Last week, three Democratic Representatives introduced HR 2408, The Child Poverty Reduction Act of 2015. The purpose of the legislation is to establish a Federal Agency Working Group on Reducing Child Poverty aimed at cutting child poverty in half in 10 years and eliminating it in 20 years. The legislation replicates the UK’s effort that started in 2000, which aimed to eliminate child poverty in the UK by 2020. In 2010, the UK revised this goal, but still aims to reduce relative child poverty to below 10% (from 17.4% in 2012/13) and absolute child poverty to below 5% by 2020 (from 20% in 2012/13).
By most accounts, the UK’s effort was mildly successful – by 2005 child poverty was reduced 17% from 2000, which narrowly missed the goal of a 25% reduction during this time. Unfortunately, the economic downturn in 2007/2009 all but stopped the decline, but the initial reduction was largely sustained.
In many ways, the UK achieved this decline in child poverty by borrowing US welfare reform policies. They focused policies on employment and established a working family tax credit (WFTC, later restructured into a working tax credit and child tax credit), which is administered through the tax code similar to the earned income tax credit (EITC). Prior to this, the UK offered a family credit, which provided money to working families administered as a benefit program. The WFTC replaced the family credit by increasing the amount of the benefit and shifting it to the tax system. The declines in child poverty in the UK have largely been attributed to this expanded tax credit. From the UK-based Institute for Fiscal Studies (IFS):
The substantial falls in pensioner and child poverty were largely driven by very significant additional spending on benefits and tax credits. Reforms since 1997-98 resulted in an £18 billion annual increase in spending on benefits for families with children.
The replacement of family credit by the WFTC in 1999 strengthened the incentive to work for lone parents and the incentive for couples with children to have one worker rather than none, and was generally considered to have increased the employment rate among these groups.
The US experienced similar, if not larger, success in reducing child poverty as a result of the EITC (first implemented in the 1970s and expanded in the early 1990s) and other welfare reforms when measured in ways similar to the UK. When considering a supplemental poverty measure with an absolute (vs. relative) threshold that considers tax credits and other public benefits, Christopher Wimer and colleagues of Columbia University show that child poverty in the US was cut by almost one-third from 28% in 1993 to 19% in 2012, with a low of 17% before the Great Recession. And using a relative poverty measure that adjusts for underreporting of income and includes tax credits and public benefits, Arloc Sherman of the Center on Budget and Policy Priorities found that child poverty was reduced by 32% from 1995 to 2010.
Certainly, additional work to reduce child poverty in the US remains. But a new working group within a federal agency seems unnecessary. Better for lawmakers to focus on the anti-poverty programs that are working, like the EITC, and shift dollars to it and away from less effective programs. The UK learned from us and we can learn from them. As IFS in the UK concluded:
There are large gains to be had from designing the tax and benefit system skillfully: a government’s chosen level of redistribution can be achieved in more and less efficient ways. Stronger work incentives should be focused on those who are more responsive to such incentives.
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