The Effects of Replacing Income Tax Deductions for Children With Children's Allowances

Abstract

All other industrialized countries have some version of a children's allowance, a grant provided to all families based on the number of children they have. In contrast, the United States provides tax deductions for children, which provide the most benefit to the rich and provide no benefit at all to most poor families. The authors argue that a children's allowance could be instituted in this country that would decrease poverty and welfare participation while not costing the federal government any additional resources. A microsimulation model shows the effects of three levels of children's allowances on government revenues, family incomes, welfare use, and labor supply.

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