Reducing the size of entitlements would reduce their effects on family structure. Altering Social Security to slow the growth of benefits would be one such reform. But even a reined-in program would still entail a large, forced transfer of wealth from larger to smaller families. To prevent this transfer would require either paying parents more than non-parents in retirement or taxing them less beforehand. The rationale in either case would be that raising children is a contribution to the old-age programs just as taxes are, and the government should recognize it. The tax-cut approach seems preferable: Just let families have the money now instead of taking it from them to return later. Robert Stein, an economist at First Trust Advisors who served in the Treasury Department during the George W. Bush administration, has calculated that a $5,000 tax credit per child would fully offset entitlements. (Stein, I should note, has exerted a large influence on my thinking on the issues considered in this essay, and he pointed me toward some of the research it draws on.) The logic of the tax credit would require that it be applied against payroll taxes as well as income taxes. Conservatives sometimes resist payroll-tax cuts on the theory that payroll taxes fund entitlements, and tax credits that reduce people’s contributions give people something for nothing. Obviously that argument, whatever its force generally, would have none in this case, since the premise of the policy is that children and payroll taxes both finance old-age programs. If a childless couple making $100,000 has a total federal tax bill of $30,000, a similarly situated couple with two kids should pay $20,000. A couple that has no tax liability, on the other hand, shouldn’t get an annual $5,000 check for each child they have. That arrangement would enable them to start getting their own free ride: receiving pension benefits without having contributed through either children or taxes.
Unlike subsidizing day care or forcing companies to offer generous parental leave, an enlarged child credit would have an unequivocally positive effect on fertility. Families of three might often use the money for day care; of four, to move one parent from full-time to part-time employment; of five, to get a slightly bigger house; and of all sizes, to bank for future educational expenses. The choice would be theirs.
The social-science literature on the effects of the tax treatment of parents on fertility finds mixed results. Papers have found that tax benefits for children have raised fertility significantly in Quebec, in France, and in Israel. Research on the U.S. has tended (though not uniformly) to find small effects. The effects could be non-linear: Quintupling the existing $1,000 child credit could have an effect more than proportionally larger than the modest policies so far studied. The goal of the credit, it should be remembered, is not to bribe Americans to have more children than they want. Rather it is to rectify the government’s bias against children, which leaves families with children bearing an unjustifiably large share of the tax burden. Reducing that share would surely help some people who want more children to have them — and surveys suggest that in the U.S. and the West generally, desired family sizes are larger on average than actual family sizes. The credit would not make much difference to the very rich, or for those who have little in the way of federal tax liability to begin with. (Single parents would rarely get much benefit from it.) The biggest impact would be on middle-class families: exactly the people on whom one would expect old-age entitlements to have the largest effect.
Many Americans, especially conservatives, find the idea of flattening taxes appealing. They want a tax code that doesn’t discriminate between homeowners and renters, between people who buy “green” consumer goods and everyone else, and so on. In their pursuit of this goal, conservative politicians have sometimes proposed to eliminate the paltry child credit in today’s tax code. Their mistake is to consider the income tax in isolation from the payroll tax and what federal taxes pay for. Getting rid of the child credit would make the federal government less neutral with respect to family size, not more; and expanding it would make it more neutral, not less.
Readers may well wonder whether a large tax cut would be wise at a time of large deficits. But the appropriate tax structure is a separate issue from the appropriate tax level. Whether the tax code is designed to extract 15, 19, or 23 percent of the nation’s economic output for the federal government’s use, parents ought to pay a lower portion of that burden than they do now. To make room for a large child credit, my preferences would be, in order, to cut spending, to end or reduce truly discriminatory tax breaks, and to expand the top tax brackets so that a higher proportion of the income of high earners is taxed at the top rates. What’s important is that budgetary decisionmakers include the fair treatment of parents among their goals.
Polls show strong public support for a bigger child credit, especially among middle-income voters. Governor Romney was recently overheard telling donors that he would be campaigning on two things: “jobs and kids.” A presidential race is not the right forum for a discussion of trends in Western fertility rates. But there is more the governor could usefully say than he has so far, and he could say it in public.