In combination with a legislative effort to reform the child tax credit, a recent story published by Slate.com has generated substantial debate as to whether persons with children are taxed unfairly by what is often considered a flawed system.
The article by writer Reiham Salam argues that rates unfairly burden families, who spend much of their disposable income raising this nation’s future tax-payers. Despite the current existence of a child tax credit, personal exemption for children, dependent child care tax credit, and earned income tax credit, Salam suggests even more is owed to such citizens by child-less professionals like him.
Potential Appeal to Many
Salam’s argument is one that potentially resonates with both sides of the political spectrum. While liberal-minded politicians have long argued the government needs to take greater action in support of families, conservative leaders typically sound the charge that taxes are too high and must be reduced.
In fact, the bill that got Salam thinking about this topic was the Family Fairness and Opportunity Tax Reform Act, introduced last fall by Sen. Mike Lee (R-Utah).
The proposal would preserve the majority of the current system, but add a new $2,500 child tax credit. This addition would not diminish, or cease, as taxable income rises. If such a bill ever became law, a family with a relatively high $250,000 income — and two children — would be eligible for a $5,000 tax credit, regardless of the elevated income preventing eligibility for additional savings.
This increased benefit is based on a recognition that raising children consumes an inordinate amount of income, as compared to other facets of life, which all people encounter equally. Salam cites a U.S. Department of Agriculture statistic that it will cost a middle-income family a cumulative total of $301,970 over 18 years merely to provide the basic necessities for a child.
And that figure is likely low. Private schooling, technology, athletics, entertainment, and family travel can increase these costs in great multiples. Rearing children additionally tends to prevent broader personal opportunities, such as career advancement, which limits the ability of such families to boost income.
Negative Impacts of Potential Tax Reform
The greatest downfall of these tax reform ideas is the potential for adding to the federal deficit. After years of skyrocketing deficits, the budget is finally moving in the right direction. Indeed, the Congressional Budget Office projects only a $514 billion deficit for 2014. While this is an astronomical number, it is less than half of the amount of unfunded spending that occurred just four years ago.
Sen. Lee’s proposal attempts to offset new tax credits by closing various loopholes, as well as by reforming marginal rates in an effort to stimulate the economy. These changes may ultimately increase the tax base, but, as Salam notes, it is a substantial gamble.
The Slate.com author instead suggests lowering the level of income needed to reach the highest income tax rates, currently capped at 35%. Salam even advocates that those making as little as $50,000 being taxed at the top rate if child-less. In theory, this drastic modification could raise sufficient revenue to return monies to those with kids.
But beyond crunching the numbers, there are additional concerns on how these changes diminish the nature of parenthood. The decision to bring children into the world should not depend on tax consequences of the event. While such effects must be considered, overtly quantifying the value of children (even more than we already do) risks harming the persons we want to help.
Simply put: children benefit when adults embrace parenthood for proper reasons, not financial ones.
Is the Social Benefit Worth the Economic Risk?
As a father of three, living on a modest income, I would fall into a class that would benefit by a greater emphasis on giving back to those raising children. A potential $7,500 credit would significantly buttress my bottom-line. Yet, I cannot agree that these proposals make sense for a nation that has long struggled with debt.
Firstly, we should recognize that the tax code already provides substantial benefit for those with children, as referenced above. In fact, lower-to-middle income parents typically pay little federal income tax because of the many helpful benefits that are conferred. Just ask anyone who files without children — these already are real differences.
Furthermore, despite efforts to make this change budget-neutral, I have no doubt it would increase the federal deficit. While lowered marginal rates possess a good history of stimulating productive growth, new credits instead typically resemble found money. Since the challenge of balancing the budget has so long plagued Washington, a move with great risk and uncertain benefit makes little sense for an economy still struggling with employment.
I believe my final objection is strongest. Salam’s theory overlooks that raising children is not a sacrificial task. Sure, moms and dads sacrifice substantially for the betterment of their kids. However, my experience has found that starting a family is beneficial event that is priceless — not $2,500 per year.
Children are the most valued asset in my life. I expect that never to change, even if the tax code does. It may cost $301,970 to rear each of them or, perhaps, the cumulative expenses will be much higher. Regardless, this money is not spent as a burden, equivalent to paying the mortgage.
I raise my three children for my benefit and theirs, not for some greater good for which I must be compensated. No figure can quantify the value of having kids. The tax code should not be written as if it must continually return the favor.