HOW TO PAY FOR THESE IMPROVEMENTS
Reducing child poverty 57 percent is a bargain our nation can easily afford.
According to CDF’s commissioned study from the Urban Institute, these combined policy improvements would have increased government expenditures $52.3 billion if enacted in 2015—only 1.4 percent of the $3.7 trillion spent by the federal government in 2015 and 0.3 percent of the country’s gross domestic product (GDP) that year. The package would increase assistance through housing vouchers, SNAP and more, but it would offset much of this cost through increased tax revenues attributable to increased employment and higher earnings.
Just over half the money invested in these policy improvements (51 percent) would go to families below 100 percent of SPM poverty and all new spending would go to families with incomes below 150 percent of poverty. Many families with earnings above 150 percent of the poverty line also would benefit from this package, but increased spending on them is offset by increased tax revenues from this group.
This investment in poverty reduction would make an enormous difference in the lives and futures of children and yield huge economic benefits. Child poverty costs the United States at least $687 billion dollars every year in lost productivity and extra health and criminal justice costs. Every dollar invested in alleviating child poverty saves our economy at least $7, meaning this package would reduce the annual economic cost of child poverty by more than half. Not only can we afford to end child poverty; we can’t afford not to.
Unfortunately, our political leaders have ignored the survival needs of America’s poor children for too long, choosing instead to heap benefits on our nation’s wealthiest individuals and corporations and spend trillions of dollars on the military. In 2017 Congress approved tax cuts for the wealthy that will add $1.9 trillion to the national debt over a decade, and in 2018 they approved a 2019 military budget of $686 billion.
For lawmakers who spend trillions to pad the pockets of the rich, withholding help for the poor is not an act of fiscal practicality but moral bankruptcy. If leaders in Congress and the White House could find the moral courage to commit to ending child poverty, finding the money would be simple. Below are several ways Congress could pay for this package and create hope for millions of America’s children.
Billionaires vs. Babies
I didn’t make this world for you.
You didn’t buy any stock in my railroad.
You didn’t invest in my corporation.
Where are your shares in standard oil?
I made the world for the rich
And the will-be-rich
And the have-always-been-rich.
Not for you,
— Langston Hughes,
“God to Hungry Child”
In 2017, the Trump Administration and Congress voted to serve the rich, the will-be-rich and the have-always-been-rich—not our most vulnerable children. While millions of children suffered poverty, hunger and homelessness, the Trump administration and Congress gave $1.9 trillion in massive tax cuts to wealthy individuals and corporations. The 2017 tax bill stacks the deck in favor of the rich and powerful and prioritizes greed before need, billionaires before babies and corporations before children.
Under the 2017 tax bill:
- The top 1 percent of households are projected to receive over $84 billion in tax cuts in 2019 alone—more than the annual cost of the entire SNAP food program. In a year, the richest 1 percent of Americans will receive more in tax handouts than 39 million children and adults will receive in food assistance to survive and meet basic needs.
- The top 20 percent of households are expected to receive $225 billion in tax cuts in 2019—three-fifths as much as the federal government invested in all 73.7 million children in America and children’s programs in 2017.
- More than half of benefits paid in 2019 will flow to the richest 5 percent of taxpayers, while only 1 percent will benefit the bottom 20 percent.
- Foreign investors will receive more in tax cuts than the bottom 60 percent of people in America—about 194 million.
Imagine if our leaders invested as much in babies as in millionaires and billionaires? For the cost of President Trump’s tax giveaways for the top 1 percent of households in 2019 alone, we could pay for our policy package to help 5.5 million more children escape poverty for 1.5 years. For the cost of the tax cuts going to the top 20 percent of households in a single year, our nation could pay for our combined policies for more than four years. It’s time to put children’s welfare ahead of corporate welfare.
Unwind the 2017 Tax Bill’s Giveaways for the Rich
In 2017, Congress changed the tax code to give hundreds of billions of dollars to the wealthiest corporations and individuals in America. In 2018, the top 1 percent of households were projected to receive average tax cuts of about $33,000 while families below the poverty line were to get, on average, $40. After a decade, the Tax Policy Center estimates 83 percent of the benefits of the tax bill will accrue to the wealthiest 1 percent.
Proponents of the cuts said lower corporate rates would spur investment and economic growth, but this trickle-down theory has proven incorrect time and time again. American companies had their taxes slashed, but many have been pocketing the money rather than reinvesting it in employees and communities. In the first year after their tax bill windfall, U.S. companies spent more than $1 trillion on stock buybacks to maximize value for wealthy shareholders.
Congress spent an extraordinary amount of money to make the rich richer. In 2019 alone, these changes to the tax code are projected to cost $280 billion. Over the coming decade, the changes will cost $1.9 trillion. Just a partial restoration of the pre-2017 tax code would generate enough revenue to pay for CDF’s $52.3 billion package to reduce child poverty now. For example:
- Repealing the 2017 tax bill would save $280 billion in 2019, and it would save an average of $190 billion a year for the next decade.
- Reinstating the pre-tax bill Alternative Minimum Tax rules alone would nearly pay for the entire package, saving about $43 billion annually on average for the next decade.
- Restoring the top individual tax rate to 39.6 percent would save about $14 billion a year for the next decade.
- Increasing the corporate tax rate from 21 to 25 percent would increase revenue by approximately $36 billion a year.
- Eliminating the bonus depreciation program for corporations would save $36.5 billion in 2019.
Make the Tax Code More Progressive
In 2017, the three richest men in America held more wealth than the entire bottom half of the country with a population of more than 323 million people. The Forbes 400 held more wealth than the bottom 64 percent of people in America combined. Inequality and wealth concentration have been rising since the 1980s; since then the fortunes of the fabulously wealthy have grown exponentially while median household income has remained stagnant. By increasing taxes on the super rich, Congress could address massive inequality and fund our policy package.
- Taxing the accumulated wealth of the richest 0.1 percent of Americans at a rate of one percent a year would increase federal revenues by about $190 billion a year, almost four times the cost to lift 5.5 million children out of poverty right now.
- Taxing financial transactions like buying stocks and bonds at 0.1 percent of the value of the asset purchased would increase revenues by an average of $78 billion a year over a decade.
- Taxing capital gains and dividends for the wealthy at the same rate as wages would save $130 billion a year.
- Closing the “trust fund loophole” that forgives capital gains taxes on inherited investments would raise about $40 billion a year, almost all from the wealthiest 1 percent.
- Scrapping the increased estate tax exemption for the wealthiest families would save more than $8 billion a year.
- Closing the carried interest loophole would prevent wealthy investment managers from claiming earnings as capital gains and save about $1.2 billion a year.
Fairly Tax the Nation’s Wealthiest Corporations
Though they do business in the United States, benefit from American consumers and rely on the protection of American law, many huge corporations avoid paying taxes by stashing money outside the United States. The world’s 500 largest companies currently hold $2.6 trillion in profits outside the United States to avoid U.S. taxes. A study from the International Monetary Fund estimates our nation loses about $200 billion a year in tax revenue due to corporate tax avoidance.
While the 2017 tax bill modified the law governing overseas profits to nominally incentivize moving money back into the United States, companies are mostly choosing not to repatriate their earnings. Collecting taxes on the massive pool of overseas earnings requires a stronger tax policy.
Corporations Hiding Profits Overseas
Repatriating the offshore profits of Fortune 500 companies could increase revenue by almost $200 billion annually according to the International Monetary Fund.
- Apple is avoiding $76.7 billion in U.S. taxes, enough to pay for our entire package to lift 5.5 million children out of poverty with nearly $25 billion to spare.
- Citigroup is avoiding $13.1 billion in U.S. taxes, enough to help nearly 1.4 million children escape poverty.
- Nike is avoiding $4.1 billion in U.S. taxes, enough to lift 430,000 children from poverty.
- PepsiCo and Goldman Sachs also hold tens of billions in profit overseas to avoid U.S. taxes but don’t provide estimates of their potential tax liabilities.
Reduce Military Spending
The United States Department of Defense will spend more than $686 billion in FY2019, an increase of more than $74 billion over FY2018. This increase would fund CDF’s entire package to lift 5.5 million children out of poverty now. The U.S. already spends more on the military than China, Russia, Saudi Arabia, India, France, the UK and Japan combined. Military spending accounts for more than half of all discretionary federal spending, but minor changes could pay for reducing child poverty.
Reversing Congress’s 2018 decision to sharply increase military spending would save $160 billion over two years. Even more modest changes could pay for this proposal. Reducing the Department of Defense’s budget by just 10 percent would cut federal spending by an average of $52 billion a year over a decade.
It’s Time to Reorder Our National Priorities
America does not have a money problem—we have a profound values and priorities problem. Babies’ survival needs should trump billionaires’ and millionaires’ greed. The richest nation on earth can and must provide enough for children with too little before padding the pockets of millionaires and billionaires with far more than their fair share of government assistance. Too many children face daily perils we can prevent and alleviate by making more just choices in our rich nation.
Professionals on the Frontlines of Child Poverty: Pediatricians
When policymakers fail to adequately fund housing vouchers or food assistance, their choices physically hurt children, according to Stephanie Ettinger de Cuba. Ettinger de Cuba is the executive director of Children’s HealthWatch, a network of pediatricians, public health researchers and policy experts that collects and analyzes data from health care settings. “These policies don’t happen in a vacuum,” she told Greg Kaufmann in an article for The Nation, “They are written on the bodies and brains of the family.”
The network’s peer-reviewed studies have examined how the experience of poverty harms children’s health. Take, for example, its January 2018 report on housing instability. Children’s HealthWatch researchers evaluated how being behind on rent, multiple moves and homelessness related to caregiver and child health among low-income renter households. Families who faced any of these three forms of housing instability were found to be at risk of poor health, food insecurity and increased hospitalizations. As the number of unstable housing circumstances multiplied, so too did the risk of adverse health experiences.
The work of Children’s HealthWatch and the experiences of pediatricians on the ground are clear. “In some ways we don’t need more science to keep demonstrating that these [assistance] programs work,” said Ettinger de Cuba. “We just need to fund them.”