abstract. To address the staggering problem of child poverty in the United States, policymakers distribute a host of safety-net and transfer programs designed to support children and families. All of these programs require rules to determine how benefits are distributed. Among the more important of these are “child-claiming” rules. These rules determine which adults can receive benefits for which children, driving how well a program helps recipients and satisfies societal goals.

This Article critically assesses the design of child-claiming rules for safety-net programs, using as case studies the Child Tax Credit and the Earned Income Tax Credit. It considers how best to design child-claiming rules to achieve specific program goals, the foremost of which is supporting children’s well-being. This analysis illustrates that no single rule regime dominates. Rather, policymakers must compromise between important objectives such as channeling benefits to children’s caregivers and providing flexibility to claimants’ households. Informed by a principle-driven framework, the Article considers how best to navigate these difficult tradeoffs and proposes specific child-claiming rules under several different benefit structures. The analytical framework can inform the design of administrable and inclusive child-claiming rules across safety-net programs.

authors. Associate Professor of Law, Stanford Law School; Associate Professor of Law, Loyola Law School, Los Angeles. For helpful comments, we are grateful to Leslie Book, Kathleen Bryant, Charlotte Crane, Heather M. Field, Aziz Huq, Hajin Kim, Leah Litman, Rebecca Morrow, Emily Satterthwaite, Christine Speidel, Susannah Tahk, Clint G. Wallace, and Lawrence Zelenak, as well as workshop participants at U.C. Hastings, Northwestern, the University of Chicago, the University of Virginia’s Tax Invitational Conference, Stanford, Yale, the University of Toronto, and the 2020 Junior Tax Scholars Workshop at the University of Utah’s S.J. Quinney College of Law. Matthew Dimon provided excellent research assistance. We are especially grateful to Emily Caputo and the Yale Law Journal editorial team for their diligence and thoughtful edits.

Introduction

Child poverty is a staggering problem in the United States. Roughly 11 million children are growing up in families that live below the poverty line, comprising nearly one-third of all Americans living in poverty.1 Research finds that, compared to nonpoor children, children living in poverty suffer worse physical and mental health, lower educational attainment, higher stress levels, and other negative outcomes that persist into adulthood.2 These findings should surprise no one. And yet, for the past several decades social safety-net programs in the United States have often failed to reach the poorest children. By design, they operate via a patchwork, decentralized system that fails to capture all families in need.3 By execution, they are administered in ways that burden the poorest households with complex rules and aggressive enforcement tactics.4

For the first time in decades, dramatic reform of child-benefit programs may be imminent. In March 2021, Congress passed the American Rescue Plan Act, which temporarily expanded one of the largest child benefits, the Child Tax Credit (CTC), to reach virtually all U.S. families with children.5 Child welfare advocates and sympathetic lawmakers seek to capitalize on current momentum by making these expansions permanent.6 Although the proposed expansion of the CTC appeals most to Democrats, there is bipartisan recognition of the need to better support children through the U.S. social safety net, evidenced by Senator Mitt Romney’s alternative child-benefit proposal.7 These proposals and others take diverse tactics ranging from modifying existing child tax credits, to adopting a universal basic income program that accounts for children, to partly replacing existing safety-net programs with a universal child allowance.8

Despite their differences, all of these programs rely on some set of rules to distribute resources intended to benefit a child to some responsible person other than the child, such as a parent or caregiver. Such “child-claiming” rules are necessary because children cannot directly receive or spend cash payments on their own behalf. Although largely neglected by both scholars and policymakers, these rules are vitally important. They determine who’s in and who’s out—that is, which children can benefit from a program and which cannot. They affect how costly a program is to administer and how burdensome it is for beneficiaries to comply with the rules. And they shape whether the benefits of a program are channeled to those most in need or reinforce existing patterns of inequality.

The task of designing child-claiming rules would be simple in a society with largely uniform child-care arrangements, but modern U.S. society is not homogenous in this way. Family structures and child-rearing arrangements in the United States are complex and diverse, and becoming more so.9 Marriage rates have declined significantly in recent decades, and a large proportion of children live with single parents or cohabitating unmarried couples.10 Children often split their time between different households, and a growing number of children live with and are supported by nonparent relatives.11 These complex living arrangements often make it difficult to determine which person is best situated to receive resources intended to improve a child’s well-being. Rules that assume a traditional two-parent family structure are a poor match for reality and can end up excluding many of the children who would benefit most from assistance.12

This Article makes three contributions to the literature on the design of safety-net programs. First, we show how child-claiming rules are pivotal to the functioning of such programs, both theoretically and practically. Drawing on the current requirements for claiming the Earned Income Tax Credit (EITC)—the largest antipoverty cash-transfer program in the United States today13—and the CTC, we explore how the child-claiming rules explicitly and implicitly draw boundaries around which children can benefit and which cannot, and how these restrictions shape the efficacy of the programs.14 The framework we develop highlights the characteristics of child-claiming rules that give rise to these effects, providing a theoretical lens for considering policy reforms in this area.

Second, having established the centrality of child-claiming rules for program outcomes, we consider how best to design them to achieve specific program goals. We start with a brief theoretical discussion to demonstrate that pursuing even a single, uncontroversial objective, such as promoting children’s well-being, entails significant policy tradeoffs.15 Then, informed by the framework developed at the outset, we consider how best to navigate the difficult yet inevitable policy choices that arise and propose concrete reforms to the existing child-claiming rules for safety-net programs, focusing primarily on those programs administered through the tax code.16 By highlighting how different child-claiming rules provide a better or worse fit for alternative program designs, our analysis illustrates that no single rule regime dominates across the program objectives we identify.

Third, we offer legislative and administrative considerations with the goal of assisting policymakers to translate our proposed rules into law.17 In particular, the current child-claiming rules for the EITC and CTC operate by reference to the rules governing which children can be claimed by a taxpayer as a “dependent.”18 The dependent-child rules at least in part seek to define a family unit and account for families’ ability to pay, rather than seeking to distribute cash benefits to support children’s well-being. We argue for delinking the child-claiming rules for the EITC and CTC from the dependent-child rules. To assist with this goal, we offer sample statutory language for a proposed rule regime that would largely stand apart from dependent-child rules. In addition to legislative considerations, we discuss important administrative details, including conflict-resolution rules, annual versus monthly claim periods, and unification of child-claiming rules across safety-net programs.

To demonstrate the centrality of child-claiming rules, we focus on the CTC and EITC, two of the largest cash-based benefit programs for U.S. families.19 We detail how the current child-claiming rules lead to the exclusion of millions of poor children from these programs—as well as limited flexibility for families, high compliance costs for claimants, and high administrative costs for the government. As we explain below, the current rules primarily rely on what we refer to as “connection tests,”20 which limit who can claim a particular child based on the relationship between the claimant and the child. For instance, a taxpayer must be closely related to the child and reside with her for more than half the year in order to claim her for the EITC.21 Although imposed on potential claimants rather than children, these connection tests have the effect of excluding certain children from a program’s benefits entirely. In the case of the EITC, for example, children who do not live with a close relative for enough of the year cannot benefit from the credit.

The most vulnerable households are hit hardest by the exclusions and complexity that the current child-claiming rules create. Children living in poverty are more likely to live in families with complex care arrangements that do not fit neatly into the current connection tests.22 Additionally, because of the overlap between race and poverty as well as demographic differences in marital patterns and family structures, these rules are more likely to exclude children in Black and Hispanic families.23 There is also evidence that enforcement activity is higher against such households, perhaps as a result of suspected violations of the child-claiming rules.24 These outmoded rules are thus most likely to exclude and overburden vulnerable and historically marginalized families.

If child-claiming rules are central to program outcomes, then policymakers must design the rules for any particular program with that program’s goals in mind. This Article provides a framework for doing so. We start with the goal of promoting children’s well-being. As we show, furthering even this single goal is not straightforward. In order to promote children’s well-being, child-claiming rules should channel funds to someone who will spend them for the child’s benefit, ensure sufficient inclusivity of children, and keep the complexity that families must navigate reasonably low. As our analysis demonstrates, these principles tend to conflict with each other.25

To illustrate one such conflict—between the goals of channeling and inclusivity—imagine a simple universal benefit that is available to all children regardless of their financial situation. Consider a child-claiming rule that permits anyone to claim a child for a particular benefit as long as no one else does so. This “hands-off” design of the child-claiming rules would maximize inclusivity by ensuring that each child may be claimed by someone. It would also maximize potential claimants’ flexibility to decide among themselves who claims a child and thereby accommodates the diverse caregiving arrangements that families adopt.26 The rule does nothing, however, to ensure that benefits are channeled to the individual most likely to spend funds in a manner that promotes the child’s well-being. A parent is likely a better claimant than a next-door neighbor. A custodial parent is likely a better claimant than a noncustodial parent. Thus, a rule that maximizes inclusivity in this way may undermine the channeling goal and could result in less of the program’s benefits reaching the child. Even with a solitary goal, and using the simplest benefit structure, designing child-claiming rules still entails resolving such tradeoffs. Our analysis leads us to conclude that no single child-claiming rule regime dominates on all dimensions of supporting children’s well-being.

Benefit programs may target other policy goals in addition to promoting children’s well-being. We consider two additional goals that bear directly on program design: limiting program benefits for high earners via an income phase-out (means-testing), and incentivizing work via an income phase-in.27 Effective child-claiming rules must account for these goals or risk undermining these aspects of a benefit’s design. As above, tradeoffs are inevitable as additional goals are introduced. For example, while a phase-out reduces total outlays, it also introduces additional complexity and opportunities for gaming, which increase administrative costs.28 These goals may also conflict with our primary goal of promoting children’s well-being.

Although no single rule regime dominates for each of the goals considered here, good design is still within reach. By bearing in mind the policy tradeoffs we present, policymakers can craft child-claiming rules that balance these various objectives to best serve children. To demonstrate, we propose specific child-claiming rules under four different benefit structures: a universal benefit, a benefit with a phase-out, a benefit with a phase-in, and a benefit with both a phase-in and a phase-out. Our proposed rules are more inclusive of children and more flexible for claimants relative to current rules, while still protecting the government’s interests.

We start by describing child-claiming rules for a universal child allowance, by which we mean a benefit that does not phase out or phase in by income.29 We propose a relatively simple rule regime that requires only shared residency and prioritizes the claims of parents only against nonrelative household members. We also propose that children be allowed to claim themselves in certain rare cases where no one else can claim them. For benefits that phase out or phase in based on income, we propose additional rules that seek to protect the program goals that underlie these design features, while still ensuring that someone is available to claim low-income children in nearly all cases.30 Relative to current rules, our proposal would expand eligibility to nonrelative household members as well as nonhousehold members in some cases (and subject to certain constraints). In doing so, they would increase child-benefit programs’ inclusivity and flexibility relative to current rules.

The Article proceeds as follows. Part I describes the current child-claiming rules underlying child-benefit programs in the United States and abroad. This discussion focuses on the EITC and CTC, briefly describes the rules for several of the other important U.S. safety-net programs, and touches on select child-benefit programs abroad. Part II explains how the current rules fall short, leading to the exclusion of children and other serious problems for claimants and the government. Parts III and IV form the heart of the Article. Part III describes core goals underlying child-benefit programs and Part IV proposes specific child-claiming rules informed by those goals. Part V finishes with additional legislative and administrative considerations.