We Can Be Pro-Growth and Pro-Family

by Ramesh Ponnuru

Derrick Morgan of the Heritage Foundation makes four arguments against expanding the child tax credit.

Morgan says, first, that it risks unfairness to the childless. Morgan acknowledges, or at least does not contest, the point that entitlements as currently structured are implicit taxes on child-rearing. But he notes that the childless have to fork over money to educate other people’s children. This is true, but 1) the magnitudes are much smaller and 2) all of these people already benefited from an education they didn’t pay for.

Second, he thinks it is unlikely to boost birthrates. Maybe it won’t boost them. But we don’t have a strong evidentiary basis for thinking that getting rid of the marriage penalty will boost marriage rates, and we still favor doing that. (I hope.) If we believe that parents are overtaxed, we should offer them tax relief even if we don’t think it will change their behavior. His international examples also seem to be a little off point. The point of the credit would not be to induce parents to have more kids than they already want. To the extent it aims to raise birthrates at all, it’s by enabling parents to have kids they already want. In the U.S., desired family size is higher on average than actual family size.

Third, Morgan fears it would make conservatives look “a little dishonest” because we have generally argued against tax credits, deductions, and the like. Here again, though, the question has to be whether the argument for a larger child credit is right on the merits. If it is, then we just have to argue for it. Most conservatives don’t shy away from arguing for taxing capital gains at lower rates than ordinary income—something that looks to the untutored eye like a special break—and we are willing to make that argument because we think it is correct. I don’t think it would be hard to explain why tax relief for parents is different in principle than tax relief for a few solar-energy companies. And it did not prove impossible to make the case for an expanded child credit as part of a larger conservative view of government in 1994, when it was part of the Contract with America, or in 2000, when it was part of George W. Bush’s campaign platform.

Fourth and most important, Morgan argues that expanding the credit doesn’t increase economic growth, which ought to be a high priority. That’s a good reason for coupling an expansion of the child credit with, say, a move to full expensing of business investment. I take it that Senators Lee and Rubio are working on a proposal to that effect. Morgan suggests, though, that pro-growth and pro-family reforms of the tax code are in competition with each other. I disagree for a few reasons. The leading proposals to cut corporate tax rates have been designed to be revenue neutral. So it’s not as though the child credit expansion would take away revenues that would otherwise be devoted to business tax cuts. The child credit and business tax cuts are not competing for space in the budget. The child credit expansion would make the business tax reform more likely, not less, by making tax reform more popular.

Morgan claims that Bob Stein has “acknowledged” that a bigger child credit would mean higher taxes on investment and income and then adds that these higher taxes would depress growth for everyone. I think he’s simply misunderstanding Stein. His proposal would bring the top marginal tax rate down, not up, and leave average tax rates unchanged. It is true that in theory you could design a tax reform that left the child credit unchanged, or even shrank it, in order to get that top income tax rate down even further. But I don’t think the math of that trade-off would get the top rate down enough to make a real difference in economic growth, and I think you’d be much less likely to enact any such tax reform in the first place–which could keep the top rate from going down at all. And even if you did succeed, you’d be stuck with federal policy that overtaxes child-rearing.

Morgan has a different view of the tradeoffs. His argument about growth posits that an alternative tax reform would raise economic growth rates as much as one percent a year. On this point I’d like him to show his work. I have no idea what tax reform he has in mind, what evidence he has that it will lead to vastly higher economic growth, and why he thinks it would be easier to achieve without being tied to a popular pro-family tax reform. But I am always interested in hearing what he has to say.

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