Friday, January 23, 2015

Do Obama's anti-homemaker proposals make sense?

Ramesh Ponnuru says they don't:

He wants to triple the existing tax credit for child-care expenses, and create a new credit for second earners. Those proposals will help some parents and couples, but have nothing to offer families where one parent concentrates on home-based tasks. The second-earner credit is probably too small to affect couples’ decisions about work and child-care arrangements. So its main effect will be to lower the share of the tax burden paid by two-earner couples who were going to be working even without the credit.

Why do that?

There are two standard economic justifications for shifting the tax burden in this way, neither of them convincing.

One is that two-earner couples have higher costs than single-earner couples making the same income, so it's harder for them to pay the same taxes. But that seems like using the tax code to counteract the efficiency advantages of a particular way of dividing a family's labor, which doesn't make much sense. And it seems like an especially weak argument since, in the real world, single-earner couples have smaller incomes.

The second justification is that a progressive tax code, when applied to families rather than individuals, can penalize second earners. A second earner will often pay a higher tax rate than she would if she were single and making the same income, because she moves to a higher bracket when she marries a wage earner. The tax code thus discourages her from working. That's true, but it's just a special case of the way taxes discourage work, and not one that seems especially unjust or destructive. Marriage is (among other things) an economic partnership, and this feature of the tax code reflects that it involves pooling resources.

If the second-earner credit ignores that feature of marriage, Obama's other proposal ignores how little Americans like commercial child care. Surveys suggest that most parents prefer that small children be primarily cared for by a parent at home, and the Census Bureau reports that less than a quarter of them are in organized care facilities.

Given these preferences, it would make more sense to enlarge the child tax credit -- not the child-care credit -- and let parents use it as they see fit rather than requiring them to use the commercial day care most of them try to avoid. Some of them, it's true, might use the extra money to let one parent scale back from full-time to part-time work, or from part-time work to leaving the labor force.