I\u2019ve been waiting for lunchtime to write this up:<\/p>\n
Should the government provide tax credits for child care? \u00a0Or is it \u201cfairer\u201d to just provide tax credits (e.g., per-child benefits) for all families, and let the parents make their own decisions?<\/p>\n
Let\u2019s talk about taxes.<\/p>\n
Imagine a middle-class couple. \u00a0Both spouses work at white collar jobs, but they\u2019ve now had their first child, and they\u2019re deliberating whether Mom should stay home with the baby, work part-time, or go back to work. \u00a0They\u2019re running the numbers on daycare costs, vs. the net drop in income if she stays home. <\/p>\n
Now, let\u2019s run the numbers from a government perspective. \u00a0The marginal cost of Mom returning to work, in terms of use of government services, is pretty much zero (especially if you exclude services funded separately, like Social Security or unemployment benefits). \u00a0I suppose you could make a case that there\u2019s a small increased use of government, if that\u2019s one more car on the road during the morning commute, but that\u2019s offset by the nonuse of other government programs, such as local park district or city-sponsored enrichment programs or library storytimes. <\/p>\n
On the other hand, the marginal benefit, in increased tax revenue, of Mom returning to work, is substantial, especially since, as the \u201csecond earner,\u201d all her income is effectively taxed at the family\u2019s top marginal tax rate. \u00a0Plus, all their additional spending \u2014 on childcare itself, on meals out, and so on \u2014 drives further tax revenue. <\/p>\n
In this raw fiscal-impact perspective, it makes a ton of sense for the government to push women to work, to increase GDP and tax revenue. \u00a0In fact, in discussions in Germany (back a while ago, when we were living there) on state subsidy of childcare centers, this was front-and-center: \u00a0these subsidies would more than pay for themselves by increasing tax revenue, and bringing more mothers into the workplace was an explicit goal and method of dealing with the declining working-age population relative to retirees. <\/p>\n
In this approach, of course, refundable tax credits don\u2019t get you anywhere \u2014 and the tax credits could never be more than the amount of tax that the \u201csecond earner\u201d pays to begin with, and should be decidedly less. \u00a0(The current tax credit doesn\u2019t require this.) \u00a0And, of course, if you don\u2019t succeed in moving more mothers into the workforce, but just make those that do, a bit happier, you haven\u2019t achieved that tax-maximizing goal.<\/p>\n
Backing up a bit, is this approach \u201cfair\u201d to families? \u00a0I suppose the question is, what\u2019s the \u201cfair\u201d tax rate for second-earner families? \u00a0But, in principle, so long as tax credits are only reducing the additional amount of tax paid by the second earner, this isn\u2019t yet a case of forcing stay-at-home-parent families to subsidize the childcare use of dual-working-parent families.<\/p>\n