 Census data.5,viii Although this figure represents a decrease from 2018 (when the rate stood at 16.2%), poverty is expected to rise as the economic fallout from the COVID-19 pandemic reveals its full scope.22
A permanent child allowance would have particularly beneficial effects for families of color, who are disproportionately affected by poverty and financial hardship in the US.14 For example, the 2019 Census data show that 8.3 percent of White, non-Hispanic children (under age 18) lived in poverty in 2018, compared to 26.4 percent of Black, non-Hispanic children and 20.9 percent of Hispanic children.5
Families with young children may benefit most from a child allowance policy because their poverty rates are generally greater than those with older children.32 Among infants and toddlers in the US (under age 3), 19.5 percent lived in poverty in 2018 (12.0% of White infants/toddlers, 36.8% of Black infants/toddlers, and 27% of Hispanic infants/toddlers lived in poverty).51 Poverty rates are also highest among children in families headed by single mothers, who could benefit significantly from a child allowance.5
According to analyses by the Center on Budget and Policy Priorities and other groups, over 90 percent of children in the US will benefit from the recent child tax credit expansion, ranging from 76 percent of children in the District of Columbia to 96 percent of children in Mississippi.65,66 The expansion is expected to lift 4.1 million children out of poverty, including 1.2 million Black children and 1.7 million Hispanic or Latinx children, cutting child poverty by over 40 percent overall.65
What Are the Funding Options for a Child Allowance?
Child allowance policies can be funded in a variety of ways. Some countries, including Denmark, Estonia, and Finland, finance their child benefits through general tax revenue, whereas in others, including Brazil and Iran, revenue from specific taxes or resources are earmarked to fund the child benefit.3 Canada funds its child benefit through federal revenue, and some provinces fund their own supplements to the benefit as well.43 As mentioned, revenues from Alaska’s oil reserves fund the state’s universal income supplement, the Permanent Fund Dividend, but it would be difficult to replicate this mechanism in states without lucrative natural resources.
Some proposals recommend implementing a child allowance as a replacement for, not an addition to, other safety net programs. For example, the child allowance could be funded in part by eliminating or reducing programs such as the Supplemental Nutrition Assistance Program (SNAP), the child tax credit, public housing vouchers, or TANF, and providing families with the cash directly. However, it would be critical to ensure that families’ total resources would not decrease as a result of such a consolidation, as this could potentially exacerbate poverty rather than alleviate it.
As discussed above, the federal government passed a significant temporary expansion to the child tax credit in March 2021 as part of the COVID-19 stimulus package, such that the credit now closely resembles a child allowance.64 The expansion to the child tax credit could be renewed or modified in future years, and new sources of funding for a more permanent child allowance may be considered depending on the success of this expansion.
- Depending on the policy design, a child allowance could be implemented alongside of, or instead of, other safety net programs.
- The creator of the dividend, former Governor Jay Hammond, stated that it was “a means of ensuring that everyone benefitted from oil production on state-owned lands” (p. 89).56
- Evidence from policies similar to a child allowance or UBI, including in Alaska and in certain Native American tribal communities, is discussed in this review. Between 1968 and 1982, the US federal government tested a “negative income tax” policy in six states that was similar to a universal cash transfer, but the findings are disputed as there were concerns about misreported income and inconsistent research design.23
- Whereas the federal EITC is refundable, only some states have refundable state-level credits.
- See the State EITC Evidence Review in the Prenatal-to-3 Policy Impact Center Clearinghouse.
- The refundable portion of the child tax credit is formally known as the “Additional Child Tax Credit” or ACTC.
- Some countries, including Canada, phase out the benefit at the highest levels of family income, and about 90 percent of families are eligible to receive the benefit in Canada.
- The reported poverty rate differs depending on the source’s chosen definition, measurement methodology, and data source. The Supplemental Poverty Measure, for example, considers additional expenses, tax credits, and benefits that the Official Poverty Measure does not consider, and the American Community Survey has different sample sizes from the Current Population Survey, used by the US Census Bureau. The 14.4 percent figure is based on the US Census Bureau’s 2019 Current Population Survey.