A California Child Allowance

by Dylan Matthews

I propose that the US effort for a basic income begin through a ballot initiative creating a child allowance for the state of California, financed by a surtax on high earners, an increase in alcohol and cigarette taxes, and a new sugar tax.

Child allowance plans are nothing new. Samuel Hammond and Robert Orr at the Niskanen Center and Rachel West, Melissa Boteach, and Rebecca Vallas at the Center for American Progress have excellent proposals at the federal level, among several others. Democrats in the US House have introduced legislation for a universal allowance of $3,600 for children under 6.

A child allowance would also ease the path to a full cradle-to-grave basic income. This proposal is partially inspired by a report written by Howard Reed and Stewart Lansley for the British think tank Compass, which lays out how the United Kingdom could institute a universal basic income. Their crucial observation is that the UK, like most Western European countries, already has a child benefit paid to all families, as well as a work-based State Pension system (with a Pension Credit to top up incomes for poor seniors).

In effect, the UK has the rudiments of a UBI for people under 16 and over 65. Converting the standard deduction on income taxes into a UBI for working-age people was the last step remaining. And the cost of doing so, once the other components are in place, is relatively modest. One option they consider would entail raising each tax bracket by only 3 percentage points.

The US has a work-based pension system in Social Security, and an (inadequate) top-up plan for poor seniors in Supplemental Security Income. But it has no equivalent of a child benefit. The child tax credit is small and exclusively for families with significant earnings. Transforming it into a child allowance at the federal level would set the US up similarly to the UK for a fuller UBI. But such a move is hard to imagine with Republicans in control of Congress.

Action in the small handful of Democratic-controlled states is the best bet for short to medium-term welfare state expansion. California’s large population and ballot initiative system make it an ideal place to start, though efforts in states like Oregon, Connecticut, New York, Maryland, or Massachusetts would also be constructive. California’s initiative system, for all its flaws, enables the consideration of ideas outside the agenda set by state legislators. Moreover, because of Proposition 13 any policy requiring tax increases needs either a two-thirds majority in both houses of the legislature or a simple majority at the ballot box — and the latter is usually easier to obtain.

There are currently about 9.2 million children under the age of 18 in California. A $1,000 per child annual allowance would thus cost $9.2 billion a year, and less if the benefit were to phase out for families making over, say, $150,000 a year, similar to the phaseout of Canada’s child benefit, and if the dependent exemption in the state income tax were eliminated. Given California’s $285 billion annual state budget, an increase of $8–9 billion is completely viable.

Cigarette, sugar and alcohol taxes are attractive funding mechanisms not just because all of those items are currently undertaxed relative to their social cost (the social cost of alcohol is $27 per liter in the US, California taxes beer at about $4.39 a liter), but because that answers a key critique of unconditional cash programs, namely that beneficiaries waste the money on frivolous expenses.

This critique isn’t founded in fact, but that hasn’t stopped it from driving opposition to cash programs. Offering a child benefit while simultaneously making vice spending less attractive helps answer that line of criticism. That being said, you’d also need a high-income surtax to fully fund the program.

The benefit would be distributed to all households with children monthly (the phaseout for high earners could be implemented through a clawback in the state income tax). The default option would be a labeled (“Here’s your California Child Allowance, thanks for being parents!”) check in the mail to build name recognition and a political base for the program; as the saying goes, keep it simple and take credit.

If it proves popular, the relatively stingy $1,000 benefit could be increased through further ballot measures; $4,000, Canada’s current level for older kids, would be a good target. The benefit’s ensuing popularity would in turn provoke calls for similar measures in other states and in Congress, building momentum toward a national child benefit and laying the groundwork for a UBI in future decades.

This is the second piece in a series of pitches written for the Economic Security Project’s first design workshop on basic income held last spring. We are sharing these pieces in the lead up to the Economic Security Project’s first ever Cash Conference on Thursday October 19th in San Francisco. RSVP to attend here.