The current reconciliation bill has four family benefits in it: child allowance, paid leave, child care, and pre-k. Because of opposition to the proposal from Senators Manchin and Sinema, Democrats are discussing how best to cut these benefits back. As part of this discourse, I’ve decided to provide a succinct rundown and ranking of these four benefits below.
The child allowance benefit provides $300 per month to children between the ages of 0 and 5 and $250 per month to children between the ages of 6 and 17. The benefit begins phasing out at a rate of 5 percent for income beyond $125,000 (single) and $150,000 (married).
The design of the child allowance benefit, which is technically an advanced monthly refundable child tax credit, makes it extremely difficult to reach the poorest children because they live in families that do not file taxes. The design also causes some families to receive overpayments during the year, which are clawed back through surprise tax bills at tax time.
The paid leave benefit provides a 12-week cash benefit to workers that need to take time off due to the birth of a child, certain medical reasons, or family caregiving. The precise amount of benefit depends on the worker’s prior level of earnings and is summed up in the graph below.
The paid leave benefit is only available to people who earned income in the 3 to 6 months prior to taking leave. This means that around 1 in 3 new mothers will be ineligible to receive any money from the program.
The proposed paid leave scheme has no minimum benefit level. This means that individuals with very low earnings will receive almost nothing from the program, making it difficult or impossible for them to actually live on it while they take time off.
The paid leave benefit provides 12 weeks to each individual parent with no option to transfer those weeks from one parent to another. Among other things, this means that two-parent families will receive twice as much leave as one-parent families.
Rather than create a unified public program run by the federal government, the proposed paid leave scheme invites employers to set up their own employer-based paid leave plans that are administered by private insurance companies. Those that do so will receive a cash grant from the Treasury equal to 90 percent of average paid leave costs, which will allow employers with paid leave costs below 90 percent of the average to profit off of a kind of paid leave arbitrage. In general, the presence of tens of millions of different employer paid leave plans all run through private insurance companies will massively complicate the program, waste money, and frustrate users.
The child care part of the bill provides cash to states to set up state-level child care benefit systems. The amount of cash provided would be less than the amount needed, meaning that states would be required to share some of the benefit costs. States may choose not to participate in the program to avoid cost-sharing, in which case their residents would receive no benefits.
To be eligible for benefits, a child’s parents would need to satisfy an activity test, an asset test, and an income test. Parents who fail to satisfy them or fail to fill out the paperwork demonstrating that they satisfy them will not receive benefits.
For the first years of the program, families with incomes slightly above their state’s median would be hit by a benefit cliff that results in them receiving no benefits at all.
Families that satisfy all the tests and have incomes below the cliff threshold would be required to make payments equal to a percentage of their income as outlined below.
|Income as Percent of State Median||Copayment as Percent of Income|
|Less than 75%||0%|
|75% to 100%||0% to 2%|
|100% to 125%||2% to 4%|
|125% to 150%||4% to 7%|
The pre-k part of the bill provides cash to states to set up state-level pre-k systems. The amount of cash provided would be less than the amount needed, meaning that states would be required to share some of the benefit costs. States may choose not to participate in the program to avoid cost-sharing, in which case their residents would receive no benefits.
All children between the ages of 3 and 4 are eligible for the pre-k benefit regardless of the parent’s economic circumstances. There are no copayments.
Ranking the Benefits
Here is how the four benefits rank from best design to worst design:
- Child Allowance
- Child Care
- Paid Leave
The universal pre-k benefit is number one as it should seamlessly cover all children between the ages of 3 to 4 in a similar way that our public schools already cover all children between the ages of 5 and 18. The only major problem with the program is that Congress is not covering the full cost, which could result in some states not participating in the program.
The child allowance is a distant second. If it were set up as a universal child allowance and administered in a way that actually enrolled the poorest of the poor, it would be the number one benefit on the list. But for as long as those problems remain, I put it at number two.
The child care benefit should have been designed the same way that the universal pre-k benefit was designed, possibly with an option to take the benefit as cash for parents who prefer to care for their very young children in the home. Instead, we have a program with a ridiculous asset test, a cruel activity test, a welfare benefit cliff, and unnecessary and asymmetrical income-based copayments. For these reasons, it comes in third.
The paid leave benefit is in last place because it is truly a joke. It should have been designed as a universal public program that provided all new parents a benefit equal to at least a decent minimum benefit level. Instead, it has been designed as a giveaway to private insurance companies that is openly inviting extractive adverse selection. Its work history requirement and lack of minimum benefit is designed to explicitly exclude around 1 in 3 new mothers and effectively exclude many other low-earning parents in addition to that third.
Deciding how to cut is complicated because the options aren’t just picking from among these four. You can also change each of these benefits in various ways. And if you change them in certain ways, the ranking of them would also change.
For example, if Senator Manchin explicitly excludes the poorest kids from the child allowance while phasing it out at $60,000, then that benefit probably falls to third behind the child care benefit. If the paid leave bill is switched back to the FAMILY Act design and some of these other flaws are cleaned up, then it would jump to second or even first on my list.
But based on what the benefits currently look like, I think you should prioritize them in the order above.