The essay is by Robert Stein.
tax cuts for the middle class should be designed to offset the greatest fiscal-policy distortion that affects middle-class Americans: the disincentive to raise children caused by Social Security and Medicare.
…A recent tax reform proposal by Senator Mike Lee (R., Utah) would take a large step in this direction. He would keep the current $1000 child credit and the personal exemption for children, and a new credit of $25000 available to all taxpayers with kids, with no phase-out of the sort that applies to the current credit. The new credit could be used to reduce income-tax and payroll-tax liabilities: it couldn’t be used to increase refunds for those who have already used other credits (like the earned income credit) to reduce their tax bill to zero.
To help pay for the news larger child credit, Senator Lee would greatly simplify the income tax code, getting rid of all itemized deductions except for the mortgage interest and charitable deductions. He would also limit the deduction for new mortgages to $300,000.
1. The assumption is that people are thinking, “My retirement is taken care of. So I don’t need my children to pay for my retirement. So I won’t have so many children.” I would like to see some estimates of this effect. How large is it? I’m not even sure that it has the right sign (having your retirement taken care of might make you more willing to have children, because your finances are less uncertain).
2. Getting rid of itemized deductions and capping the mortgage deduction sound like good ideas. But I would rather use the revenue from those to reduce payroll taxes and thereby improve the labor market.
3. Meanwhile, in another chapter, written by Michael Strain, we find
The EITC is much more generous to households with children than to those without; in 2014, the most a childless worker will get from the EITC is $496, while a worker with three or more children will get up to $6143….we could increase the maximum size of the credit for a childless worker by a factor of six and the maximum credit for a worker with one child would still be larger. So policymakers should double or triple the credit available to childless workers, and fund the expansion by reducing tax benefits (like the mortgage interest deduction and the state and local tax deduction) that now almost exclusively benefit higher-income households.
I don’t mind so much that one author thinks we don’t subsidize middle-class parents with children enough and the other thinks that we don’t subsidize childless workers enough. But I certainly mind that each of them wants to use the same revenue source to fund additional subsidies.
One of the reasons that I am reluctant to have SNEP be a large group project or to think in terms of political appeal is that I want it to be coherent. To me, that is the difference between politics and policy. Incoherence might be a feature in politics. In policy, I think of it as a bug.
Again, you have my idealism/cynicism, which separates politics from policy. Politics is what politicians do to win votes. Policy is what wonks propose in the hope that it will help the country. I think that one should propose good policy, taking into account obvious political constraints. However, I would not assume that voters, other than rent-seeking interest groups, choose candidates on the basis of specific policies.
Payroll taxes help to flatten the income tax progressivity, so are our good tax at the moment.
Subsidizing the quality of children, as opposed raw quantity, seems to be a good compromise. Why give tax breaks to net tax consumers for producing more net tax consumers? We’ll make it up volume? If inter-generational wealth wasnt correlated this wouldnt be possible, or desirable, but it doesnt look like that is the case. This is one of the implication of Greg Clark’s work that doesnt seem to be getting any attention, least of all by Greg himself.
How about returning “taxation” to its original purpose of providing revenues for the functions of governments?
Of course, that takes us immediately to the issue of what shall be those “functions of governments.”
Currently many particular interests derive benefits and ameliorations from burdens by reason of transfers of obligations to the State (an embodiment of passively accepted or consensual authority), which is not government, but operates through the mechanisms of government; creating needs for expanded functions of governments.
Thus, we may be faced with transferring obligations from the State to individuals and institutions or to other forms of affiliations in our society, similar to those that have existed in the past. This may very well occur through fiscal default.
It is possible we know very well what has to be done and just won’t do it.
Don’t be shy, Arnold, it’s a tremendously valuable project. See what you can come up with as an ideal set of policy changes. Then worry about the politics as a second step.