Do we need to pay parents to raise children?

The Economic Growth and Family Fairness Tax Reform Plan, a brainchild of Senators Mike Lee (R-Ut) and Marco Rubio (R-Fl), is designed, in part, to help middle-income families raise their children. Over the past several months, policymakers have argued about the merits of the plan, and analysts have modeled its distributional effects, albeit with widely different results based on a lack of clarity about some of its provisions.

The crowning jewel of the Lee-Rubio plan is a new child tax credit of $2,500—separate from the existing $1,000 Child Tax Credit—with no phase out for higher income families. Based on our current understanding of the plan, very few if any lower-income families with children would benefit, while the annual cost of extending this tax relief to middle-class and wealthy families is $414 billion.

The parent penalty

But even if the equity of the credit is in doubt, conservatives have another argument for this budget-busting proposal: the ‘parent penalty’.

Summarized by Ramesh Ponnuru in the National Review, the theoretical underpinnings of the parent penalty are simple. Parents bear the bulk of the cost of raising the next generation, but both parents and the childless benefit from social insurance in their old age. Senators Lee and Rubio discuss this parent penalty at length in an op-ed in the Wall Street Journal.

It’s an inescapable fact: raising children is expensive. According to the USDA, the cost of raising a child born in 2013 is approximately $245,340, with variation by region and by family income. If higher education is included, the costs rise even higher, with average tuition, fees, and room and board expenses ranging from $18,000 to $42,000 for the 2014-2015 school year.

But motivation matters here. Parents do not see these costs as a penalty they are being forced to pay in order to keep Medicare and Social Security solvent. Instead, children are valued for their own sake, with the understanding that the joy of parenthood comes with explicit commitments of both time and money.

Should society pay for raising children?

So, the real question is not about penalizing parents. It is this: to what extent should society subsidize the raising of children? Here are a few of the arguments for and against:

• Without a higher fertility rate, some contend the U.S. will not only have insufficient taxpayers to pay for entitlements, but also lower economic growth and a weaker military. Of course, the nation could keep its population growing through immigration alone, but many fear the kind of cultural pluralism that this would entail.
• Others believe a high birth rate imposes more environmental costs on society and diffuses whatever public and private resources are available across a larger cohort.
• Those with smaller families or no children at all may resent having to contribute to the costs of those with larger families.
• We should distinguish between helping poor families with children and helping rich families with children.

Related to this larger debate is the question of how much the government currently provides to families with children versus those without. We will address this question in tomorrow’s post.