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The U.S. will spend billions in stimulus to tackle child poverty—still puny by global standards

March 16, 2021, 6:00 PM UTC

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Even before the COVID pandemic hit, rich countries had a big problem: way too many poor children.

And one of the worst ranked is the richest of all countries—the United States.

Not only are a troubling number of American youths living below the poverty line, Washington and state capitals had been doing precious little to address it. At least, that was the case before President Joe Biden signed the American Recovery Plan (ARP). The law could pull out of poverty nearly half of America’s impoverished youths and those living in the households worst hit by the pandemic, according to a forecast from the social policy think tank the Urban Institute.

The Biden Administration plans to accomplish this through an almost uniquely American social policy tool: by tweaking the federal tax code. Under ARP, the child tax credit, the child care tax credit and the earned income tax credit will all get extended for a year for low-income families. Democrats hope the credits prove so popular with the American public that they can make them permanent.

Combine those three tax benefits with the direct-payment stimulus checks, and American families in the lowest tax brackets would split roughly $540 billion worth of benefits, according to the Joint Committee on Taxation.

“The significance of this moment in U.S. social policy is hard to overstate,” Christopher Pulliam and Richard V. Reeves, of the Center on Children and Families at the Brookings Institute, wrote the day ARP was signed into law.

“One of the most important criticisms of the more generous child allowances is that, even if they cut poverty in the short-term, they will undermine social mobility over the longer term, not least by disincentivizing paid employment among parents… This is a false choice. Child allowances are a powerful anti-poverty policy; but they are pro-mobility policy, too.”

Do the numbers match the hype?

Economists and policy advisors have studied the dynamics of child poverty for decades, and there’s now overwhelming evidence that shows a growing economy alone isn’t enough to lift families out of poverty. (If it were, we’d have seen poverty rates improve in the past decade, rather than stagnate or worsen.) Instead, what’s needed are social policies that address the poverty rate—things like housing or childcare benefits to poor families, according to economists and policy makers (and not just those on the left).

That was also one of the big recommendations in an October, 2018 report by the Organization for Economic Co-operation and Development called “End Child Poverty”. The report singled out a few countries, including the United States, for particularly ineffective child poverty policies.

According to the OECD, the U.S. ranks well below the OECD average—behind Mexico, Lithuania and Greece—with 21% of its children living below the poverty line. This is nearly double the rate of that of Germany or France.

To find the countries best at tackling child poverty, you have to travel to places like the high-tax Scandinavian countries. In Denmark, the program to eradicate child poverty is often referred as the børnecheck, the name for the family allowance that’s targeted to all but the wealthiest Danes.

A Danish parent earning less than 800,100 Danish Kroner ($128,300) qualifies for a payment worth up to 4,596 Danish Kroner ($737) every quarter for their newborn child. Smaller and smaller payments continue until the child turns 17. For each household with a 17-year-old, a direct payment of up to 954 DKK, or $153, is sent home each month.

The børnecheck is much studied, as Denmark has succeeded in reducing its child poverty rate to a very-good-but-not-perfect 4%—five times better than America’s child poverty rate.

America’s answer, ARP, is no Danish blockbuster—but it would get the U.S. closer to its peers in Europe and Asia.

Economists and data analysts at the OECD ran the numbers on ARP and found that its model American recipient family—a couple in Detroit with two children under 7-years-old—would see a much needed, but modest, 5% bump in disposable income. That family would still be well below the median disposable income for an American family. “But, on the whole, the U.S. would be moving closer to the OECD average” under ARP, Willem Adema, a senior economist in the OECD’s social policy divison, told Fortune.

You may be puzzled, and a bit disappointed, at where these American families find themselves, post ARP, on that graphic above. After all, closer to the OECD average was not the rallying cry the Democratic leadership fed the American people as they sought Congressional and public support.

Yes, ARP is an expensive bill, one that will take generations to pay off. But, as social investments go, it’s not quite on par with the Denmarks of the world.

To illustrate, Fortune again asked the OECD to run the numbers. Prior to ARP, the U.S. had earmarked a relatively puny sum, equal to 1.4% of GDP, to support families in need, with things like parental-leave benefits and childcare support—the kinds of safety-net programs that could lead to real social mobility. That outlay put the U.S. squarely in the “stingy” camp compared to its peers in other wealthy nations.

With ARP, the U.S. leapfrogs the likes of Ireland, Canada and the Netherlands, as it will now be dedicating up to 2% of GDP (for the next year, anyhow) for such safety-net measures for families.

That’s still well below the OECD average.