Another Election Day question…
“Marco Rubio: Tax Reform Should Help American Families” (nytimes) tries to sell the latest Republican tax proposal on the grounds that, compared to the current system, there will be more handouts for Americans with children under age 18. The discussion is framed by pointing out what money-sinks children can be:
According to federal data adjusted for inflation, from 1960 to 2015 the average annual cost of raising a child in a middle-income family rose by over $11,000. It’s now estimated that middle-class parents will spend more than $230,000 over the course of their son or daughter’s childhood — and that doesn’t even include college tuition.
[The Senator and the NYT Editors don’t explain the arithmetic here. The cost is $11,000 per year higher over 18 years. That’s a total of $198,000. If we subtract that from the current cost of $230,000 we find that the cost to parents back in 1960 was only about $32,000 in today’s mini-dollars. Does that make sense given that food and clothing are cheaper than ever? (and, of course, the paper does not have the bad taste to point out that an American who has sex with a dermatologist can get $230,000 per year in tax-free child support, depending on the state) Senator Rubio also claims that this $230,000 is more than it costs to buy a house, which sounds wrong to those of us living in on the sacred coasts of righteousness, but is close to being true nationwide according to realtor data (median existing single-family home sold for $246,800 in September 2017; used condos sold for a median price of $231,800).]
The article goes on to say that some Americans aren’t having as many babies as they would in a world where children were cost-free (i.e., paid for by someone else). This is a serious problem in a country with a population of 325 million that, apparently, seeks to overtake China and India.
My comment:
“Having kids is one of life’s greatest experiences.” [the article’s first sentence]
Hard to argue with this, but then why can’t we parents pay for our own kids instead of asking childless Americans to pay yet more for them? The childless already pay for a share of K-12, right? When we go to a restaurant with our kids ([a] mercifully infrequent [event]) we don’t say “This must be one of life’s greatest experiences for the childless people in this restaurant” and then go around asking other diners to chip in for our meal. Yet that is exactly what the government is doing via a tax code that makes the childless give up a higher percentage of their income.
Given that there are more voters (the childless and those with adult children) who will pay for this compared to the number who will enjoyed the reduced tax rates, I’m wondering why this is a selling point.
Childless Americans don’t voluntarily go around to those with children and offer money, do they? If not, why would a majority of childless Americans vote to have the government take money from them and give it to Americans with minor children?
Most of the top-rated comments on the piece demand yet more handouts or complain that others are richer:
So if you value families, Senator, how about paid family leave, quality prenatal care and healthcare throughout a child’s life, and universal childcare and preschool? And how about quality K-12 schools and educational opportunities, not just for the elites but for all Americans, investing in the future of our country?
The mom’s [sic] I talk to tell me that daycare runs about $15,000 a year per child. If we really want to help families, how about funding daycare like those awful freedom robbing socialist European countries do? We can’t do that here because that would entail federal spending and the federal government isn’t supposed to spend money on the little people. We give them paltry tax breaks which doesn’t cover the cost of daycare or health insurance and other socialist programs that all other modern industrialized nations provide.
For someone who is currently deciding on whether or not to have a second child this article really angers me. My husband and I make a good living, but we are both self employed. Our insurance is going up next year and premiums will be over 1k a month. We don’t quality for tax credits for health care and we would have an out of pocket cost of over 7k for having another baby. This is on a silver plan. After having a baby we would need extra childcare which would cost us at least 1200 a month on top of preschool cost for our son. We don’t need a measly $2k tax credit, we need affordable childcare, affordable healthcare and paid parental leave. Being from a Northern European country originally, my husband and I have decided to move to Europe in 2019. Unfortunately, the United States is not a good place to raise a family.
A $2,000 tax credit won’t do much. If you really want to help working families, provide them with affordable healthcare, childcare, and education. That will require a tax increase on the wealthy, not the huge tax breaks you’re giving them now.
If your party would do something about the problems you mention here, like a mandatory living wage, daycare as part of public education (thus free), paid family leave, free community college, a functioning healthcare insurance system as opposed to sabotaging it), perhaps things would be a lot better.
And kids over 18 going to college, while still dependents, don’t qualify for the child tax credit making the loss of the personal exemptions even more onerous to the family finances. [at least in Massachusetts the child support profits can continue to flow until age 23]
Keep the inheritance tax – families with that much money do not need our help.
You mention student loans in the very first para. Why not do something about the cost of college education as your Democratic colleagues want to do? Affordable college education can not only help parents but will make the country competitive in a global market.
As someone graduating college and looking to embark on my own “American Dream” the increasing pricetag of raising kids is a point of real concern for me. Because having children is a top priority in my life I want to do so without continual financial anxieties, yet with the new proposed tax plan and the current infrastructure, it seems to be increasingly difficult. It affects my career choice, place of residence, pregnancy timing and everyday spending.
The last one is my favorite. The author identifies him/herself as “Luke Yeager” from Boulder, Colorado and therefore the implication is that someone named “Luke” will be pregnant. He/she says “having children is a top priority in my life,” but not such a high priority that Luke wants to work to support the prospective brats: “I want to do so without continual financial anxieties.” Maybe Colorado doesn’t offer free housing to those with kids and zero income? Luke needs to come to Massachusetts and discover the miracle of means-tested public housing (sometimes in newly constructed luxury commercial apartment buildings), Masshealth (our Medicaid), food stamps, etc. We will be happy to pay for as many children as his pregnancies produce. If he and his adult partner have two children and don’t want to stay home all day playing Xbox they can earn up to $78,150 per year and remain in Boston public housing (chart).
There are a few NYT readers guilty of “maybe we don’t have infinite money” thoughtcrime:
Households of childless couples or single men and women already have their taxes used for public education and related expenses which are significant. Yes, I can see the collective good there. But to add further tax burdens/costs to those who, by great measure, choose not to have children out of being financially responsible and realistic of their earning powers to have to finance the raising of children by shouldering further tax breaks for those that choose (or recklessly) have children is starting to approach a point of grossly unfair. Add food assistance programs and healthcare….we’re talking real money. The single or childless household is being unfairly burdened.
In general, individuals and societies who can most easily afford more children tend to have fewer of them and vice versa. Thus, I question the proposed correlation between fertility rates and taxes. More importantly, we have an appalling rate of child poverty in this country (about 20%). Supporting the education and welfare of these children should be the top priority, not encouraging everyone to have more of them.
i’m all for helping to defray the cost of child-rearing, but as a happily single and childless fully self-employed adult, i need some help with payroll taxes, too. right now, i have zero confidence that i will ever live to collect social security. lifting the income cap on the payroll tax would save that program for all american workers, those with children and those without.
The article concludes with “Raising children is the most important job we will ever have.” (he does not cite Bill Burr on how it is also the toughest)
Readers: What do you think? Is it strange that people vote to have the government make everyone do something that practical nobody does voluntarily? (and Happy Election Day if you’re voting!)
Not unlike the number of confirmed bachelors killing themselves to write off all student loans & fund all tuition for kids they never had, when that was the crisis of the week.
Who will be working in the restaurant which the childless person goes to when they retire and staffing the assisted living or nursing home they go into when they can no longer care for themselves?
All members of society, including those without children, have an interest in developing the next generation.
What people don’t want to talk about is how skewed the system is, against middle class wage earners and even upper middle class, vs. those on welfare/SNAP/free ObamaCare etc.
Example: friend of mine and his wife, had 2nd kid, this one had some medical issues, which maxed out his $10K deductible (Thanks Obama!) on his plan. That is, he had to pay $10K that year in addition to his insurance plan payments.
If he had just decided instead to go on welfare instead of working hard, he would have had all that paid for by the state.
And Rubio (part of the Gang of 8 that wanted to wholesale legalize all illegals in the country) doesn’t mention this huge incentive to the indigent and illegal (never known an illegal family that wasn’t receiving assistance of some kind) to have many kids vs. the many fiscal restraints placed on those who are actually working.
…Who will be working in the restaurant which the childless person goes to…?
Same people as today: Immigrants!
I raised two kids on a lot less money than all of these surveys quote.
Much of what passes for quality child raising today is not needed. I never paid for private lessons, organized sports or a lot of the consumer goods that other kids seemed to have. As a result, I think my kids hung around with their friends more, and read more than most kids.
They came out okay.
Despite all this, convincing middle class parents that they don’t have to do all this stuff for their children is close to impossible.
Sometimes you hear that the high cost of childcare is a reason that induces couples to choose to have one parent who doesn’t work out side the home. If good childcare was cheaper, it could increase that (widely misunderstood) labor force participation rate.
Phil, what is the evidence that “paying people to have children” increases the birth rate? You also seem to believe the inverse, that if we stop paying people to have children, there would be fewer births. I’m not convinced that this is true, though it would be interesting to know one way or the other.
The general sentiment among liberals I talk to is that Western Europe has more support for parents than the US does, ie Europeans pay people to have children more than Americans do. But most Western European countries have lower birth rates than the US. Is this consistent with your argument that paying people to have children causes them to have more of them?
Yz: That’s a great question to compare the U.S. to Western Europe.
First, though it is popularly believed that Europe runs a more generous welfare state than the U.S., the numbers don’t seem to back up this belief. See
http://www.nationalreview.com/article/424009/poverty-us-we-spend-much-more-person-social-welfare-europe-does-robert-rector
for example. So at the lower end of the economic spectrum it may simply be that U.S. welfare is more generous and that having a child is the key to the welfare kingdom (in theory maybe you can get a free house anywhere in the U.S. if you don’t work, but in practice the waiting time will be infinite unless you have obtained custody of at least one child).
Another issue is space. I have seen statistics that an American on welfare has more square feet per person of living space than a middle-class German. If you’ve got an extra bedroom, why not fill it up with a child? See http://shrinkthatfootprint.com/how-big-is-a-house for how the U.S. has 77 square meters per person while Italy has only 31 (and a very low birth rate!). An average new home in the U.S. is 2,164 square feet compared to 1,173 in Germany and 872 in Italy (same reference).
Remember that only about half of the kids in the U.S. are in two-parent households. That means the other half are potentially yielding child support cash, which can be 10-100X the European amount (depending on the U.S. state and European country). So Americans could be having kids in order to harvest the child support cash or as an insurance policy against the risk of their spouse divorcing them (a lot of states have made it tougher to get alimony, so having a child is the best way to get cash from a former spouse).
Europe has high consumption taxes (VAT); the U.S. has high income taxes. I think that would tend to discourage middle-class Europeans from having children because everything that they buy for the kids will result in a larger VAT payment. In the U.S. everything is ridiculously cheap to begin with and then only lightly taxed (zero sales tax in many states; mail order merchants not collecting sales tax; rates much lower than European rates when sales tax actually is collected).
Anyway, you can test this. Walk around your neighborhood and ask neighbors with young kids if they’d be willing to have an extra child in exchange for $1 million. If the answer is “yes” then you know paying people does work but we may still argue about the price. (https://www.citylab.com/equity/2014/04/turns-out-paying-people-thousands-dollars-have-baby-works-pretty-well/8839/ suggests that 10,000 euro is sufficient in Finland.)
Yz: Here’s a 1998 summary of research on the subject of the extent to which changing welfare benefits will change marriage and fertility: https://www.ncbi.nlm.nih.gov/books/NBK230345/ The overall conclusion seems to be “society gets what it pays for.” On the other hand, the response to economic incentives seems to be mixed in with some time lags and cultural influences.
Here are a few excerpts:
This simple analysis shows that the level of state welfare benefits is substantially correlated with single-motherhood rates. Many of the largest states such as New York, California, and Illinois have relatively generous welfare systems as well as high rates of single motherhood; another large state, Texas, has low benefits and low single-motherhood rates.
it is clear that a simple majority of the studies that have been conducted to date show a significant correlation between welfare benefits and marriage and fertility, suggesting the presence of such behavioral incentive effects.
> Anyway, you can test this. Walk around your neighborhood and ask neighbors
> with young kids if they’d be willing to have an extra child in exchange for $1
> million. If the answer is “yes” then you know paying people does work but we
> may still argue about the price.
…or another way around: offer them to dispose of one of their kids for a modest fee.
Phil, don’t you understand that Texas women are exploited and oppressed? Bostonians need to go and liberate them to raise single parenting rate in Texas!
“- why would a majority of childless Americans vote to have the government take money from them and give it to Americans with minor children?”
Most Americans will be parents of small children at some point in their life. As of 2014, 85% of women aged 40-44 had at least one child. So it’s more of a life-cycle thing – parents of small children are particularly squeezed financially, between daycare, mortgage payments or rent, and attempting to save for retirement and post-secondary education.
“Childless Americans don’t voluntarily go around to those with children and offer money, do they?”
Actually, I can think of at least one common case: grandparents!
Robert Rector’s comparison of the US and Europe seems to combine public and private spending, which is … odd. I think it’s pretty hard to argue that public spending is lower in the US than elsewhere. General government spending in the US is 37.6% of GDP (revenue is 33.4%); Germany’s public spending is 43.8% of GDP (revenue 44.5% of GDP). In Sweden it’s about 50%. OECD.
Russil: I don’t think the fact that X% of American women are childless proves anything about their responsiveness to cash incentives. We’ve had a wide range of similar cash incentives in places for decades, e.g., tax deductions and credits for those with children, enhanced welfare services (housing, health care) and cash (food stamps) for those with children, etc. We don’t know what the number would be without these government programs.
I’m not sure if Rector’s analysis is the ultimate example, but it seems consistent with the Congressional Budget Office’s estimate of $60,000+ in tax dollars spent on each welfare family (an underestimate, I think, because it doesn’t include free housing that private apartment building owners are forced to give). Also consistent with what one can see here in Massachusetts in terms of the value of the public housing provided, the cost of health insurance, etc.
Sorry, I wasn’t talking about the effect of cash incentives on fertility – I was talking about your original question, why public opinion would support subsidies to parents of small children.
As I’ve said before, I think the US welfare state is both weak and expensive.
Russil: Good point. That WOULD explain a lot of it. If 85 percent of women will have a child and 45 percent of men (the U.S. family law system is pushing Americans back to historical polygamy in which only a minority of men ever reproduced), that’s a majority of voters who might like to see the government help them smooth out their after-tax spending power. But it doesn’t explain how cheating can be avoided. Young people who expect to have children or who do have children vote for the handouts. Why don’t old people who’ve already gotten the handouts vote to trim them back? Old homeowners are famously tough to persuade to spend property tax money on schools that their kids already went through.
Russil Wvong
Does “spending as of % of GDP” make much sense given that majority of GDP is spending? US clearly spends more then Germany: US per person GDP is larger than German and US public spending is higher than revenue part of GDP, unlike in Germany.
“Why don’t old people who’ve already gotten the handouts vote to trim them back?”
Most old people have grandchildren, or expect to have grandchildren.
Anonymous: good question. Generally speaking, as countries get richer, you would expect public spending to rise as a proportion of GDP. (This has a name: Wagner’s Law.) Because the US is somewhat richer than Germany, you would expect public spending in the US as a proportion of GDP to be somewhat higher than in Germany, all other things being equal.
Russil Wong #17,
Wagner “law” is definitley not like Newtonian mechanics, special relativity or Black-Scholes formula: if either expects something measurement confirm it. But your expectation for US are failing. It is rather ridiculos attempt on social “engineering”, I call it “wag the dog” law. Countries with socialized economies have higher % pf public spendin, such as former USSR, Venesuela, North Korea.
Anonymous: the interesting thing about Wagner’s Law is that even under conservative governments (like Reagan and Thatcher), public spending has continued to rise. Joseph Heath, Three Normative Models of the Welfare State:
Note that 100% taxation, or equivalently the abolition of private property, is a terrible idea. Explanation via a previous comment.
Russil: How is Wagner’s “Law” consistent with what is observed in some of the world’s wealthiest countries, e.g., Singapore (see http://www.heritage.org/index/country/singapore for “Government spending has amounted to 18.2 percent of total output (GDP) over the past three years, and budget surpluses have averaged 3.3 percent of GDP”). Singapore is richer than the U.S., per capita, yet government doesn’t seem to be growing as a percentage of their economy. Or how about Estonia? They’ve been getting richer and yet taxes and government spending are low by European standards (see http://www.heritage.org/index/country/estonia ). The Scandinavian countries have been getting richer, right? Yet their governments’ footprints have been reduced.
Hmmm… Maybe Sweden is not a counterexample to Wagner’s Law. https://www.csmonitor.com/Business/Stefan-Karlsson/2012/0517/Sweden-a-spending-reduction-success-story says that “Since 2006, when the current Swedish government was elected, government spending relative to GDP fell from 52.9 percent in 2006 to 51.8 percent in 2011, faring much better than the global average.”
Maybe Sweden shows only that “Once you hit roughly half of GDP it is tough to keep growing government.” They’re soaking just about everyone with high tax rates: https://taxfoundation.org/how-scandinavian-countries-pay-their-government-spending/ (but corporate taxes are lower and capital gains taxes are about the same as in the U.S.) [the Tax Foundation article seems to understand U.S. tax rates, though, by not including the employer side of payroll taxes (money that would otherwise go to employees) and also leaving out state income tax, I think.]
Singapore’s an interesting example. Here’s the World Bank data for Singapore government spending to GDP, 1990-2016. You can see that there’s a big bump after the Asian financial crisis in the late 1990s (which brought GDP down for several years), dropping again afterward; but in more recent years it’s been rising again.
And here’s Estonia since 1990. Before 2000, there wasn’t much GDP growth – GDP was pretty flat. You can see that government spending has been rising since 2005, with a spike around 2008.
“Maybe Sweden shows only that ‘Once you hit roughly half of GDP it is tough to keep growing government.'”
Probably a good way of describing it. I remember working on a project in Sweden in 1989. We went out to a restaurant, and the value-added tax was 25%.
Thanks for the World Bank data. Singapore seems to have been basically flat for at least 40 years. Estonia has a long-term downward trend!
Corrected link to Estonia since 1990. Note that Wagner’s Law only applies to countries that are getting richer – here’s Estonia’s GDP per capita.
Joseph Heath, in a blog comment, talks about the typical sequence for a middle-income country that’s rapidly getting richer:
Singapore isn’t exactly a liberal democracy, but it does hold elections, even if the PAP always wins. I’d be very surprised if the same kind of political pressures as in Taiwan didn’t also apply in Singapore, as the country continues to get richer. As Heath puts it: “It is natural that as people become wealthier they increase their consumption of all sorts of things. It would be bizarre if this led them only to consume more private goods, rather than public goods as well.”