Subsidizing Parents--and Day Care

by Robert Stein

I agree with Andrew Stuttaford about the benefits of lifting the retirement age of Social Security.  However, changing the benefit formula to be less generous to middle and higher earners is no disincentive to save.  The benefits are based on earnings, not the share of those earnings one uses to save or spend.  If anything, such a change to the benefit formula should encourage middle and higher earners to do some combination of more private saving and more parenting.

On expanding/subsidizing day care: that can work if a country is already well down the path to most mothers working full time.  In that environment, the subsidy runs from the childless to those with children.  However, if many mothers are still homemakers, then a daycare subsidy is paid for by both the childless and homemaking families, the latter of whom are in the best position to raise more children at the lowest marginal cost. As a result, the effects of the subsidy can be negative.

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