Two And A Half Suggestions For A Manchin-Approved Build Back Better/Social Insurance Program

To be clear, when I say, “Manchin-approved,” I refer to his insistence that programs not overspend and that be fully-funded gimmick-free, and his declaration just before Christmas that he would not vote on the Build Back Better bill in its current form, or in any version that the Biden administration was willing to agree to. And I’ve been critical of the structure of many of the programs in that bill — not just the buy-now, pay-later that’s a fundamental part of plans which claim to be balanced over a 10 year window but end the benefits themselves only a few years into that time frame, but also the fundamental design of some of those benefits such as child care and parental leave.

So here’s a wish list of changes which would admittedly not get Biden the sought-after praise as a “second FDR” but would, it seems to me, be much more practical and, dare I say it?, bipartisan.

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First, adopt Senator Mitt Romney’s Child Tax Credit, or a negotiated, modified version thereof.

This proposal, which he called the Family Security Act, dates back to February of this year, would be run through the Social Security Administration as a European-style “child allowance” system rather than a “tax credit.” It would provide $350 per month for young children and $250 per month for school-aged children, up to a maximum per family of $1,250 per month. As explained by the Tax Foundation, it would not have any work requirement, but it would replace TANF (traditional “welfare”) for nonworking parents. It would also replace the per-child portion of the Earned Income Tax Credit, creating a simple credit-per-worker instead, partially fund it by ending the SALT (state and local tax) deduction for income taxes, and make a number of other changes. And while Democrats might find much to object to in the proposal, it’s a clear path towards designing a benefit which can find Republican buy-in as a “pro-family” move.

Heck, even Matt Bruenig, at the People’s Policy Project, gives it the thumbs-up, pointing in particular to the fact that benefits would start four months prior to a child’s due date and could serve as a sort of pseudo-parental leave benefit.

Is there hope for this? After Manchin made his announcement, Romney tweeted,

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“Now that it’s clear “Build Back Better” isn’t moving forward & with bipartisan opposition to extending the President’s ill-crafted Child Tax Credit, the Administration has an opportunity to actually work with Republicans & Democrats on lasting, fiscally-responsible family policy.”

and in response to a question on the matter, White House press secretary Jen Psaki said,

“We’re going to work with anybody who’s interested in taking steps to lower costs for the American people, whether it’s on child care or elder care or healthcare,”

which is as noncommittal as it gets but doesn’t discard the possibility.

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Second, develop a form of parental leave as a social insurance system, funded, Social Security-style, through payroll taxes and focused narrowly on parental leave.

Creating a paid leave program funded by a game of “tax the rich” is fundamentally a mistake. Yes, it will be necessary to concede that it was a mistake to promise extensive new government benefits without tax increases for incomes less than $400,000. So be it. As I’ve insisted previously, paid leave is a social insurance program and that calls for a broad-based payroll tax type of funding. As it turns out, the Social Security Chief Actuary not long ago provided an estimate of the cost of a payroll tax paid leave program, 0.62% of pay (though I was skeptical of the assumptions used) for a 12-week benefit.

Yes, it may well be challenging to convince Americans to accept a tax hike, especially for those who may feel the benefits are “unfair” because they are past their childbearing years or have no intention to have children. But we are beginning to recognize that an early return to work is detrimental to mothers’ and children’s well-being. These are benefits for the good of society, not just individuals.

And it would control costs significantly to reduce the scope away from a broad program providing pay replacement for any instance of sickness (which in addition comes with greater risks of gaming the system), to a much narrower set of eligibility circumstances (and, after all, it is easy to prove fairly definitively that a child has been born or adopted).

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Third — well, this is where I would love to proffer a solution for the “free child care!” and “free preschool!” plans in the bill. But I’ve only got a half-solution here.

Both of these programs were problematic in ways that extended beyond the gimmick of their early ending points. The child care program was deeply flawed in its design, providing a 7% “copay” that ended at an income level which would have created a sharp cliff, was designed to boost costs dramatically with a long list of requirements to qualify as “high quality” child care, and would have pushed families to put their children in full-day institutional child care.

The preschool program would have excluded faith-based programs via “nondiscrimination” requirements which would prevent favoring of adherents in hiring staff, for example (a requirement which, according to the New York Times, was not an oversight but intentional). In addition, despite the claims that the program would support a “mixed delivery system” including schools and both institutional and family child care, the split of “preschool” and “child care” only makes sense in circumstances in which a family cares for a child at home/in a home environment and wants to elect a “preschool” environment to provide the school-readiness experience (socialization with other children, experiences following a teacher’s instructions, etc.). As explained at Education Next, in an interview with expert Sue Renner,

“the proposed new investments in universal pre-K are not in step with the realities of the existing mixed-delivery system and its many participants. . . . Biden’s plan risks separating universal pre-K from the wider child-care sector, limiting parents’ choices and their access to subsidized care without fully meeting their needs.”

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At the same time, the Biden proposal would have required that the “free preschools” operate for 1,020 hours per year, which, as Reason notes, exceeds the total class time of most K-12 schools: “Preschool is meant to be a bridge toward full-time school. Parents who don’t want a full-time preschool program are not served well by Biden’s plan.”

It’s all a mess.

To a certain extent, we have existing programs which provide child care and preschool to low-income families. The Child Care and Development Fund provides free or subsidized childcare to 1.3 million low-income families, but funds are limited. In some states, earnings maximums are as little as 127% of the federal poverty level, though other states have higher eligibility cutoffs or have elected to use COVID money for temporary increases. The program also has a significant welfare cliff (see analysis here for Illinois and for Florida), in which participants lose benefits at such a steep rate that they are better off avoiding income increases; a 2010 study found that 1 in 3 recipients rejected pay increases in order to keep eligibility. Head Start likewise is only for children in poverty according to federal definitions.

So should we simply shift to greater eligibility and more gentle phase outs for these programs, and simply do the math with respect to how much is affordable based on the level of tax increases we’re willing to accept, and count on child allowances to provide some relief for the middle class? Should we even take the existing child allowance proposals and front-load more of the money to a child’s younger years? In any case, it should be a given that any such program, however much money it involves, should have neither phase-ins nor phase-outs, but be funded in line with tax revenues.

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As to the rest — the “green” spending? Heck, I’ll talk about social insurance issues seemingly without stopping, but that’s a subject with which I make no pretense to having any expertise.

As always, you’re invited to comment at JaneTheActuary.com!