A Childish Question
In “The Empty Playground and the Welfare State” (May 28), Ramesh Ponnuru proposes increasing the child tax credit. Much of the argument is compelling, but I found one aspect confusing.
Mr. Ponnuru says that raising children constitutes a contribution to the nation’s fiscal health and therefore should count toward tax payments; he cites research suggesting a $5,000 credit per child. And yet he says that the credit shouldn’t be refundable — that is, families that owe less than $5,000 in taxes for every child they have would not be able to take full advantage of the credit, and families with no income-tax liability (a situation that about half of households find themselves in) would not benefit from the credit at all. The only explanation he gives for this is, “That arrangement would enable them to start getting their own free ride: receiving pension benefits without having contributed through either children or taxes.”
I’m not familiar with the formulas that determine pension benefits, but it seems to me that this is a rather unfair way of addressing the problem. If a two-child family contributes $10,000 to the nation’s fiscal health, but our tax policy says it should owe only $4,000, it should get the missing $6,000 back — just as it would if it overpaid $6,000 in conventional taxes. In addition, if tax policy overall discriminates against families with children by failing to give parents credit for their investment, then this policy does as well: It treats a family with no tax liability and four kids the same as a family with no tax liability and zero kids.
What am I missing?
Ramesh Ponnuru replies: Most people with no federal-income-tax liability pay payroll taxes, and the credit should be available to offset those taxes. But a family with five kids and $20,000 in total tax liability (income and payroll combined) should be eligible for only $20,000 of tax relief. The argument for the large tax credit is that taxpaying parents are overtaxed relative to non-parents. They are contributing to the future of entitlement programs with both their taxes and their investments in their children, whereas the childless are only contributing with their taxes. The tax credit recognizes that double contribution. A family that doesn’t pay taxes is still making a contribution to the future of the entitlement programs, as Mr. Rolen writes. But it is not making a double contribution — in that respect it’s in the same position as a childless taxpayer — and so there’s nothing to offset.