The Unfortunate Nonsense of the Parent Tax Penalty

The "Parent Tax Penalty," the brainchild of Reformocon thinkers, refers to the idea that people who have children actually pay tax twice, once themselves and then again through the future taxes of their children. I absolutely love the idea of the Parent Tax Penalty because, as actually explained by the Reformocon literature, it clearly and unmistakably requires that we impose a regime of universal child benefits.

Since I support such benefits, I naturally celebrate any argument that also leads to that conclusion.

The Parent Tax Penalty Is Unfortunately Incoherent

Sadly, however, the Parent Tax Penalty idea is utter nonsense, and, seeing as even Kevin D. Williamson has figured that out, it probably isn't that hard for others to see it as well. Here is Williamson responding to Ramesh Ponnuru (an advocate of this Parent Tax Penalty reasoning):

As for your broader case — that child tax credits offset the fact by having children parents do more to support Social Security and other entitlements through the creation of future taxpayers — it’s never made much sense to me. Parents do create future contributors to Social Security et al., but they also create new beneficiaries. Given the upside-down finances of those programs, every new contributor-beneficiary is a net loss. So, if we were arranging taxes based on evening that out, we would penalize parents rather than subsidize them, which I think illustrates the folly of thinking about parenthood as a federal cash-flow question. 

Ignoring for a second the contingent argument about the present balance of payroll taxes and Social Security benefits being ever so slightly out of rhythm, the basic point is clearly correct. Even the most superficial accounting reveals that having children cannot, on average, constitute a net contribution to the welfare state. Children and their children and their children will provide all of the future revenue for the welfare state but also pull down all of its future benefits (once the prior generations die off). By definition, taxes paid to the welfare state must go to someone and, in the future, the only people alive will be today's children and their progeny.
 

More basically, the idea that parents pay taxes twice runs immediately into logical problems. If a parent pays their own taxes and "essentially" the taxes of their children, then what taxes do their children pay? If your children have children (i.e. grandchildren), does that mean your children do not pay the Parent Tax Penalty since they don't pay taxes twice seeing as you apparently paid their taxes? This Parent Tax Penalty description breaks down as soon as you try to apply it to two generations at once.

Ponnuru's Confused Response

In his exchange with Williamson, Ponnuru links to a 2012 article of his that attempts to respond to this argument, and boy is it a doozy:

The fact that children are not only future contributors to old-age programs but beneficiaries of them does not force any modification to this analysis. The childless still free-ride. Or think about it this way: Imagine a society where from time immemorial each woman has had two children. For one unusual generation, each woman has three children, and then the society reverts to the historical norm of two. The temporary increase in fertility would improve the finances of that society’s old-age programs, and this effect would never be undone. The ratio of contributors to beneficiaries, that is, would temporarily rise above what it had originally been and then fall back to its original level but not below it.

This analysis is so obviously wrong that one wonders how it managed to get published. The improvement in the finances to the society's old-age programs caused by a temporary increase in fertility would be undone as soon as the high-fertility generation retired.
 
Prior to the 3-child generation, every class of retirees came from a 2-child generation and was supported by subsequent 2-child generations (2-child/2-child). During the 3-child generation's working years, they supported a class of retirees that came from a 2-child generation (3-child/2-child). Because of the 3-to-2 ratio, the finances improve. But during the 3-child generation's retirement years, they are supported by 2-child generations (2-child/3-child). Because of the 2-to-3 ratio, the financial improvement in the prior step is undone. Then, after the 3-child generation dies, the society goes back to a 2-child/2-child situation.
 
Ponnuru's analysis simply ignores the 2-to-3 ratio period that undoes the 3-to-2 ratio period. Once again, as stated above, this kind of clearly mistaken argument cannot maintain itself for long. As desperate as conservatives are to find some way to backfill a non-"redistribution" argument for an expanded Child Tax Credit, the Parent Tax Penalty's obvious incoherence makes it ill-suited to carry that weight.
 
The current effort to get conservatives to uniformly play along with straightforward nonsense will inevitably give way to the Williamson's of the world who recognize it for the hand-waving trumped up rationale that it is.

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