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Congressional Republicans, are now looking
for a "political center" that will not offend their
social conservative base. Congressional Democrats, on the other
hand, are also eager to prove their own centrist credentials.
Both sides of the aisle, moreover, want to "save"
social security. All of the above could be accomplished through
a new round of pro-family tax relief.
Regarding Social Security, it is vital to
remember that under a "pay as you go" system of
old-age retirement benefits, the primary investment made by the
current generation of working adults is not in money; it is
in children. Current estimates of dramatic short
falls in the Social Security trust fund after the year 2020 rest
on projections ahead of the current low birth rate. And so far,
the primary ideas to save the trust fund involve more taxes,
reduced benefits, or increases in retirement age. All of these
plans ignore both the possibility and the desirability
of bringing more children into the world now. Every
additional child born into responsible homes over the next
decade reduces that future deficit in important fashion.
But can public subsidy buy new children?
Federal and state "welfare" subsidies did help produce
a rise in the overall U.S. birthrate in the 1980’s. But this
boomlet came exclusively from out-of-wedlock births, children
that are less likely to become the needed productive citizens.
Experience in Europe, moreover, suggests that direct government
grants, or "child allowances" do not have significant
fertility effects.
However, the long-standing American
alternative—tax benefits keyed to family size—does have a
strong record of success. Research by demographer Leslie
Whittington, for example, has shown a strong positive
relationship between fertility and the real-value of the tax
exemption for children, from 1913 to the present. Other research
shows how positive tax benefits keyed to marriage and children
encourage a greater investment of parental time in the home and
in children, expanding what economists call "human
capital."
The difference here is one of psychology:
European child allowances are a state welfare benefit
which—almost by definition—discourage family identity and
independence. Tax relief—in contrast—lets families keep
more of what they earn because of marriage and children,
which seems to strengthen the sense of family autonomy, and
encourage larger families.
Moreover, a centrist "pro family"
tax agenda already exists. It was developed newly a decade ago
in part through the work of the National Commission on Children,
chaired by Senator Jay Rockefeller (D-WV).
Such an agenda should include:
Expand the current child tax credit, by
increments, to $1,000 per child. The Tax Reform package of
1996 created a new $400 per child tax credit, starting in 1998,
and rising to $500 in 1999. The logical next step is to increase
the value of this credit by $100 annually, until it reaches
$1,000 in the year 2004, after which it would be indexed to
inflation. This was the figure unanimously recommended by the
National Commission on Children in its 1991 report, Beyond
Rhetoric. This bi-partisan panel counted as members such
liberal luminaries as child advocate Marian Wright Edelman,
AFSCME President Gerald McEntee, and Harvard pediatrician T.
Berry Brazelton, as well as prominent conservatives such as Kay
James (now at Regents University), Louise Oliver
(Intercollegiate Studies Institute), and Wade Horn (National
Fatherhood Initiative).
The Commission held that Federal policy
"should not tax away that portion of a family’s income
which is needed to support children." It also noted that
the $1,000 credit was "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."
In short, this credit offers extra tax relief
to all working families raising children. It expands choices
and opportunities for all parents. While it avoids
the perils of social engineering, it does allow the natural
advantages of traditional child rearing to blossom.
Universalize the current dependent care
tax credit, making it available on an equal basis to all
families with young children. All parents want greater
flexibility in juggling their work responsibilities with the
needs and care of their children, particularly during the early
or pre-school years. Surveys consistently show that a large
majority—over 80 percent—of employed mothers wish that they
had more time to spend with their infants and toddlers. At the
same time, other millions of young families struggle to keep one
parent at home with their small children, either through the
sacrifice of a potential income or by working different shifts.
At present, though, Federal tax policy does
nothing to encourage or recognize these families. Instead, it
taxes them at historically high rates and focuses relief
narrowly on only one—and at that, the least
popular—of child care choices: namely, institutional daycare.
The Tax Code allows a credit of up to $720 for one child, and up
to $1,440 for two or more children, on 25 percent of day care
costs.
The positive alternative is to fix this
credit amount at the maximum levels cited above, and grant it to
all families with children under age 6. Such tax relief would be
universally popular with young families; for there would
be no losers. For those currently using the credit, their
choices increase. No longer would they lose a tax benefit
by electing to spend some additional time at home with their
children. For families struggling to care for their own children
at home, this measure of tax relief would support their choice
as well.
Restore the policy of income splitting
that would recognize married couples as equal partners at tax
time. ‘Income splitting’ had been the law of the land
between 1948 and 1963, the only period in the 20th
Century when marriage rates were high and divorce rates low. It
is still, we believe, the preferred solution to the ‘marriage
penalty’ with which Congressional Republicans grappled so
fervently, and unsuccessfully, in the last Congress. For a time,
200 Representatives—including ‘centrist’ Democrats—had
rallied around the Marriage Tax Elimination Act, which would
have ‘solved the problem’ by treating married couples as
individuals. Yet articles in this journal by the current authors
("The Wages of Wedlock," Nov. 17, 1997; and
"Marriage and Taxes," Feb. 9, 1998) showed the flaws
in this approach. Notably, it had the unintended effects of
eliminating marriage as a meaningful tax category, creating a
"homemaker penalty" in place of a "marriage
penalty," and undermining the autonomous home economy.
Showing an unusual flexibility and
responsiveness, Rep. David McIntosh (R-IN) went back to the
drawing board. He crafted a revised bill that captured the
essence of "income splitting": it proposed that
married couples enjoy both a standard deduction and a base tax
bracket that were twice as wide as that for single taxpayers.
While this measure fell victim to the Congressional policy
implosion of 1998, it stands as a solid guide for consideration
in 1999. The one change needed is to double the size of all
tax brackets for married couples, not just the first one (15
percent).
Earlier this year, a coalition of family
advocates rallied behind these three recommendations in the
document, "A Call for Family-Supportive Tax Reform."
The group included figures normally associated with
‘progressive’ politics—such as Sylvia Hewlett, author of When
the Bough Breaks: The Cost of Neglecting our Children, and
Cornell West, Professor of African-American Studies at
Harvard—and others commonly associated with the conservative
pro-family movement—including USA Today columnist Bill
Mattox and _____________________.
The statement noted that the very size of the
Federal government and the sweep of the tax code meant that
attention must be paid to issues of family structure, marriage,
and family well-being. Neutrality was impossible. Moreover, the
structure of the modern welfare or social security system, had
contributed to the weakening of family bonds. Accordingly, it
was proper to use the tax code in creative ways to give
preference to the family. Permitting child-rearing parents to
retain more of their earned income represented a fair remedy to
the usually unintended, but real, effects of other governmental
policies. Specifically, it would be a "painless"
rescue of Social Security: the promise of more children in
responsible homes, rather than a reduction in benefits or an
increase in taxes.
Recent election results should improve
prospects for bipartisan action here. A chastened Republican
leadership and their Democratic counterparts who have
rediscovered the "center" should be able to see their
common interests. As "The Call" explains: "[O]n
the left, many of us recognize that the enduring problems of
poverty and economic inequality are unlikely to diminish so long
as divorce and unwed childbearing continue at these historically
high levels. On the right, many of us recognize that if families
continue to fragment, leaving a host of important and unmet
social needs in their wake, government is almost certain to
become larger, not smaller or more limited."
It is time to come together, for the good of
families…and the Social Security system.
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