Jon Elswick/AP Image
A portion of the International Revenue Service 1040 tax form, highlighting the Earned-Income Tax Credit
Last week, the California legislature passed a budget that spends billions of dollars to attack poverty in the state. Democratic Governor Gavin Newsom signed it into law, in so doing increasing funding for cash welfare, providing $1.5 billion for affordable housing, and also providing more resources for eviction defense, the state’s Medicaid program, homelessness aid, and myriad other anti-poverty programs. In what Newsom termed “perhaps the most significant anti-poverty initiatives that we’ll be passing this year,” the new budget also more than doubles the state’s Earned Income Tax Credit (EITC) and creates what might be the country’s first child allowance—or at least, the closest thing yet to one.
Under the state's new child tax credit, all families in poverty will receive a $1,000 refundable tax credit for each child under the age of six. The only catch is that families must have at least $1 in earnings to be eligible.
“We could call it a universal allowance, you might call it a guaranteed income,” says Jessica Bartholow, policy advocate at the Western Center on Law and Poverty. “It says to households with children that they will have minimally an annual income of $1,000.” If, of course, they report some earnings.
Bartholow said anti-poverty advocates tried to get the earnings requirement down to $0, but they couldn't. Legislators wanted to be able to say that this benefit was going to families that were earning, throwing a bone to the narrative that only those who work deserve government help.But as a step toward an omnibus program to end poverty, a mere $1 earnings requirement is the next best thing to no earnings requirement at all.
How the tax credit will be paid for deserves some attention—there are no new taxes, not really. The $1 billion cost of the new credit and the expanded EITC will be funded by a new tax conformity law also passed by the state legislature. Essentially, the state is raising taxes on corporations and wealthy individuals equal to the tax cuts they have received under the GOP’s tax reform—meaning they will be paying the same rates they’ve been accustomed to paying. The resultant money will go into California’s coffers to fund the child tax credit. “It’s the closest thing I’ve seen to a pure wealth redistribution in the state of California,” Bartholow says.
Of course, while we may call this a child allowance and suggest it's effectively a guaranteed income, it is still based on earnings. Liberal though California clearly is, it's still part of the United States, where deservingness is the prerequisite for public assistance. The federal child tax credit completely excludes families with very low earnings from receiving the credit. California has now made that hurdle symbolic rather than real.
The one remaining real hurdle will be getting word of the new credit criteria out to the desperately poor. A robust outreach campaign will be required to ensure that families know they must report $1 in earnings and file income taxes.
The new EITC also increases the pool of potential recipients on the higher end of poverty as well as the lower end. Under the new statute, families with up to $30,000 in annual earnings (which comes to one full-time job at the state's eventual minimum wage of $15) will be eligible for the EITC, up from a previous $24,950 salary limit. Three million Californians, as opposed to last year's two million, may now receive the credit. (There was an advocacy push to expand the EITC eligibility to immigrant workers who file taxes with an Individual Taxpayer Identification Number [ITIN] and not a Social Security number, but this was not successful.)
The $1,000 child tax credit is a watered-down version of the proposed targeted child tax credit (TCTC) that I wrote about in the Prospect’s spring issue. The TCTC was designed by California’s End Child Poverty task force, convened by the state legislature, and was part of a package of reforms to end poverty in the state, most of which have passed this session. The most far-reaching proposal was the TCTC, which would have directly transferred cash to families living in deep poverty (half the poverty line) in order to eradicate deep poverty entirely. Unlike the $1,000 credit now allocated to poor families, the TCTC would have scaled benefits and given more to extremely poor families. But the TCTC would have cost far more than the tax conformity provides—about $2.8 billion annually after it had phased in over a decade.
There's good reason to believe that the benefits of the TCTC's proposal would outweigh the costs: Recent research on childhood poverty and brain development has shown that poverty has lasting effects on children as they grow. Those who are not persuaded by the moral argument of ending poverty could be persuaded by simple economics, in that an intervention like a TCTC “positions children to participate in the economy when they grow up that perhaps no other intervention could do,” as David Grusky, director of the Stanford Center on Poverty and Inequality, told me.
The child tax credit that passed will not end extreme poverty with a $1,000 annual payout, but it could be a step toward something more targeted: This was, after all, just the first year in which anti-poverty advocates argued for the TCTC reforms. Another goal for advocates is to secure monthly, rather than annual, distribution of the credit, a reform that Maine recently enacted for that state’s EITC.
“We still have a ways to go to end deep poverty among children,” says Bartholow. But she feels Californians have “entered into a new era of understanding the great vulnerability of children at young ages” who experience poverty and all its encompassing effects.
“[Governor Newsom] promised to make child poverty a ‘[North] Star’ for his administration, and he has,” she says. “No doubt about it.”
