It is no secret that I am against social engineering — especially when done through the tax code. It was one of my objections to the Rubio-Lee tax plan last year. While the business side of the plan was excellent, one of its central features was to establish an additional child tax credit of $2,500. That was on top of the current $1,000 child tax credit. That feature of the plan was included at the cost of lowering the marginal tax rate further than they could have — and at great expense to taxpayers.
In addition to being tax-code social engineering, which clearly takes us further away from a simple consumption-base tax, it is also a large spending program and has become a tool to achieve political goals rather than economic ones.
It is also well-known that, while giving a targeted relief to families with children, the child tax credit has no impact on economic growth as opposed to reductions of the top marginal rates. Here’s what the Tax Foundation said about the proposal last year:
The model does estimate that the credit would have almost no impact on economic growth (Column D). The credit would be expensive, with a predicted federal revenue cost of about $170 billion in a static estimate and almost the same on a dynamic basis.
That’s unfortunate — since what we need is economic growth. It is the most effective way to boost all families’ incomes in the long-run. A 2013 Tax Foundation study even looked at the effect on economic growth of getting rid of the child tax credit altogether and found “that eliminating the Child Tax Credit could boost economic growth and employment, especially if the additional revenues are used to finance lower marginal tax rates.”
Yet, this has not been enough to persuade many in the policy and political worlds, even on the conservative side, to move away from the child tax credit. Today, according to the Wall Street Journal, they have a new champion on the campaign trail: Hillary Clinton.
This week Mrs. Clinton proposed to double the current $1,000 per child tax credit to $2,000 up to age 4. She’d also expand eligibility to people who aren’t working or earning very little.
Oh, and in a press release, the Clinton campaign threatened that the new proposal is “only a down payment” on other family-friendly tax ideas — or not so family friendly . . .
The article also includes a political lesson:
The political lesson is that once Republicans cede the liberal premise that the tax code is the appropriate venue for social engineering, liberals will always come through with a higher transfer payment and a chicken-in-every-tax-pot pitch. Marco Rubio proposed lifting the child tax credit to $2,500, not that it did him much political good.
But if Mr. Rubio were the GOP nominee, a lot would be different in this race. For example, Mrs. Clinton would probably have proposed tripling the credit to $3,000.
Finally, there is a trend among conservatives to argue for paid family leave and other family-friendly policies that Clinton supports. But as tempting as the may be, we should remember that they have a propensity to backfire. I have seen it with my own eyes in France, but there is also a long literature on the issue. A good summary was provided a few years ago by the New York Times, of all places:
Family-friendly policies can help parents balance jobs and responsibilities at home, and go a long way toward making it possible for women with children to remain in the work force. But these policies often have unintended consequences.
They can end up discouraging employers from hiring women in the first place, because they fear women will leave for long periods or use expensive benefits. “For employers, it becomes much easier to justify discrimination,” said Sarah Jane Glynn, director of women’s economic policy at the Center for American Progress. . . .
These findings are consistent with previous research by Francine Blau and Lawrence Kahn, economists at Cornell. In a study of 22 countries, they found that generous family-friendly policies like long maternity leaves and part-time work protections in Europe made it possible for more women to work — but that they were more likely to be in dead-end jobs and less likely to be managers.
There is no simple way to prevent family-friendly policies from backfiring, researchers say.