[T]he heart of the proposal is a new $2,500 per-child tax credit, which can be used to offset payroll taxes as well as income taxes. This is on top of the existing $1,000 child tax credit, which Lee leaves in place, along with a number of other tax benefits for low-income parents. In one stroke, large numbers of middle-income households with children will be removed from the federal income tax rolls altogether.
Lee argues that the current tax code unfairly punishes parents. The solvency of pay-as-you-go entitlement programs like Social Security depends on a steady stream of well-educated new workers. Alas, these new workers do not materialize from thin air. Parents invest considerable time and effort in educating their children and making them workforce-ready. Yet those of us who choose not to raise children are entitled to the same Social Security benefits as those of us who do choose to raise children, and who make enormous sacrifices in the process. Lee’s new per-child tax credit is designed to reduce this bias against parenting, which he describes as an investment in human capital at least as important as the investments savers make in their 401(k)s.
W. Bradford Wilcox also focuses on this feature of the plan:
As sociologist Andrew Cherlin and I wrote in a recent policy brief for the Brookings Institution, a policy move like this is likely to: “increase marriage rates and marital stability among low- and moderate-income families who would benefit from the economic security such a policy would provide to their family finances. It would also signal to them that the nation values the parental investments they are making in the next generation, who—it should be noted—will be helping cover the cost of Social Security and Medicare in the near future.” Indeed, experimental efforts to boost the income of working parents in Minnesota and Wisconsin have been linked to higher marriage rates and lower divorce rates among low-income couples.
Barro praises the plan but takes issue with some of the arguments above:
It seems to me that every generation is, by definition, fiscally neutral: Your kid who will be paying Social Security taxes in 40 years will be attending public school in 10 years and collecting Social Security in 70 years. I don’t really owe you anything, fiscally, for the fact you chose to raise a child.
That said, I favor higher child tax credits for a different and simpler reason: A family of four with an income of $100,000 has a significantly lower standard of living than a family of two with an income of $100,000 and therefore should not be expected to pay as much in tax. I’m with Lee on the policy end even if we don’t agree on the exact rationale.
Drum isn’t a fan of the plan:
[H]is plan leaves the current low capital gains rates and estate tax rates alone (good for the rich) and leaves the current high payroll taxes alone as well (bad for the poor). Put this all together, and the almost certain outcome is that the middle class would pay a little less; the upper middle class would pay somewhat more; and the rich would enjoy a big tax cut. In other words, it’s a pretty standard Republican plan.
Dylan Matthews assesses the plan:
There’s still a lot we don’t know about the plan, like how much revenue it’ll raise (Lee’s aiming for 18-20 percent of GDP but the Joint Committee on Taxation’s score will tell the tale) or its actual distributional outcome (hopefully the Tax Policy Center will run the numbers on that). But since the new child credit would probably increase the number of families not paying any income taxes, it’s an interesting proposal for a Republican to make.
And Yglesias, after discovering the he would get a tax break under Lee’s plan, wants Lee’s numbers to get double-checked:
Now if it’s actually true that you can meet all of Mike Lee’s goals consistent with giving me a small tax cut, then good for him. But I’m suspicious that what we’ve got here is simply a tax plan that doesn’t add up. If Lee wants to collect accolades for this plan, he’s going to need to get it rigorously scored by someone credible.