Tax Reform

The family is the most important institution in our society – and our economy. It is an incubator of economic opportunity, an indicator of economic success, and it’s becoming more socially and economically important every day.

Unfortunately, the current tax code singles out parents of young children and unfairly double taxes them. It is what I call the "parent tax penalty," a glitch in the federal tax code that requires parents to contribute to senior entitlement programs not once, but twice. My idea for solving this penalty has been to expand the Child Tax Credit and make it refundable against payroll tax liability. This would start to level the playing field to treat all taxpayers more equally. For a working-class family, this is an immediate, potentially life-changing reform.

In the Tax Cuts and Jobs Act of 2017, the Congress implemented part of this idea in temporary fashion, doubling the CTC and increasing its potential refundability at payroll tax levels. While that was a great accomplishment, we should not rest until the parent tax penalty has been permanently eliminated. This would require both making the Child Tax Credit changes from 2017 permanent, so families are not at risk of being sent back to square one, and expanding the credit’s value until it offsets the entire parent tax penalty for every family.

Improving the Child Tax Credit would restore opportunities to working parents and their children to pursue happiness that federal policy unfairly denied them.

FAQs

• What is the “Parent Tax Penalty”?
• But don’t childless people already pay taxes for things that benefit children, like schools? Isn’t the “parent tax penalty” really a myth?
• Does this plan encourage people to have more children?
• How is this better than the flat tax or a consumption tax? Isn’t trying to fix discrepancies like this through the tax code exactly how we ended up with a tax code that is a total mess?

What is the “Parent Tax Penalty”?

The parent tax penalty is a glitch in the federal tax code that forces parents to contribute to senior entitlement programs not once, but twice. 

First, they pay their taxes – just like everyone else. They then incur the costs of raising their children – who of course grow up to become the next generation of taxpayers. Currently, the tax code does not account for parents’ investment in their children, and thus imposes an unfair “parent tax penalty.”  

For example, two couples, - one with children, one without – who earn identical incomes will pay the same amount in payroll taxes as their contributions to Social Security and Medicare.  But the couple with kids will spend over $200,000, per child, raising the children who will eventually pay for the retirement benefits of both couples.  

Since both couples receive identical benefits, there is unequal treatment of parents who made the investment to raise the future taxpayers that keep the system funded.  Hence, the parent tax penalty. Expanding the Child Tax Credit would be a good first step forward in eliminating this discrimination.

But don’t childless people already pay taxes for things that benefit children, like schools? Isn’t the “parent tax penalty” really a myth?

No. Public education is open to all American children, and is then paid for by those children in the taxes they pay as adults. It evens out, whether one attends public schools or sends their kids to one or not. No one is penalized. By contrast, the parent tax penalty singles out parents for an extra tax burden without any compensating extra government benefit.

Does the Child Tax Credit encourage people to have more children?

Not at all. My solution levels the playing field for all parents to pursue happiness at work and at home in the way that works best for them. By increasing the Child Tax Credit, we merely restore fairness to the existing tax code which unduly penalizes parents simply for being parents. My idea would refund a portion, if not all, of the payroll taxes parents pay to fund programs like Social Security and Medicare.

How is this better than the flat tax or a consumption tax? Isn’t trying to fix discrepancies like this through the tax code exactly how we ended up with a tax code that is a total mess?

This idea attempts to offset the Parent Tax Penalty, which unfairly punishes parents by forcing them to contribute twice to the old-age entitlement system without receiving commensurate benefits.  Offsetting this penalty is a key change that a flat tax or consumption tax fails to make.  I am open to resolving this issue through entitlement reform or other legislation; this is merely an attempt to deal with an issue that already exists within the tax code. 

For more information about the Child Tax Credit and the Parent Tax Penalty: 

Who Benefits from Expanding the Child Tax Credit – Sutherland Institute

Taxes and the Family – National Affairs