Amid the verbal fireworks and threats of mooning in last Saturday’s debate in South Carolina, it was an easy-to-miss moment. The Wall Street Journal’s Kimberly Strassel asked Marco Rubio to defend the “use [of] the tax code to influence social policy” through his proposed expansion of the child tax credit.
Rubio defended his plan eloquently. But the assumption embedded in the question illustrates a too-common reductionist view of fiscal policy that ignores the power of hidden incentives in the tax code. Our status quo often penalizes work and marriage, two vital institutions for helping individuals get out of poverty. Why should conservatives shy away from trying to improve it?
Strassel and the rest of the Journal’s editorial board would likely welcome corporate-tax reform that lowered overall rates while eliminating the current latticework of carveouts and deductions. Such a shift would rightly be lauded as fairer, smarter, and more transparent. And our current piecemeal approach to taxes and benefits for poor Americans is similarly in need of an overhaul. Increased wages can make families worse off when strict asset tests cut workers off from benefits. And getting married can increase a low-income household’s implicit tax burden: An unmarried couple making a combined $50,000 per year would see their earned-income tax credit (EITC) benefits fall up to 10 percent upon getting married.
Decisions about marriage and child-rearing are perhaps only marginally affected by federal tax policy, but when our policies discourage work and penalize marriage, we shouldn’t be beholden to them. Policymakers should first do no harm — but if harm is being done, and it is, then they should act to get it right.
The stability of a monthly payment, rather than an annual lump sum, would allow families to use the child tax benefit for everyday expenses.
One attempt to address these failings is proposed by the Rubio campaign. By tripling the child-tax-credit threshold, Rubio would, as he put it in the debate, make it easier for families, “the most important institution in society,” to provide for their children in the best way they see fit.
This approach triples down on the child tax credit, a blunt-instrument approach to helping poor families. Because it is only partially refundable (i.e. if the amount of the credit is greater than the tax you owe, you can collect only part of the excess as a refund), only 13 percent of the credit’s total value went to families in the lowest income quartile in 2013. An even bolder pro-family, pro-growth approach to supporting low-income families would be through a fully refundable child tax benefit.
This new program could be based on the Canadian model, in which families receive a monthly payment per child, via direct deposit, in return for filing a federal tax return. There, the poorest families receive roughly $1,060 USD per child from the federal government over the course of a year, with the benefit slowly phasing out as family income increases. As Josh McCabe of The Freedom Project has pointed out, similar policies assist low-income families in Australia, New Zealand, and the U.K.
In contrast to our current approach, administered annually through the tax code, a child tax benefit would offer transparency and well-ordered incentives. The stability of a monthly payment, rather than an annual lump sum, would allow families to use it for everyday expenses. If a couple decides to marry or the job status of one of them changes, their ability to support their children won’t be adversely affected. In contrast to other safety-net programs, which are determined by federal formulas and can be used only on specific expenses, this benefit would allow individuals to spend it on what their family requires, and eligibility criteria would be clear and up-front.
A universal child benefit would help low-income families by curtailing severe implicit marginal tax rates that punish additional wages by reducing benefits. It would help get rid of the low-income marriage penalties in our current tax and benefit structure, which punish the formation of more-stable families. A fully refundable child tax benefit would be a pro-work, pro-family reform targeted at the people who most need it — those in poverty.
The plan’s major drawback would, of course, be its cost. Some of this could be recouped by trimming the EITC to account for its refocused role as income support rather than basic-needs provision. Another option could be reducing or eliminating the Child and Dependent Care Credit, a program that more heavily benefits upper-middle-income families, as poor families would probably have more child-care options due to the flexibility of the new benefit.
The other major line of attack is typified in Strassel’s question to Rubio. Should government be using the tax code to “influence social policy” in decisions about family formation and work?
Debates over social policy do not exist in a vacuum. Ignoring the negative impact that current structures and institutions have on work and marriage in the name of nonexistent neutrality in the tax code is idealism, not conservatism. Smarter tax-and-benefit public policy may not stop the declining number of two-parent households or the decrease in labor-force participation, but that doesn’t mean we should let poor policy design accelerate them.
Saying that government should not “influence social policy” is akin to saying that the government has no business encouraging marriage or work. That point of view aspires to benign agnosticism but is closer to a bloodless apathy that ignores the real societal and economic challenges buffeting low-income families.
Conservatives don’t necessarily need to adopt a child tax benefit to improve their solutions for poor families, but they must offer something. If not, they’ll find the void created by their lack of interest will be permanently filled by the socialism of a Bernie Sanders or the populism of a Donald Trump.
— Patrick T. Brown is a former government-relations staffer at Catholic Charities USA and writes from Princeton, N.J. He is on Twitter @PTBwrites.