How much UBI spending should go to children?

While the idea of a universal basic income has been around for centuries, it was recently brought into mainstream American political discourse by 2020 Presidential candidate Andrew Yang. Yang centered his campaign around paying every adult citizen $1,000 each month. Many other countries take the opposite approach, providing monthly “child allowance” payments for each child, an approach now favored by many US lawmakers. Here we explore which mix of these two approaches reduces poverty and inequality most effectively.

In a July 2020 post, we found that a child allowance would be more effective at reducing poverty than an adult UBI, for spending levels up to $500 billion, at which point a UBI for both children and adults becomes more effective; adult-only UBI was never the best option. But those three options—adults only, kids only, and equal for adults and kids—aren’t the only ones available. In this post, we calculate the optimal ratios of adult to child UBIs, depending on the total spending and objective.

To start, we modeled how different UBI amounts (funded by a flat tax on taxable income) would impact the poverty rate if children were excluded, received half the UBI, or received the full benefit. Our model simulated up until $3 trillion in total UBI spending and found that including children further reduces poverty at every level. For example, at $1.5 trillion in spending, excluding children would give each adult about $500 a month and reduce the overall poverty rate from 11.7 percent to 4.5 percent. However, at the same amount of spending, including children in the full benefit would lower the poverty rate to 4 percent, lifting an additional 1.6 million people out of poverty. Poverty is generally similar between giving children a full-size UBI or half the adult amount.

Still, the results above only model three scenarios. In our next simulation, we examined the optimal share of spending that should go to children in order to minimize poverty or reduce inequality. For each spending level, we simulated 101 scenarios that range from 0 percent of the overall funding going to children to 100 percent. As a benchmark, we show a line at 22%, which corresponds to equal UBI levels for adults and children (since children comprise 22% of the US population).

The simplest case is inequality reduction, for which optimal policy would give vast majorities of funds to children. In fact, an annual child allowance should reach over $17,000 per child before any spending goes towards adults. Even at $3 trillion in new spending, over half of the money would go towards children, resulting in $1,743 a month for kids and $648 per adult. This is, to some degree, by construction, as our inequality metric considers per-capita resources; other inequality measures may produce different results.

If the goal is to minimize the poverty rate, the story is a bit more complicated. For spending levels below $1 trillion, children should receive more than adults; for spending levels above $2 trillion, children should receive less; for spending levels in between, it varies. Because many people have incomes just below or above their poverty threshold, the poverty rate responds to transfer policy in a volatile way.

Finally, we examined the effect of UBI design on the poverty gap, the summation of the distance poor families are from their poverty threshold. The 2019 poverty gap is $153 billion. To optimize its reduction, adults should receive more than children at every level above $150 billion in new spending. With $2 trillion in funding, the poverty gap could be reduced to $45 billion by sending every adult $628 per month and parents $114 per month per child.

The next chart shows the monthly amount given to children and adults under each optimization (you can hover over points in the prior chart to view this information as well). Because the poverty gap is less volatile to changes at the margin, the UBI amounts increases are nearly linear. At the highest level of spending in our model, $3 trillion, adults would receive $942 per month and children would receive $171 while optimizing for poverty gap reduction. Poverty rate amounts are more erratic, while inequality-minimizing amounts are roughly linear with a kink at the point where optimal adult amounts exceed $0.

Our research shows that different policy objectives and funding levels may lead to starkly different amounts of cash transfer funding going towards children. Each optimization, however, called for children to receive a nonzero share of UBI spending, and often a larger monthly amount than adults, especially with small budgets and when minimizing inequality. These results underline the importance of including children in UBI conversations and policy analysis.