Friday, January 26, 2024
Topic: Policy
Content Type: Analysis
Keywords:
More Spending is Never Enough
Arguments Against CTC Expansion
Key Takeaways
- More information and debate is needed on program expansions
- CTC expansion should be considered in conjunction with existing support programs
- A full assessment of money being spent needs to be conducted
The forces that compel politicians to spend more money are far greater than the forces that compel them to be provident. Namely, voters not only benefit from spending but overestimate the benefits, underestimate the costs, and are generally poorly informed on issues of spending. It's true that practically every voter knows that the United States's level of debt is literally inconceivably high, but what often gets lost, is program by program, goal by goal, how much we're already spending.
Before diving in, it should be understood, that in this particular case, the CTC expansion and business tax cut are technically paid for by cutting other spending. However, this situation is more of an exception than a rule. And the reason there is an exception this time, is the existence of a poorly designed pandemic tax break that should have been temporary to begin with but wasn't, and is now being abused and costing taxpayers billions of dollars per year.
It shouldn't be costing taxpayers a dollar at all, but because of negligent politicians of the past, they've now created a spending surplus they can redirect to other purposes and appear to be budget neutral. I should also point out that many of these arguments apply to the tax break that is a part of the "deal".
Americans Have No Idea
The level of information needed for Americans or policymakers to form an informed opinion does is not available. It is not provided by government agencies, the media, or even individual blogs, at a level that would be beneficial.
Consider the U.S. poverty rate. It was updated by the U.S. Census Bureau on September 12, 2023. ABC News, USA Today within a day. More reports were issued, and think tanks, blogs, local news all reported on relevant findings.
Now try a search to determine the cost of any program that alleviates poverty or even in total, and how much we spend annually. This surely changes from year to year, but the reporting on it is totally absent unless someone proposes a cut. Doing a search for SNAP (i.e. Food Stamps), the top hit is a story about groups wanting to make it easier to get. For the record, SNAP went from a $63 billion/year program in 2019 to $145 billion in 2023 and projected to settle around $120 billion/year through 2033.
How many Americans considering the necessity of a $35 billion expansion of CTC know that the Biden Administration will have doubled the SNAP (Food Stamp) program during his presidency, already adding $60 billion/year in additional spending?
How many people know that spending on SNAP has doubled since Biden became president? How many people know the size of SNAP? How many people it helps? How much it effects the poverty rate? How effective an additional dollar of SNAP spending is? And this is just one of the panoply of support programs that are meant to help impoverished Americans.
Americans have no idea how much we spend on income support already. Additional spending, not just in this area, but in every budget line, is presented as if it's the first attempt to solve a problem. Journalists and Democrats consistently disregard all spending already dedicated to solving whatever problem their new spending is targeting. Consider, in the recent debate over the CTC, how many people have mentioned the current total cost of CTC? How many stories have mentioned the Earned Income Tax Credit? Temporary Assistance for Needy Families (TANF or welfare in some circles)? SNAP?
Across the budget, new proposed spending is always presented as if it's the first attempt to solve a problem.
To make an informed decision over whether or not the expansion of the CTC is prudent, one should be aware of how much is already being spent on the same issue. Advocates argue that the CTC should be turned into a refundable tax credit1 because it doesn't make sense that the lowest income people receive less benefit. But what this point misses, is that the lowest income people already receive greater benefits from the other programs. This argument could still be correct, but to fully consider it, one must know the complete picture.
In my research for this post, I couldn't even find an estimate of the total benefits provided by income level. The closest I could find, was this report on the effective marginal tax rates for low income Americans, written in November of 2012, more than ten years ago. The purpose of the report was to show how at low incomes, the combination of benefits created a marginal "tax" rate that disincentivized receiving higher private income.
The Supplemental Data indicate that poverty has been solved! According to the 2012 CBO, a single parent with one child who earned zero dollars from a job, would still, by virtue of government assistance, earn 128% of the federal poverty threshold.
According to the Obama-era CBO, poverty in America has already been solved.
In the chart below, taken from the 2012 CBO report (with a single modification to indicate the poverty line with a red dashed line), it is apparent, that even a person who earns no income from a job, nevertheless has disposable income from government assistance totalling $20,000--more than the poverty threshold. Again, how many people know this? Shouldn't this be more prevalent when debating whether or not to increase assistance?
Journalism and Research is One-Sided in Favor of More Spending
Now do a search on CTC expansion. What's the breakdown of stories that support it, are neutral, and oppose it? In my search, eight out of the ten stories on the first page had headlines that were advocating for the expansion. #6's headline said "Here's who would benefit." In the article, it cites anti-poverty experts who say it's a good idea, played up the benefits, criticized the previous, smaller CTC, estimates the number of children who would benefit. No mention of the cost of the program, and of course, any other already existing programs that it would add to.
The remaining headline was neutral, and it did cite the cost of the expansion--$35 billion. It was the only article of the ten that mentioned the cost of the CTC expansion.
Ballyhooed Improvements to Child Poverty Rate Unlikely
One consistent finding that is included in most articles is how the expanded CTC during the pandemic reduced the child poverty rate to 5%, lower than it's ever been. For one thing, the proposed CTC expansion is $35 billion/year. The pandemic expansion cost around $100 billion/year, nearly 3 times as large, so the improvement from this proposal would be unlikely to come close to having the same effect.
The Center for Budget Priorities, estimates that the CTC expansion will lift 500,000 children above the poverty line. Not too surprisingly, in this report, they don't ever mention the percentage effect nor even the total number of children living in poverty. Reviewing other sources, that number is about 9 million (also you can figure this out using numbers provided in a different CBPP report).
The effect, then, of a $35 billion expansion of the CTC, according to the Center for Budget Priorities, which is pro-CTC, is to reduce the child poverty rate from 12.4% to 11.7%. Now, of course, any reduction in child poverty should be celebrated--reducing it by one child should be celebrated--but the cost is a vital factor. If we could raise more children out of poverty for the same cost, we should pursue that.
$35 billion dollars, if given exclusively to families earning zero dollars, would lift 1.4 million families out of poverty. The CTC expansion will lift 1/3 of that.
Conclusion
The CTC expansion, like virtually every other proposed increase in social spending, benefits from an acivic dearth of research and consideration. The benefits it will provide are over-estimated and with a fuller understanding of current low-income support and alternatives, politicians would find a better place for that money that we don't have.
Useful Links
PEW Report - shows benefits of refundable tax credits by income, but not dollar figures.Supplemental Poverty Measure
Some Background on SNAP
Footnotes
1For the uninitiated, a standard tax credit can only be fully enjoyed if a person owes more taxes than the value of the credit. For example, if a person only owes $1000 in taxes, and the credit is worth $2500, they will only benefit $1000. A refundable, tax credit, on the other hand, disregards their tax bill, and enriches them by $2500 irrespective of their tax bill.