Is it Foolhardy to be Family-Friendly?
I need to write a proper response to Stephen J. Entin’s critique of family-friendly tax policy. For now, I suggest you read it and see what you think.
Ending many deductions and fringe benefits would greatly expand taxable income, which would bump millions into higher tax brackets. Unless marginal tax rates came down a lot, marginal disincentives to work and save could rise for millions of households.
If the tax change is revenue neutral, and much of the revenue is devoted to large tax credits for families with children, then other taxpayers must pay a higher tax bill – and tax rates at the margin on saving, investment and work must increase for most taxpayers.
This is almost certainly true. But is it still worth it? Ramesh anticipated many of these objections, and my sense is that he offered pretty convincing rebuttals. Then there is the question of political psychology, which Ramesh tackles in the context of what sociologists call the life-course perspective. More to come.
I’m not familiar with Ramesh’s rebuttal to the editoral. In thinking about the editorial’s argument note this line, tucked into the back:
“These arguments [for the family-friendly taxes] don’t wash. Most people have children because they want them, not because the state needs future taxpayers to fund social programs.”
The entire argument he makes is predicated on people adjusting behavior to marginal tax rates (and the anticipation of tax rates) – important behaviors, like how much we save, spend and work. If so, then it must also impact our decisions to have children.
He anticipates a “yes it may hurt the economy but having more children and stronger families is worth that price” reasoning (but doesn’t bring it up in that paragraph) and dismisses it by saying that family/child-having decisions are hardwired and won’t/can’t be changed by tax rates. He’s going to need more than a hand-wave on that matter.
— Mike · Apr 9, 07:34 PM · #