One Thing Reformocons and Democrats Agree On: Penalizing Stay-At-Home Parents

One of the interesting critiques of recent child-related tax proposals coming from the Right is that it penalizes families that want to have stay-at-home parents (I, II, III). These critiques are correct insofar as stay-at-home parents receive less benefits from child welfare tax expenditures, all else equal. This is true not only of the tax stuff in recent Democratic proposals, but also the Reformocon tax plan that conservatives seem to like. In this post, I explain why all of these tax plans unavoidably exclude stay-at-home parents and offer easy solutions that don't do that.

The Problem With Child Tax Benefits

The fundamental reason tax-based child benefits "penalize" stay-at-home parents is because tax-based child benefits provide more money to richer families than poorer families (up until phaseouts are hit). All else equal, two-worker families are going to have more market income than one-worker families. Accordingly, one-worker families (i.e. the ones with the stay-at-home parent) receive less tax-based child benefits than two-worker families.

A good example of a program that reflects this (despite deep and persistent right-wing confusion to the contrary) is the Child Tax Credit that Reformocons have argued should be set at $3500 per child. Because this proposed tax credit provides more benefits to families with more market income, many families that choose to be single-earner instead of dual-earner will wind up receiving less of the benefit or none of the benefit at all.

For instance, imagine a dual-earning couple whose combined market income makes it such that their income tax liability (after everything else is said and done) is $10,500. Now imagine they have triplets (doesn't have to be triplets, just trying to create a 3-child family for the example). If both parents continue to work as before, they receive a tax benefit equal to $10,500. The Child Tax Credit ends up increasing their disposable income by $10,500 per year relative to being a dual-earner couple without children.

Now imagine if that same couple had decided instead to be a single-earning couple. Suppose that because there is only one parent working, the couple has a market income that is too low to have any income tax liability (after all other deductions and exemptions). When this couple has their triplets, they receive no benefit from the Child Tax Credit (or, if applied against payroll tax as well, a benefit well below $10,500). Had they decided to be dual-earners, they not only would have had more market income, but, when their triplets were born, they also would have received the full $10,500 boost from the Child Tax Credit. Because they chose to have one parent stay at home, however, they receive no (or less) benefits for their children.

Douthat, Gobry, and Carney (linked above) are all correct to observe that this is deeply unfair to stay-at-home parents. I am not sure what the Reformocons have against such stay-at-home parents, but it's pretty rotten as far as I am concerned.

The Solution

Since this is an inherent problem with tax-based benefits themselves, the obvious solution here is to stop using tax-based child benefits. Eliminate the Child Tax Credit, Dependent Exemption, Head of Household Filing Status, and Child and Dependent Care Tax Credit. Reform the Earned Income Tax Credit so that it pays the same benefit to all qualifying workers regardless of how many children they are taking care of. Take all the money saved from these changes and add it in with some more money (parents and children deserve it) and create a universal Child Benefit program that pays out the same dollar amount per child every month to every family. This way, all families, no matter if they are dual-earner or single-earner or whatever, receive identical boosts to their disposable incomes when they have children.

This particular approach to child benefits is extremely prevalent throughout the world. The Nordics all have it, as well as the United Kingdom and Canada (our Anglo friends). There is no reason we can't do this, and I am quite convinced that if conservatives got on board with it, the Democrats would gladly get behind it as well.

In addition to the Child Benefit, there is the separate matter of child care. Ross Douthat in particular has frequently expressed his distaste of day-care-focused approaches to dealing with the child care problem. Providing subsidized out-of-home day care means that stay-at-home parents get short shrift, he claims. And he's right!

There is a solution to this problem, and, like most things welfare, it's alive and well in the Nordic countries. For instance, in Finland, after the extensive maternity leave period is up, child care benefits kick in (not to be confused with the Child Benefit, which comes in addition to child care benefits). For handling child care, parents are given the following three options:

  1. Public Day Care. This is provided by municipalities for free.
  2. Private Day Care. If this option is chosen, parents receive cash benefits to defray the costs.
  3. Home Day Care. If you care for the child in your home (which includes stay-at-home parents and even other family members like grandparents caring for them), you receive cash benefits to do so.

Under this three-pronged approach, any option you want is available to you. Stay-at-home parents are supported just the same as people who use the public day care or who want to pay a private caregiver. If you want a child benefit system that truly supports all options, and does not penalize stay-at-home parents, a universal Child Benefit and the above child care approach is the way to go.

Sadly, those who complain about the bias of tax-based child benefits against stay-at-home parents are also the same people who oppose non-biased alternatives. When the traditionalist and natalist blocs of the country overlap with the anti-welfare bloc of the country, you wind up with submerged tax-based child benefits that inescapably afford less support to stay-at-home parents. It'd almost be funny if it weren't so damaging.