There's No Real Case for An American Baby Bonus
A closer look at the research undermines the validity of a new Niskanen Center study
This post originally appeared on Upward Bound
Policymakers on both sides have been proposing the baby bonus as a way to boost fertility and make newborn life more affordable. President Trump called baby bonuses a “good idea” and the idea was included in Sens. Warnock and Bennet’s American Family Act.
The Niskanen Center recently also released a study by Leah Sargeant on the “Case for an American Baby Bonus.” Sargeant lays out why families need a baby bonus, how the baby bonus would supplement existing programs, and how peer nations (Australia and New Zealand) have implemented the baby bonus.
The problem with Sargeant’s study is that she provides little empirical evidence to support her claim that the baby bonus has greatly supported Australian and Kiwi women.
To be clear, this is nothing against Sargeant herself. I’m a big fan of her work and I eagerly pre-ordered her forthcoming book a few months ago. I don’t think that Sargeant framed her report to be intentionally misleading, however, the approach she used would not be considered properly conducted research and would be in violation of the norms of policy analysis.
While the baby bonus may be beneficial, the report by Sargeant doesn’t actually support her own thesis.
The Evidence on the Baby Bonus in Peer Countries
While laying out the case for the baby bonus, Sargeant relies heavily on New Zealand and Australia as two countries where the baby bonus has helped mothers and families more generally. However, looking deeper at her sources casts doubt on the validity of her claims.
The recommendation to create a baby bonus is not supported by Sargeant’s own evidence. Reading her supporting evidence gives no reason to believe that the baby bonus is causally related to family welfare. The evidence she provides is either unrelated to the baby bonus, from before the baby bonus was even enacted in peer countries, or is actually negative about the baby bonus.
Australia
Sargeant cites two pieces of research to support her claim that the baby bonus served working and stay-at-home mothers.
Her primary supporting evidence that the baby bonus supported mothers of all kinds is a 2003 study by the Australian Institute of Family Studies. The research however was summarizing the results of a set of two British surveys done in 1998 and 1999 and then using those findings to inform social debates in Australia. It was not original survey data about Australian women’s perception of the Aussie social safety net. The data indeed shows that the best social welfare policy is one that is more equitable in its treatment of working and non-working moms, but it is not talking about Australian family policy.
Even if it was Australian data it would be irrelevant. The baby bonus was not introduced in Australia until 2004. If the survey was of Australian women, it would not be capturing the relevant policy. A simple search of the document shows that the baby bonus is not mentioned in the research, making it entirely irrelevant to the debate.
The second piece of evidence Sargeant cites is analysis by Social Policy expert Peter Saunders. While the factual claims about the baby bonus not being means-tested and being targeted to help families are true, the justification for the baby bonus based on horizontal equity goes beyond the article’s content. Saunders himself says that cash transfers are not preferable policy:
“In general, it is better for people to keep their own money than to be given other people's money by the government, so wherever possible, help should be channeled through tax reductions (or tax credits for those who don't pay much tax) rather than through welfare transfers.”
Looking at Sargeant’s own supporting evidence for Australia, we have little reason to believe that the baby bonus is beneficial for Aussies. The same is true when you look at the real data on Australia’s baby bonus.
The baby bonus benefits wealthy families more than poor families. One early estimate found that the baby bonus would deliver middle-class mothers five times more in government subsidy than low-income mothers. The biggest benefit going to women who stayed out of the workforce for five years – those women received the maximum bonus of $2500 a year. Poorer women who returned to work received a measly $500 in total.
Fertility rates in Australia also followed the expected pattern following a pro-family cash transfer. Fertility rates rose, increasing to a 32-year high of 2.02 babies born per woman in 2008, but then turned back down after the treatment group captured the baby bonus. In 2024, Australia’s birth rate was 1.5 – lower than it was pre-treatment.1
New Zealand
Sargeant does not provide any supporting evidence to her claim that the baby bonus was a “lifeline” or “supplemental support” for Kiwis. She explains the history of the baby bonus in New Zealand and how the “Best Start” program functions at this time, but gives little support to her claim. She does cite a study showing that cash transfers are associated with lower rates of child abuse (which is undoubtedly a good thing), but does not emphasis the findings. She only uses the study for background information.
Sargeant’s claim about the impact of the baby bonus is undermined by looking at what it costs to raise a family in New Zealand. While it is expensive to have children around the globe, childcare in New Zealand is the least affordable in the developed world. Childcare is so expensive some have dubbed it New Zealand’s “one child policy.”
The baby bonus is also – despite Sargeant’s claim – not truly universal. Statistics New Zealand estimated that there are approximately 510,000 households in New Zealand with children under 18. But only 361,200 of those families receive any Working for Families credits.
Is There a Case for the U.S. Baby Bonus?
Sargeant’s brief rests on the argument that there is a need for a baby bonus in the U.S. and that based on the evidence from peer nations, it would be beneficial. Because Sargeant’s evidence on peer nations is faulty, we must take a closer look at other countries to determine if the baby bonus would allow more families to have and afford children.
Affordability
It is undoubtedly expensive to raise children in the U.S. And indeed, gross household income does fall following the birth of a child.
But the baby bonus will do little to actually help affordability. Even in countries with robust social safety nets and universal healthcare, baby bonuses were ineffective at making family life more affordable.
Having a child is extremely costly. Middle-income, married couples can expect to spend $233,610 raising a child to age 17. Just raising a newborn costs between $14,680 to $36,050 in the first year. Having a baby costs $30,000 without insurance, $3,400 with insurance. Maternal health and postpartum care costs $18,865 with out-of-pocket payments around $2,854. It’s worth talking about how to make childbirth and maternal healthcare more affordable, but throwing money at the problem does not change the sticker price.
At best, the baby bonus will cover childbirth with a little leftover. It is unlikely to serve as a form of paid leave or cover very many diapers and food as Sargeant suggests.
Fertility
To her credit, Sargeant does acknowledge that the baby bonus would have little effect on fertility. But it’s worth pointing out that unconditional cash transfers only result in quick boosts in the birth rate. Families who were choosing to offset pregnancy for whatever reason but planned on having children in the future may decide to have children earlier than planned to capitalize on the new baby bonus.
These increases in fertility are unlikely to be sustained because the extra money is a bonus for those who already want children. It will do nothing to sustainability boost the birth rate.
This is supported in the empirical literature. A review of experimental and quasi-experimental designs finds that pro-natal interventions can boost birth rates in the short-term, they have little to no lasting impact on long-term birth rates.
We Can’t Afford the Baby Bonus
Sargeant described the baby bonus as “modest in comparison” to other pro-family interventions. But the operative phrase is “in comparison.” The baby bonus is not a fiscally modest proposal.
There were 3.6 million live births in the United States in 2024. If the $2,000 cash bonus proposed by Sargeant was paid on behalf of each new baby, it would cost $7.2 billion in 2024 alone. The $5,000 bonus proposed by the Trump Administration would cost $18 billion.
All of this new spending will only put more strain on families through inflation. Families, especially those with a single parent, feel a unique pressure from Washington’s fiscal recklessness. Inflation is also regressive – lower- and middle-income families shoulder a disproportionate burden of inflation.
An Alternative Solution
Wanting to set families up for success when they welcome children is a worthy goal, but there are other means besides government spending that can do so.
One potential solution is the creation of a Universal Savings Account (USA) to aid families in saving for their children’s future. A USA is a qualified account that would shield taxpayers from double taxation on savings, but without the contribution requirements, age requirements, or restrictions on use that all current qualified accounts have. Our current system is structured so that families can’t access their savings in times of need, which discourages uptake especially for young and lower-income individuals.
A USA would function much like a retirement fund but the income saved would be accessible at any time for any reason. These accounts could also be open to contributions from anyone – meaning grandparents or other family members could contribute if they so desire.
USAs can help families better save for whatever life may bring and may encourage new populations to save. It’s also likely that the lowest income brackets may see the most benefits. After USAs were implemented in the U.K. and Canada, moderate-income earners were the most responsive. In both countries, low and moderate-income savers represent over 50% of USA holders. In the U.K. low-income savers earning between £9,500 and £20,000 (about $12,000 and $26,000) utilizing USAs reported a 23 percent increase in savings that would not have been saved or invested absent the USA.
Increasing access to savings for low- and moderate-income groups would achieve the goals of the baby bonus, but with more sustainable results. The USA could help offset the cost of a baby’s first year, but then can be used to save for other future costs like college or buying a house.
Families Deserve Better Than the Baby Bonus
Whether intentionally or unintentionally, Sargeant’s case for the baby bonus misleads readers. There isn’t a clear case to be made from peer nations to demonstrate that baby bonuses have improved affordability and helped families offset the income shock from having a baby. It is neither affordable or effective.
Sargeant does point out that the baby bonus may be an important signal that the government supports family life. These signals are indeed useful, especially at a time when birth rates are at such a critical inflection point. But making the case that the signal should be inflationary and ineffective has proven difficult, even for supporters of the baby bonus.
Families deserve more creativity when it comes to pro-family policy. More can be done to make family life affordable besides cash transfers.2