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The Agenda

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

Family-Friendly Tax Reform Revisited



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Ramesh Ponnuru’s latest Bloomberg View column elegantly explains why we ought to greatly expand the child tax credit:

Making financial sacrifices to raise children is a substantial contribution to the health of entitlement programs. But raising children doesn’t reduce the taxes that parents must pay for the programs or increase the benefits they receive from them. The more kids a taxpaying family raises, the more others are free-riding off its investments.

It isn’t surprising, then, that some social scientists have found that the creation and expansion of programs for the elderly tend to reduce family size. One study looked at the decline in birthrates in the U.S. and in Western Europe after World War II and found that roughly half of it could be explained by the growth of these programs. Generous entitlements and overtaxed parents mean that fewer people have any children and fewer people have more than one child. (It also means that fewer people get married early in life, or at all.)

The tax credit for children offsets a small portion of this bias against parenting. Tax reform shouldn’t scale back the child credit. It should expand it. The economist Robert Stein has suggested that for the government to be neutral with respect to the decision to have children — neither discouraging nor encouraging it — the child credit, now $1,000 a child, would have to be expanded fourfold or more.

The point of the child credit isn’t to get people to have kids they don’t want. It isn’t even primarily to make it easier for them to start families and raise larger families if they want. It’s to reduce the unfair tax burden they face.

And Ramesh doesn’t mention the potential political benefits of such a proposal. In 2012, 36 percent of voters lived in households that included a child under 18, and 51 percent of them backed Barack Obama against 47 percent for Mitt Romney. A somewhat smaller share of the electorate — 27 percent — were married with children, and 54 percent of these voters backed Romney against 45 percent for Obama. An expanded child credit might prove an effective tool for increasing the Republican vote share among married voters with children. Democrats might also embrace the proposal, yet Democrats draw disproportionate support from the unmarried (62 percent), and so embracing an expanded child credit that also entailed a tax increase for childless high-earners might prove more difficult for them. Granted, childless voters might see an expanded child credit as a measure harmful to their interests, but most childless voters would not face a tax increase under the Stein plan — only the minority that earns very high incomes, and Democrats are already committed to raising taxes on this constituency.   

Elsewhere, James Pethokoukis argues (correctly, in my view) that family-friendly tax reform might make corporate tax reform a more attractive and more likely prospect.

 



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