Published April 2, 2014
There is a powerful case to be made for acknowledging what parents do for the nation’s future by at least lightening their tax burden a little. And a rarely acknowledged feature of our entitlement system also makes doing so a matter of basic fairness.
The very young and very old generally can’t support themselves, and societies have dealt with that fact through an intergenerational bargain: People in their prime care for both the youngest and oldest with the understanding that today’s elderly once did the same for them and today’s young someday will too.
In the past, this usually happened within families. Parents raised children and those children helped care for their parents in old age while raising their own children. But modern, developed societies have socialized part of this bargain to make it more secure for the elderly. While many still receive a great deal of help from their families, older people also receive some basic support (in the United States through Social Security and Medicare) paid for by all working-age people through their taxes. Today’s seniors get benefits funded by today’s workers, and those workers, in turn, will receive benefits tomorrow funded by tomorrow’s workers.
But this really only covers half the bargain. The cost of raising those workers of tomorrow is still borne within families. And this means that people who raise children effectively pay twice for our old-age entitlement system, while people who do not can free-ride (in part) on the enormous investment parents make in our society’s future. This both tends to discourage child-rearing some and lays an unfairly large portion of the cost of our intergenerational bargain upon parents.
Our old-age entitlements are badly in need of reform. But as we are likely to keep the basic contours of this bargain intact, we would be right to rebalance the demands it makes on parents by letting them keep more of their earnings while they are raising children through an expanded child tax credit. If such a move were part of a broader tax reform that simplified the code and curtailed some of the ways we now redistribute money upward (like the mortgage interest deduction), it could be kept revenue neutral and improve our larger tax system.
And perhaps most important, it would provide much needed relief to many struggling working families by letting them keep more of the money they earn, rather than providing transfers that discourage work.