Why is there a tax break for people with children?
By Gill McCarthy � Amateur Economist � 26 July, 2003
PART I � Preface.
I apologize that I must start on a tangent. I will throw out my hypothesis first, and then rapidly shoot it down and move on. I have to do this because I realized as I thought the issue through that my reasoning was wrong, so I tried to change it. But I couldn�t. I tried to put forth a sane economic reason for the tax break given to parents of minors. But I couldn�t. Because I do not know what the purpose of the policy is, I cannot prove that it does not make sense, therefore I will offer a contrary argument to show that there is no reason that it does make sense.
PART II � The initial hypothesis.
The tax break for families with children is designed to stimulate the economy in the future by increasing the size of the US economic market.
A steady increase in the working population is regarded by many as necessary for economic growth.1 How do we increase the working population? Immigration, changes in the work force, and children. Immigration is a good means of a steady increase, but it brings problems of its own.2 Changes in the workforce are societal, and we can do little to force them.3 The last method, children, just depends on too many factors, the most important being parents. How do you get people to have more kids, just tell them it will stimulate the economy in the future?
Certainly we will not pay for people to have kids? How much does a child cost to raise each year? For the lower class single parent it costs $115,000 for the first 18 years (today's dollars, no inflation). That is roughly $6,400 per year. That does not include the nine months of pregnancy or any medical costs before birth. It also does not include the extra loads of laundry when the kid pukes on you. Or the car repairs from teaching them to drive. Etc. Get the point? These are the USDA figures, so there is no crap in here that is in the real world other than the food that goes in the kid, the clothes that go on him. So we could pay everyone $6,400 per year to have kids. That would create an incentive for some people. Right before it bankrupted the country.
Instead, for the $6,400 per year lowball estimate for the cheapest kid, the government gives a maximum $1,000 tax credit. The only people that would think they are coming out ahead are incredibly stupid people. Since stupidity is genetic, we are only creating an economic incentive for stupid people to breed, then further burdening society by having less money available for school funding. Why would there be less money for school funding? Because the elementary schools are funded by taxes, and people with kids pay $1,000 less in taxes.4 Result: lower IQ children that will not be educated properly. (Don't slower kids need more attention, therefore more expensive education? You can follow that one as far as you want, you get my point.)
PART III � If we are not trying to get people to have kids, what are we doing?
I do not begrudge the families for getting a tax break, but I do think it is ridiculous. Any tax break stimulates the economy, so why reward just parents of minors?5 There is no need to reward someone for a biological function. Shouldn�t I get the tax break? No kids means no public schooling. Public schools suck money, use pollution spewing buses to transport kids, etc., so I am saving the government money by not having kids. Obviously someone has to have kids, otherwise the economy will really suck when we get old, but most people with kids would have had them anyway, they knew the risks and the rewards.
Oh, but we already determined that people have kids they spend $6,400 dollars more than I do each year. That stimulates the economy! So reward them, they still pump in a net $5,400 more than the childless, right? WRONG! I spend just as much as a person with a child. I do not buy Osh Kosh� overalls, but trust me, I do spend it. I buy beer, go out to eat, drive a better car. I make choices just like anyone else, they chose a child (with an 18 year, $115,000 lease), I chose a better car. So there is no sense to the argument that spending on children helps the economy anymore than spending on myself. They do not spend $6,400 more than I do, they spend $6,400 differently than I do, and I would spend the $1,000 on random goods just like them.
PART IV � The only thing this new law does correctly.
The only shred of decent thought that went into the law was the scaling of the tax breaks. The more income you make, the more of a tax break you get. This may sound counterintuitive, but if I pay $14,000 in taxes, I should get more money back than someone that paid only $500 in taxes. It is a tax break, if you did not pay taxes, you really cannot get a break!6
In fact, part of the reason that some people do not have to pay taxes in the first place is that there is already a standard deduction for counting your children as dependents. The double-dipping we are allowing parents who get the tax break would be even more heinous if applied to people that never paid taxes to begin with.
PART V � Conclusion.
There is no sane economic reason for having a tax cut directed solely at parents of minors. There is however a sane political reason. Parents are voters, and many people are either parents now, or have been, or hope to be. People that are not parents see the tax cut as helping the �average American family�, without thinking what else could be done with that money (like stuffing it in their own pockets instead of someone else�s).
So there it is, we are buying nothing but votes with the tax credits. Thank you, but in the land of the free I would rather have my money back in my hand. Since Uncle Sam is taking my money and giving it to someone�s parents, the parents should all give their kids five bucks and tell them to go wash the neighbor�s car.
ASSUMPTIONS
1. I will not bore you with the details, but the Congress of the United States has seen fit to enact legislation that gives a tax break of up to $1,000 to families for each dependent child under the age of 18, and in some cases beyond the age of 18. I also chose to use a $1,000 tax break for argument sake. Most families will not receive this, but I am trying to be conservative in all assumptions.
2. I went with the lowest price that the USDA published for child raising, in order to have the most conservative comparison. In reality, the numbers would prove my point to a much larger degree.
NOTES (Tangents that I needed to rant about)
1. You can believe this or not, it does not matter for my argument. If you believe it, I show why the tax credit is not supported by it. If you do not believe it, then the tax credit is definitely not supported by it.
2. The biggest problem most people see is that generally the people that immigrate to new countries do not bring much capital with them. If they were wealthy they probably would not move. So people see the influx of a poorer segment of the population and feel that money is wasted supporting them. First, they work their ass off and pay taxes, they are entitled to whatever they get. Second, they are not �stealing� jobs from anyone � who else wants to pick tomatoes for less than minimum wage in 105� heat. As long as they enter countries legally and abide by laws (taxes, etc.) they are a benefit. So the only arguments against immigration are founded in prejudice, ignorance, fear, or political tub-thumping.
3. Changing the population of working people can be accomplished in any number of ways. For example, the current aging population is working longer than in the past; other times in our history have dictated single income families with stay at home moms. While these are valid ways to change the workforce, it is too difficult to predict or change through the government.
4. This shift in payment of public education from parents to non-parents also creates the ironically Communist scenario of me paying more to educate your child than you do.
5. Targeting one group based on something they will do anyway is ridiculous. If you are trying to create an incentive at the same time as stimulate the economy, that is justifiable. For instance, giving a tax credit for purchasing a new hybrid car that gets 75 miles to the gallon. This stimulates the economy by putting cash in the persons pocket, and it creates incentive for people to generate less pollution by driving a �cleaner� car. (By the way, this also creates more arguments in economics, for example, if I get better mileage I can afford to drive further, increasing my chances of being in a severe accident, costing me and the taxpayer much more money. Economics can seem evil, but once you know about it, the whole world boils down much easier.)
6. If there is any dunderhead that bothered to read this far, and has a problem with this rationale, please stop reading. As much as I like to share information with other people I do not want to cause damage to a feeble mind by dropping a shocking bit of knowledge on you without warning, but I do have to point out that communism is not our form of government. Paying nothing in taxes is bad enough, getting reimbursed for taxes you never paid is communist.
27 JULY 2003
An (electronic) letter to a friend
I am going to try calling today; I tried yesterday, but no answer. I got to thinking when I was calling, there are two things my niece will never experience the way we did. Busy signals, and the argument of how many times you should let a phone ring.
Busy signals are being replaced with call waiting and automatic call answering if you are already on the line. As far as how many times you let the phone ring? I remember Gramma saying that she was slower than some people and she liked it to ring ten times to make sure she got there. Other people said six times, blah blah. I still count the rings!! But now I never get above three. There is either an answering device or service, or the person has a cell/cordless phone, so they only need two rings to answer it!
And remember when it was a big deal to get the police involved with finding the number of where obscene/prank phone calls came from? Hell, now with any phone there is caller ID, and with a computer attached it can tell you the address (if it is a hard line) or the call originating area if it is mobile. My niece will never get to ask anyone if their refrigerator is running!
The major jumps in technology are now laughable. We grew up with a system that we could dial four digits and get a neighbor. In Hubbardston you could dial a neighboring town with five digits, but in Templeton it took all seven. Now you need to program your phone, because the numbers have gotten too long for anyone to remember them.
The old four prong cannon plugs we used to have in the walls were replaced by the simple cords we use now (do they have a name?), at the same time the rotary phone became buttons that still sounded like a rotary because the switching station was so old.
The old shows on TV show the technology of cordless phones as a marvel. I now look at those antennas on a huge white hand piece, and it looks more like a science fiction probe that could microwave a turkey from the inside out! What were we thinking putting that right next to our brains?!
Cell phones were only the 40 pound packs that the poor bastard without the rifle always carried in the war movies; now they are so small I accidentally washed mine because I did not feel it in my jeans!! I routinely see people talking to themselves, and realize that they are not a crazy homeless person in an Armani suit, they have a tiny clear cord running behind their ear. The secret service is not as inconspicuous as these people! There are only two reasons that cell phones have not become smaller: First, where the hell would you put the button? Second, they need to put more crap on it to get teenagers to spend more money!
Cameras on cell phones? We could not even fake crazy stuff like that in the 1970s!
Oh well, that is my rant, I will contact you via digital-satellite-fibre-optic smoke signal this afternoon.