The WSJ vs. the Child Tax Credit

by Ramesh Ponnuru

The Wall Street Journal editorializes about the Santorum tax plan today:

Most disappointing is the Pennsylvanian’s proposal to triple the tax credit for children (from $1,000 today), which is a hobby horse of the Christian right. This is social policy masquerading as economics. Unlike a cut in marginal tax rates, a larger tax credit does little for growth because it doesn’t change incentives to save, work or invest. It merely rewards taxpayers who have children over those who don’t.

Mr. Santorum is essentially agreeing with liberals who think the tax code should be used to pursue social and political goals. Yet a major goal of tax reform is to make the tax code less of a political free-for-all. The best tax code is one that raises the revenue the government needs with the least amount of economic harm and misallocation of resources.

The first line is, alas, simply factually incorrect. I wish Santorum had proposed to triple the child tax credit, but his actual proposal is to triple the personal deduction for each child, which is a lower-powered proposal. Just go to his website and see. My rough calculation is that under Santorum’s plan the actual value of pro-children provisions of the tax code would go up by about 35 percent for people in the 15 percent tax bracket. That value certainly wouldn’t triple.

Current government policy includes a large implicit tax on parental investments in children, which Santorum’s policy would modestly offset. His policy would thus reduce the harm that current policy does — even if it is a harm that does not count as “economic” in the Journal’s narrow vision.

P.S. Given how much Santorum’s plan lowers taxes, it’s not even clear that his plan lowers middle-class parents’ share of the tax burden all that much. They probably get a slightly more-than-proportional tax cut.