America's child-tax-credit bonanza

By Todd G. Buchholz and Victoria J. Buchholz

SAN DIEGO — Stories about vaccination and coronavirus variants are blocking out almost all other news nowadays. But one story, in particular, deserves more coverage. This summer, the United States launched the Child Tax Credit (CTC), a new policy that will shake up traditional relations between the US federal government and American families, from poor households trying to come up with bus fare to affluent ones looking to put money down on a new Tesla.

The CTC, which was included in the American Rescue Plan of 2021, stands apart from most other subsidies because it is a recurring payment, rather than a one-time-only check or an annual credit. In July, the US Treasury began sending monthly direct deposits of $300 per child under six years old to families earning up to $150,000 per year (twice the median family income), and $250 monthly to eligible families with children aged six to 17. If Congress makes the CTC permanent, about 90 per cent of American children would receive a near-$55,000 bonus for the achievement of reaching adulthood. Nor does the program bypass affluent families. Those earning up to $400,000 still receive $167 per child each month.

Opponents of the policy argue that its ten-year, $1.6 trillion bill will inflate the welfare state beyond its Hindenbergian limits. Supporters think the CTC will promote child-bearing and reverse or slow the decline in the US birth rate, which plunged from 2.01 in 2000 to 1.78 in 2020. Moreover, they point out, the monthly disbursements will aid families struggling with mortgage, college, and childcare debt.

Though some reckless parents may blow the benefit on Vegas slot machines and cannabis-fueled festivals, most will try to manage their family finances responsibly. Provided that Congress renews the program, families should be able to borrow prudently against the monthly payments, especially to cover those expensive “start-up” costs of parenthood, including early childcare and preschool.

And those prices are rising fast. With the current surge of inflation, diaper prices, for example, have soared 12 per cent, and General Mills and Campbell’s have signaled that they will be jacking up the prices of products like Cheerios and SpaghettiOs. The US is even facing a shortage of dinosaur-shaped chicken nuggets.

But regardless of the impact on finger foods and public costs, the regular flow of dollars into millions of Americans’ pockets under the plan presents striking opportunities for businesses. As every investment banker knows, firms that can boast of reliable “recurring revenue” are worth more than those that cannot. That is why companies with subscription services, like Netflix and Apple, dominate equity markets. In contrast, companies selling products like refrigerators tend to languish with a meager single-digit price-to-earnings ratio.

The quest for recurring revenue is now unquenchable. If you search for fish-oil capsules on Amazon.com, the platform will goad you to subscribe to a regularly delivered supply. The trend even extends beyond humans, judging by the rapid growth of dog-supply delivery services like BarkBox and Chewy. The latter launched in 2011 and now racks up more than $7 billion in annual revenue, compared with the $5 billion or so per year that the 60-year-old big-box chain Petco earns.

What kinds of companies might take advantage of these new monthly payments? First, round up the usual suspects. The US Department of Agriculture estimates that US parents spend about $233,000 to raise a child, with the largest checks going to housing (29 per cent), food (18 per cent), childcare and education (16 per cent), transportation (15 per cent), and health care (9 per cent). But where is the fun, dependable, and delightful BarkBox for children? Whether you are a household-goods brand like Kraft, Nestlé, or Unilever, or a brand that inspires kids to build Barbie dream houses, like Mattel or Disney, you should be offering to match the monthly government aid (or a portion of it) in order to capture young consumers.

How would this work? As an analogy, consider the subsidies built into the Affordable Care Act (Obamacare). When ACA-eligible consumers sign up for a private health-care plan, they effectively direct the federal government to fork over a monthly credit to the health-care company, which then reduces the price of the subscription. The federal government also subsidises buyers of electric vehicles. When a driver leases a battery-powered car, the dealer receives a federal credit, cutting the monthly cost to the consumer.

Marketers know that winning over a young demographic is difficult but hugely rewarding in the long term. If a toothpaste or tech company can win over a teenager, she may stick with that brand through college, adulthood, and the golden years. The “customer lifetime value” of a Gen Zer exceeds that of a Gen Xer. Although brand loyalty may not be a secure lockbox, many people still identify themselves by brand preferences shaped in childhood. Many Americans probably know neighbours who proudly think of themselves as a Costco-shopping, Ford truck-driving, Domino’s-chomping family.

Service-sector companies and even non-profits should jump in, too. Financial institutions should offer families individual retirement-savings programmes and college-savings plans that are turbo-charged by these government payments and matching grants. Travel, leisure, and entertainment firms should be offering a yearly array of Broadway tickets, educational cruises to Europe, or discounted lifetime memberships to zoos and museums.

The CTC opens a new pathway between the coffers of the US Treasury and the cupboards of American families. Businesses should not be standing and watching from the sidelines.

Todd G. Buchholz, a former White House director of economic policy under president George H.W. Bush and a former managing director of the Tiger Management hedge fund, is the author of New Ideas from Dead Economists and The Price of Prosperity. Victoria J. Buchholz is a business strategist and attorney at ViacomCBS.