THE SOLUTION TO EVERYTHING
BLANKENHORN, DAVID & CARLSON, ALLAN C.
THE SOLUTION TO EVERYTHING The Case for a Family-Friendly Tax Cut By Allan C. Carlson and David Blankenhorn Almost everyone in Congress wants to "save" Social Security. And return some of the...
...Representative David Mcintosh recently crafted a revised bill that captures the essence of income-splitting: Mcintosh proposes that married couples enjoy both a standard deduction and a base tax bracket that are twice as wide as those for unmarried taxpayers...
...And therefore, it seems, toward greater size...
...research by the demographer Leslie Whittington shows a strong, positive relationship between fertility and the real value of tax exemptions for children...
...marital fertility were to return to where it was in 1970—about 2.5 children per married couple, as opposed to 1.6 children per couple today—the additional births in just one year would eventually add $274 billion to the trust fund...
...An additional 100,000 children born in any one year would contribute an additional $24.3 billion to the system...
...Of course, demography does not determine culture...
...If U.S...
...As a result, benefits flow exclusively to a minority of relatively affluent, two-earner couples...
...to $500 in 1999...
...In our pay-as-you-go system, the most important thing that working adults contribute is not money, but children...
...Yet the idea of tax-code neutrality toward marriage—frequently invoked by those who favor taxing each person as an individual, regardless of marital status—is an unattainable fantasy...
...And get rid of the much-discussed marriage penalty in which, perversely, some married couples pay more in federal taxes than the two of them together would have paid if they had remained single...
...European-style child allowances are state benefits which, at least in the realm of symbol and psychology, tend to undercut family identity and interdependence, fostering instead a sense of dependence on the state...
...But as regards family formation, there is apparently a big difference...
...All parents need flexibility in combining their work responsibilities with the care of their children, particularly during the pre-school years...
...The federal tax reform of 1997 created a new $400-per-child tax credit, which will rise FEDERAL TAX POLICY DOES NOTHING TO HELP FAMILIES THAT STRUGGLE TO KEEP A PARENT AT HOME...
...Short of the abolition of taxes, there simply is no way to duck the core question: Do we want public policy to recognize marriage and child-rearing, or don't we...
...The second plank in a program of family-supportive tax relief is to universalize the current dependent-care tax credit, making it available on an equal basis to all families with young children...
...Instead, it taxes them at historically high rates and then, through the dependent-care tax credit, subsidizes the one form of child care that contains the least flexibility and is the least popular among parents: commercial day care...
...They are currently overshadowed in the public debate by two other notions: tax-code neutrality and non-targeted, general tax relief...
...For this reason, Myrdal pushed hard for an explicitly pro-child family policy— a system of family-supportive tax measures and other benefits aimed at countering the anti-child incentives inadvertently created by many features of the modern welfare state...
...Across-the-board tax cuts will make us financially better off...
...Can new economic incentives produce new children...
...and European family policies...
...Additional children born into responsible homes would go some distance toward solving the Social Security problem...
...But you can't run a benefits system forever based on a constantly shrinking pool of contributors...
...Call it The Solution to Everything...
...Yet current federal tax policy does nothing to help these families...
...Accordingly, most ideas to save the trust fund involve some combination of higher taxes, reduced benefits, and later ages of retirement...
...In recommending the $1,000 credit in its 1991 report, Beyond Rhetoric, the commission noted that such an amount would be "neutral toward family structure and mother's employment" and so "would not discourage the formation of two-parent families or of single-earner families in which one parent chooses to stay at home and care for the children...
...However, the well-established U.S...
...The actual increase turned out to be 5.5...
...Family-supportive tax reform will also make us financially better off...
...He realized that the modern welfare state's program of old-age retirement benefits, which he strongly supported, largely socialized the long-term economic benefits of having children, thereby sharply reducing the individual couple's economic incentive to have and raise children...
...But all of the currently proposed solutions ignore the possibility and desirability of bringing more children—more twenty-first-century conAllan C. Carlson is president of the Howard Center on Family, Religion, and Society in Rockford, Ill...
...While this worthy measure fell victim to the great congressional policy implosion of 1998, it stands as a solid guide for tax reform in 1999...
...It's even easier than the question of whether we want a tax cut...
...At the same time, for those who fret about our cultural condition, on issues ranging from vulgarity on television to "me-first" moral values, could any demographic shift imaginable bode better for us than more married couples having more children...
...Okay, so Myrdal was a socialist...
...You get the idea...
...research shows that family-supportive tax benefits directly encourage more parental time spent in child-rearing, thus increasing what economists call human capital...
...Current predictions of disastrous shortfalls in the Social Security trust fund after the year 2020, as the baby boomers become expensive retirees, assume that our currently low birth rate is an immutable social fact...
...This worthy idea was proposed nearly a decade ago by the bipartisan National Commission on Children, chaired by Democratic senator Jay Rockefeller of West Virginia...
...Other U.S...
...no longer, for example, would they lose the benefit by electing to spend additional time at home with children...
...Pretending that marriage does not exist inevitably harms marriage as a social institution, especially when it is the government of a modern welfare state that is doing the pretending...
...To ignore marriage in the tax code is to pretend that marriage does not exist...
...Experience in Europe suggests that direct government grants, or "child allowances," have little long-term impact on fertility...
...A fairer approach is to extend the credit to all families with children under age 6. As a result, there would be no losers...
...Income-splitting is the only fair way to eliminate the tax code's current marriage penalty, against which Congress struggled unsuccessfully during the last session...
...At the same time, millions of couples struggle to keep one parent at home with children, either by sacrificing one potential income or by working different shifts...
...Accordingly, the first plank of the tax-reformist Solution to Everything should be to expand, either immediately or in stages, the current $500 child tax credit in the federal tax code to at least $1,000 per child...
...And, most important, it will help us as we struggle to strengthen our families and spend more time with our children...
...For those currently receiving the credit, their child-care choices would increase dramatically...
...By contrast, family-supportive tax relief—letting families (as families, not as individuals) keep more of what they earn—pushes in exactly the opposite direction, toward greater family autonomy and cohesion...
...Using her model, a team of researchers predicted that the 1986 tax reform, which increased the personal exemption for children, would raise fertility by 7.5 births per 1,000 women by 1990...
...tributors to the trust fund—into the world now...
...David Blankenhorn is president of the Institute for American Values in New York City...
...And, finally, get something (anything...
...passed and signed into law in 1999 that would be substantive, bipartisan, and politically popular...
...marriage rates were increasing and divorce rates dropping...
...This was the great insight of Gunnar Myrdal...
...And here we conceptually part company from Gunnar Myrdal...
...One useful change, we believe, would be to double the size of all tax brackets for married couples, not just the base bracket of 15 percent...
...Or, more modestly, call it family-supportive tax reform...
...These three principles of family-supportive tax reform—boosting the child tax credit, universalizing the dependent-care credit, and reinstating income-splitting—are all guided by a certain way of thinking about the tax code's purposes...
...To us, this is a no-brainer...
...The logical next step would be to increase the value of this credit by $100 annually until it reaches $1,000 in 2004, after which it could be either increased further or indexed to inflation...
...In particular, surveys consistently show that most working mothers wish they could spend more time at home with their young children...
...Nor is it enough simply to cut taxes across the board, another solution much favored by those who want to ignore the fact that incentives regarding marriage are unavoidably embedded in any tax code...
...And return some of the current budget surplus to the people in the form of tax cuts...
...We estimate that each additional child born in the next ten years will contribute (using 1998 figures) an average of $242,000 to the trust fund during his or her working life...
...alternative—tax benefits keyed to marriage and family size—does have a record of success in promoting more births...
...But for conservatives, he could have easily and properly called his idea "supply-side" family policy...
...Moreover, families currently struggling to care for their own children at home would no longer be punished by the tax code...
...And, let's not forget, improve child care and strengthen the American family...
...To most economists, after all, there is little to distinguish a tax cut from a direct payment...
...The essential notion is that we do have the power to grow our way out of a budget deficit, by doing something that is fun and that would also, by the way, produce enormous and multiple social benefits...
...What accounts for these differences of result between U.S...
...Consider Social Security...
...INSTEAD, BENEFITS FLOW TO AFFLUENT COUPLES...
...Fortunately, much of this good work can be accomplished in one lick, by mixing supply-side economic theory with a dose of pro-marriage sentiment, topped off with a profound insight from Gun-nar Myrdal, the Swedish socialist and intellectual father of the modern welfare state...
...And it will offer assistance in other areas, such as Social Security...
...The third and final component of family-supportive tax reform is to reinstate the policy of income-splitting, which would recognize married couples as equal partners at tax time, permitting them fully to share their income for purposes of taxation...
...Income-splitting was the law of the land between 1948 and 1963, the only period in the twentieth century when U.S...
Vol. 4 • December 1998 • No. 13
