Derrick Morgan of the Heritage Foundation and I have been having a friendly debate (him, me, him, me, me, him) about how conservatives should approach tax reform. I have been trying to overcome his skepticism about expanding the tax credit for children as an important part of that reform. A friendly debate, and a thorough one: so much so that I think that my entries have addressed almost all of the reasons for skepticism that Morgan’s colleague Curtis Dubay advances in a new Heritage paper.
Dubay adds one more to the list. He wants to reform Social Security and Medicare to make them solvent, as do I. One obstacle to such reform is the widespread myth that the federal government holds today’s taxes somewhere to return them to workers when they retire. In fact the taxes are immediately paid out to today’s retirees. He seems to think that the argument that Senator Mike Lee and others make for the child tax credit accepts or relies on the myth. It does neither.
The pro-credit argument is based instead on the denial of the myth. It sees the entitlements as the socialization of an ancient intergenerational bargain: Adults take care of children and are in turn taken care of them when old. Now, though, they are taken care of (through entitlement programs) whether or not they had children themselves. This arrangement has some advantages over the pre-entitlement state of affairs, but it places an extra burden on parents: Now their end of the bargain involves both making the financial sacrifices that children entail and paying taxes. The child credit aims to alleviate this burden. Contrary to Dubay, the argument at no point assumes that money paid into entitlements are held for future retirees.
Morgan’s latest post emphasizes all the common ground we have reached, and my disagreements with it are quite minor—until the very end. He writes,
Would the reforms that Ponnuru and [Robert] Stein advocate — an expanded CTC and cuts on income and investment taxes — be better than what we have now? Yes. Would it be as good as the kind of fundamental tax reform Heritage, Cato, the Tax Foundation, the Fair Tax supporters, the traditional flat tax proponents, and nearly every tax expert in Washington have been advocating for more than a decade? Not as a matter of economic policy.
In response I would make two points. First, let’s have some perspective. The Lee plan, with the child credit, would bring the top tax rate down to a historically low level of 35 percent. In only five of the last 82 years has it been lower. And the Lee plan features better tax treatment of capital than we had in those five years (and the forthcoming Lee-Rubio plan should have kinder treatment still).
Second, the etymological roots of “economics” have to do with the management of a household. Many millions of Americans think about economics in terms of families’ well-being, not of GDP statistics. They are not wrong to do so.