A calculation of what the tax break for children should be.
To correct for this inadequate treatment of households with children, the existing dependent exemption for children, the child credit, the child-care credit, and the adoption credit should be replaced with one new $4,000 credit per child that can be used to offset both income and payroll taxes. (This amount is set much closer to the $3,250 figure than the $8,500 one mostly to reduce the plan’s negative impact on federal revenue.)
The new child credit would accomplish several significant policy goals. First, it would offset the anti-parenting bias created by Social Security and Medicare. Second, the credit would help simplify the tax code by getting rid of other exemptions and credits that apply to children. Third, and very important for many families, it would end the bias against families with a stay-at-home parent now caused by the child-care credit (which applies only if both parents are working for pay). And finally, it would reduce effective marginal tax rates for many middle-class families.
Such an approach would also be very popular with a vital political constituency — middle-class parents — thereby opening the way to further tax reforms that would both help to pay for the new credit and correct other important deficiencies in the tax code. It could stand as the centerpiece of a new tax-cutting agenda.
1. I’ts a great idea.
2. It’ll never be passed into law.