Monday, January 02, 2012

Child Tax Credit Proposals Won't Fix Families (And Aren't Meant To)

Ross Douthat is concerned about pressures on families and, in what I hope he understands to be an oversimplification, contends that "domestic dissolution plays a role" in pretty much every problem our society faces - "stagnating blue-collar wages, weakening upward mobility, stalling high school graduation rates, even the increase in juvenile obesity and diabetes". His proposed solution of wealth redistribution may seem odd for a self-professed conservative Republican, but his actual goal seems to be on trying to convince people to make more babies:
Where mating and marrying are concerned, both our policies and our institutions are increasingly out of date: they’re built for a world in which two-parent, single-breadwinner families were a near-universal norm, and they don’t take enough account of the mass entrance of women into the work force, or the mounting economic pressures on the American family.
Not just "more babies", but more babies in non-traditional family arrangements? No, this one's not going to resonate with other conservatives. Douthat implies that a tax credit might allow parents of young children to spend more time at home during this "time when sustained parental attention can make the biggest difference to health, intelligence and life outcomes", but it is difficult to believe that a tax credit is going to be so large as to have a material impact on parents' career choices.

Douthat mentions that an alternative to a tax credit would be extended, paid parental leave, but complains that some governments that offer such leave offer a lower level of benefit to a parent "who is already at home full time", and that Europe supposedly has rigid rules that make it difficult to get part-time work "which is the kind of work that mothers, especially, tend to want". The first point objection could easily be addressed by not taking prior earnings into consideration. It would seem a bit odd to many Americans that people who chose not to work would be in effect given a stipend or salary if they chose to also have babies, but if the problem is overcoming popular resistance to giving a parental leave benefit to parents who have no employment history, Douthat should try to make a case for why such payments would in fact represent good public policy rather than ducking the issue.

The second objection is silly. Leaving aside for the moment the fact that many people in Europe do work part-time, there's a huge difference between wishing and having. The fact that many mothers would prefer part-time work tells us nothing about the relevant statistic - how many mothers actually work part-time. Douthat has made pretty clear that his tax credit, based upon the family unit, would not change if one parent worked only part-time or stayed home full-time, but it's difficult to believe that the tax credit will be so generous as to overcome a middle class family's need for two full-time incomes.

Douthat refers to a proposal that the tax credit be worth $4,000 which, when combined with other "reforms", would allow "a married couple with two children, earning $70,000 a year", to "enjoy a tax cut of more than $7,000 per year". But if mom goes half-time, their income drops by $17,500 or so, resulting in a net loss approaching $900 per month - not something that they're apt to be able to afford.

Douthat makes no reference to the rest of that proposal, perhaps out of recognition of its incoherence. The authors' thesis is, in essence, that with Social Security and Medicare to support them in their old age, people aren't making enough babies:
Our nation's long-term economic prospects are threatened by a declining fertility rate that, if it remains constant, will only barely manage to replace our current population. And even as Social Security and Medicare depend on large numbers of future workers, they have created an enormous fiscal bias against procreation, undermining an important motive for raising children: to safeguard against poverty in old age.
So the solution is to slash business taxes, estate taxes, capital gains taxes, taxes on unearned income, and... all of those things that have nothing to do with procreation, but to also offer the aforementioned tax credit for having babies. The author, unlike Douthat, see the tax credits as "enhanc[ing a] family's work incentives", not an opportunity to work less. The author assures his readers that the tax credit won't give a significant benefit to the working poor ("once a household has no more income or payroll tax to offset, having more children gets the family nothing") or those who aren't working ("If one has no labor income, one simply does not receive the credit"). And it won't encourage middle class workers to have more babies: "Anyone who has children knows that $4,000 per year is only a fraction of the actual cost of raising them." That is to say, the "tax credit" side of this proposal seems like a fig leaf, meant to cover up the fact that this is a run-of-the-mill Republican proposal to slash taxes on the rich - although they attempt to imply otherwise ("the tax proposal outlined here would increase the share of annual taxes paid by the highest ­earners") they are definitely talking about earners - wealthy people who derive their massive incomes through unearned income will receive massive tax cuts.
So who pays more? Primarily high-income workers, but also upper-middle-class taxpayers who do not have children in the home (either because they have decided not to raise children at all, or because their children have already turned 18).
That is to say, people who act responsibly by not having children they cannot afford or by attempting to establish themselves in a career before having children, and people who have decent incomes but apparently not yet enough in the way of income or assets that the Republican Party cares about their votes. No surprise here, even after (or perhaps because of) Bush's massive tax cuts for the rich, they're already the population hit hardest by federal taxes. But nobody feels sorry for them, so oddly enough they're easy marks.

If Douthat recognizes that the child tax credit was the best idea (or perhaps the only thing approaching a good idea) in that tax proposal, I'll give him credit. And it's easy to see why he looks past the superficial self-contradiction of its authors ("We need more babies, not that this proposal will result in people having more babies") to argue that we need to make it easier for families to procreate. But the idea that this tax credit, or a burgeoning population, will cause parents to be able to be supported by their children in their old age rather than being supported by Social Security and Medicare is no more based in fact or logic than tacking the standard bill of Republican tax cuts on to a proposal supposedly meant to help working parents.

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