I want to thank Ramesh Ponnuru for an enlightening debate on the idea of expanding the child tax credit (CTC). His latest posts are here and here. It seems like we agree on many aspects of the debate.
First, a CTC expansion combined with lower rates on income and investment could be a big improvement over current policy.
Second, we seem to agree that a reform that maximizes rate reductions and deduction of capital expenses (instead of the expanded CTC) would spur more growth. I think gains from such reductions are relatively large. Perhaps further research in this area can help us put an actual dollar figure on the trade-off. It’s a bit difficult to talk in the abstract, but future plans can be compared once we have sufficient details.
I also better understand his reasoning behind the expanded CTC. For him, it is not so much meant to increase fertility (which seems to be more prominent in Stein’s thinking than in Ponnuru’s) as it is meant as a fairness measure to over-taxed parents. Here, again, I think we are in full agreement that too many Americans, particularly those who pay income taxes, are overtaxed. To my mind the most destructive taxes are those on income and, especially, investment. They damage everyone because of the ripple effects throughout the economy and the resulting slower growth.
One area of potential agreement we glossed over in our discussion is that of the marriage penalty. Ponnuru and I, and perhaps most conservatives, believe we should eliminate marriage penalties throughout the code and in the welfare system. Nobody should be treated worse by government for being married, after all. Such a reform would help build a stronger society, because marriage is America’s best weapon against child poverty (it drops the probably of child poverty by some 80 percent).
Strong and healthy marriages at all income levels lead to a stronger society. As long as we are talking about billions of dollars per year of expenditures or lower revenues, why not concentrate on removing the penalty against marriage in the tax code and in welfare programs? This could be more fruitful for our conservative vision than expanding the CTC that goes to all parents, whether single or married.
We probably also agree that policy should not take sides in the “mommy wars” between those who stay at home to care for children and those who pay for child care. Carrie Lukas writes in her portion of “Room to Grow,” that the tax code has five different tax provisions to encourage child care service spending. She also notes there are 45 different federal programs related to early learning and child care that total up to $14.2 billion. It could make sense to consolidate these programs into one child credit that is not contingent on how parents care for their children. That would be better than what we have now, which brings me to my final point.
Would the reforms that Ponnuru and Stein advocate — an expanded CTC and cuts on income and investment taxes — be better than what we have now? Yes. Would it be as good as the kind of fundamental tax reform Heritage, Cato, the Tax Foundation, the Fair Tax supporters, the traditional flat tax proponents, and nearly every tax expert in Washington have been advocating for more than a decade? Not as a matter of economic policy.