Ending Child Poverty Now – Chapter 4

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.

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.

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.