A Different Approach to Pro-Family Tax Policy

by Reihan Salam

Because Tim Carney dislikes tax credits — presumably because they reek of favoritism — he proposes that we index marginal tax rate thresholds to family size. It is an interesting idea, and I wouldn’t dismiss it out of hand. To understand why Robert Stein’s expanded child tax credit might be a somewhat more attractive approach, however, it is important to understand one of the chief objections to the Stein approach. Recall the basics of Stein’s CTC:

To correct for this inadequate treatment of households with ­children, the existing dependent exemption for children, the child credit, the ­child-care credit, and the adoption credit should be replaced with one new $4,000 credit per child that can be used to offset both income and payroll taxes. 

Notice that this new child credit is not a refundable credit. Rather, it can be used to offset both income and payroll taxes. Households with no payroll tax liability won’t receive a check in the mail. Moreover, Stein’s concept doesn’t have a cut-off, and so it will benefit a large number of affluent households with children. And so Stein’s concept is not as progressive as, say, a child benefit that would go to all parents below a certain income threshold, whether or not they earn a market wage. In my view, Stein’s approach is defensible because, among other things, it helps correct the anti-parenting bias of Social Security and Medicare. Yet it is more progressive than Tim’s approach, which will be of little use to households with little income tax liability but a burdensome payroll tax liability. That said, I would be delighted in Tea Party conservatives like Sen. Rand Paul rallied around Tim’s new tax proposal, as it would help shift the tax reform debate in the right direction. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.