The American Enterprise Institute (where I am a fellow) has been running a series of brief analyses of the effects of the Tax Cut and Jobs Act — the most important piece of legislation enacted by the Republican Congress of 2017–18 with President Trump. Economists who lean right have generally been writing that the tax cut had a small positive effect on the economy. Economists on the left have generally found that it had a very small positive effect. As part of the series, Alex Brill has examined the effects of the law on families.
For several years before the tax cut was enacted, some conservatives had been arguing that parents, and especially parents of large families, are overtaxed, and that the child tax credit should be expanded to relieve them. I was in this camp. Brill quotes a warning of mine from August 2017 that advocates of tax relief for parents might get little or nothing from the tax bill. An early version of the Republican plan heightened that suspicion. As the bill moved through Congress, however, it got better, and by the end it included a small increase in tax relief for parents. Under the tax code before the law, the child tax credit and the dependent exemption were worth about $1,600 per child for middle-class families; afterward, the dependent exemption vanished but the child credit was worth $2,000 per child.
Brill looks at the effects of all of the provisions of the tax cut. He finds that on average, households got larger tax cuts the more children they include — but that the difference was small. “[T]he difference in tax liabilities among filers with children varies by less than $1,000 when comparing one-child families with three-children families, which is perhaps too modest for the pro-family tax advocacy community.” This is what we should have expected given the final dimensions of the bill.
I favor building on this progress. Brill does not. He would rather work to make the tax code more conducive to economic growth, which would benefit people whether or not they have children. He concludes, “To pursue the alternative is to consider the tax code merely a means of redistributing income from the childless taxpayer to parents and will leave us all with a distorted tax base of 20-somethings and seniors.”
This is overdrawn in several ways. We are a long way away from the stunted tax base he mentions. A credit of $4,500 per child would leave plenty of middle-aged people (non-parents, parents of one child, parents with high incomes) on the tax rolls. A larger tax credit would (as I argue here) reduce the total amount of redistribution the federal government effects. And the choice is not a stark one. Every major tax law of the past 35 years that attempted to promote growth has also included at least some tax relief tied to children, and I suspect this is no accident.