Pethokoukis

Tax reform must be pro-family and pro-growth

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The family — first extended, now nuclear — has been considered the core building block of society throughout human history. But that is changing in high-income nations. More individuals are eschewing both marriage and children. This has been driven, says a new report on the issue by a Joel Kotkin-led research team, by a variety of factors (with much overlap):  a) the rising cost of and declining economic need for children, b) the move away from traditional values, c) the rise in urbanism, and d) the recent extended period of economic weakness and stagnation.

This trend poses challenges:

Societal norms, which once almost mandated family formation, have begun to morph. The new norms are reinforced by cultural influences that tend to be concentrated in the very areas — dense urban centres — with the lowest percentages of married people and children. …

A society that is increasingly single and childless is likely to be more concerned with serving current needs than addressing the future oriented requirements of children. …

The most obvious impact from post-familialism lies with demographic decline. It is already having a profound impact on fiscal stability in, for example, Japan and across southern Europe.  …

A diminished labour force — and consumer base — also suggest slow economic growth and limit opportunities for business expansion. For one thing, younger people tend to drive technological change, and their absence from the workforce will slow innovation. And for many people, the basic motivation for hard work is underpinned by the need to support and nurture a family. Without a family to support, the very basis for the work ethos will have changed, perhaps irrevocably.

Seeking to secure a place for families requires us to move beyond nostalgia for a bygone era and focus on what is possible. Yet, in the end, we do not consider familialism to be doomed. Even in the midst of decreased fertility, we also see surprising, contradictory and hopeful trends. In Europe, Asia and America, most younger people still express the desire to have families, and often with more than one child. Amidst all the social change discussed above, there remains a basic desire for family that needs to be nurtured and supported by the wider society.

Actually, a quote in a David Brooks column today about the report really sums it up, at least at it applies to America, I think:

Toru Suzuki, a researcher at the National Institute of Population and Society Security Research in Japan, gave Kotkin’s team this explanation in its baldest form: “Under the social and economic systems of developed countries, the cost of a child outweighs the child’s usefulness.”

Or as an economist might put it, parents are less able to recapture their economic investment in their children than in the past.  Yet there is evidence Americans still hold deep pro-family, pro-child views: “In a survey conducted by the Pew Foundation, nearly half of adults surveyed identified two as the “ideal” number of children — a number that has been consistent since the early 1970s — while over a quarter preferred three and nearly 10% four. In contrast, barely 3% opted for one, while a similar number chose none.”

The study takes an initial stab at a solution: greater flexibility in the workplace including a more “home-based economic system’ that “provides greater flexibility to all parents, including women nursing infants, and allows families to move to more.”

I would focus on tax policy. As Phil Longman explains in The Empty Cradle – and I paraphrase — by raising and educating their children, parents have already contributed hugely (in the form of human capital) to social insurance systems. The cost of their contribution, in both direct expenses and forgone wages, is often measured in the millions. Requiring parents to also then contribute to payroll taxes is not only unfair, but imprudent for societies that are already consuming more human capital than they produce.

So one option is giving parents a break on payroll taxes. The more kids you have, the less you pay. Another option is a new, larger child credit that can be applied against income taxes and payroll taxes. I would be surprised if some GOP policymakers aren’t already looking at one or both options as they seek to have a more pro-middle class, pro-family economic message. I don’t see how it would conflict with also continuing to reward working hard and taking risks.

5 thoughts on “Tax reform must be pro-family and pro-growth

  1. More nonsense. If you want a good tax policy get rid of the 95% (or more) of government activities that are not authorized by the Constitution and let the private sector deliver what individuals want and need. If people want kids they should make up their own minds without worrying about the impact of taxes. If businessmen want to invest let them without worry about the confiscatory policies of the government. If people want to give money to Egypt or Israel let them send donations directly out of their own bank accounts, not ask the government to tax everyone and use the proceeds. The land of the free can only be free if government shrinks substantially and gets out of the way first.

  2. Jim,
    The trade-off is that larger deductions — for children or whatever — imply higher rates, all other things equal. Child tax credits could increase long-term economic growth if they raised the birth rate, which would help paygo entitlements like Social Security and Medicare. But a) they’d have to be fairly targeted to do so; and b) even then, taxes at the margin would still have to be higher. I’m definitely sympathetic to the child tax credit, but it’s part of the reason the income tax base has narrowed.

  3. Pro-family? Pro-Growth? When the government thinks you should only be allowed $500/child/yr tax credit but often gives $150/month to Food Stamp recipients, they ARE DESTROYING incentive and are ANTI-family. Clearly. Until the government, our servant, requires recipients of government ‘income, redistributed’ to accept the same reporting (1099-GOV) as “real” income earners(W2/1099-MISC) you are writing words on the outhouse walls.

    “1099-GOV”=Fairness (Labor\2)

    This equation defines what you want. It assumes 50% of earned income is susceptible to redistribution (Democrats love this) and solving for something like a food stamp benfit (1099-GOV’foodstamp’=$1800/yr) shows that a PRO-family tax benefit should at least by $3600/year/child.

  4. Recognizing that this is not going to be popular on this site, I would love to hear Mr. Pethokoukis’ take on this: http://www.slate.com/articles/life/family/2012/11/socialist_child_care_in_europe_creche_ecole_maternelle_and_french_child.html

    As a parent of three, I can affirm that universal pre-K and daycare would do far, far more to promote families to have more children than any amount of tax credits. Indeed, for most families with multiple children that I know, their child care costs can exceed their mortgage. Doubling the child tax credit, or making it deductible against payroll taxes — while steps in the right direction — are simply not sizable enough to make an impact on the costs here.

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