WASHINGTON — With the Trump administration and congressional leaders shifting their focus to tax reform, analysts see an opportunity to craft new family-friendly tax policies that could benefit families and incentivize young adults to get married and have children.
Among the potential changes under discussion in Washington, D.C., are a more generous child tax credit, eliminating so-called marriage penalties in the tax code, scrapping the estate tax, and creating new deductions for child care expenses.
Fiscal policy specialists also told the Register that they would like to see other changes in the tax code, such as increasing the child tax credit, which could put more money in families’ pockets, and tax-free savings accounts for expenses such as child care and school tuition.
“A refundable tax credit, instead of a direct subsidy from the government, is more in line with the principle of subsidiarity,” said Father Robert Sirico, founder and president of the Acton Institute, a Michigan-based think tank focusing on free-market economic policy.
“When the parents work outside the home and they purchase child care, I think they can derive some benefit without it being directly a subsidy from the government,” said Father Sirico, who added that new policies must avoid giving single income-earning adults a disincentive to marry.
Abby McCloskey, an economist who has advised multiple Republican presidential campaigns, told the Register that targeted investments in paid leave, child care and wages are likely to bring about better economic outcomes than broad policies such as the child tax credit, while keeping federal spending in check.
“In the fiscal environment that we find ourselves in, there might be a better bang for our buck that helps families make ends meet, but also helps solve these big challenges — not only that workers face, but that our economy more broadly faces,” McCloskey said.
On the campaign trail, Trump promised significant tax reform, including simplifying the tax code and new tax cuts to grant relief to middle-class families. In April, his advisers released a broad outline of a tax plan that proposes collapsing the seven income tax brackets into three, doubling the standard deduction for couples, repealing the estate tax, and creating a new deduction for child care expenses.
The Trump administration, joined by congressional Republicans, has been discussing other potential tax measures in recent weeks. In late June, the president’s daughter Ivanka met with Republican lawmakers on Capitol Hill to discuss family and child care policy. She has pushed for a paid national family-leave program.
“Child care is a major expense for American working families. This Admin. is focused on creating policy solutions to enable them to thrive!” Ivanka Trump wrote on Twitter, where she also described the meetings as productive.
Sen. Marco Rubio, R-Florida, reportedly spearheaded the meeting. Rubio has proposed increasing the child tax credit, from $1,000 per child to a $2,500 refundable credit, as well as creating new incentives for companies that provide paid family leave.
Joshua Mercer, political director of Catholic Vote, told the Register that a more generous and refundable child tax credit would help many families with multiple children. To make the credit even more effective, Mercer proposed making it available as soon as a child is born, when parents most need the financial flexibility.
“Going from $1,000 to $2,000 would be an exceptional way to make the tax code more pro-child with payout at time of birth,” Mercer said. “It would be a better thing to do than to mandate parental leave. In other words, just give the parents the cash pot at time of birth, and they can figure out what makes sense for them.”
Making the child tax credit refundable essentially means that a family can receive additional money if the credit exceeds their tax liability.
For example, if a family with five children were to receive $10,000 in child tax credits, and the parents had a $9,000 liability, then the family would keep the $1,000 difference.
“The tax code should do everything it can to help couples have more children,” Mercer said.
The Marriage Penalty
Analysts also say the tax code should do all it can to encourage couples to get married. A big way of doing that, as the Trump administration has proposed, is getting rid of the “marriage penalty.”
In simple terms, the marriage penalty can be described as when a husband and wife filing jointly end up paying more in taxes than if they were to file as single income-earning adults.
For lower-income Americans, the marriage penalty can especially discourage them from marriage because they may not only have to pay more in taxes by moving into a higher income bracket, but they may also lose benefits such as subsidized day care and food assistance.
“Our current tax policy doesn’t give couples incentives to get married or stay married,” said Father Sirico, who added that having intact families with married couples helps prevent children from entering into poverty.
Father Sirico supports reducing the income tax brackets from seven to three as well as new deductions for child care and private education. He does not favor a mandatory paid parental-leave government mandate, arguing that such a policy distorts the market instead of allowing workers to negotiate those terms with their employers.
McCloskey said that the evidence indicates the United States is lagging behind other Western countries in women’s workforce participation because of a lack of family-friendly policies.
She said the current child tax credit — which provides a credit of up to $1,000 per child under age 17 — has not adequately improved economic outcomes for families, adding that while it offers some flexibility for different family arrangements and expenses, it does not move the needle on major family and economic issues.
“And there is no evidence it solves any of the problems and challenges that families today are facing, like child care and lack of paid leave and the inability of one parent to stay home with the children,” McCloskey said. “There is no evidence the child tax credit necessarily helps any of those things.”
McCloskey suggested there are ways to make the child tax credit more targeted, such as applying it to younger children and increasing its refundability so more of the benefits go to lower-income families.
She also supports a modest paid parental-leave policy similar to what the Trump administration has proposed, which would provide families with six weeks of paid leave following the birth or adoption of a child.
McCloskey said a large amount of literature finds that paid parental leave — such as a consensus plan offered by the AEI-Brookings Joint Working Group, of which she was a member — increases work and wages and reduces reliance on other government benefits, such as food stamps
To help economic outcomes, Mercer also proposes reforming the corporate tax rate so that the United States’ rate is always in the middle of what other G-20 nations tax businesses, as well as new tax credits to help families afford private education.
“Any kind of a tax credit policy to try to help parents choose Catholic education, that would be outstanding,” Mercer said. “We’re ready to go to the mat for that, as well.”
The Tax Policy Center forecasts that the Trump tax plan could reduce federal revenues by as much as $7.8 trillion over the next decade.
C. Eugene Steuerle, an economist and co-founder of the Urban-Brookings Tax Policy Center, told the Register that reforming the tax code to be more “family-friendly” also raises tough questions about which families should benefit the most.
“If the government gives money to one set of families, say for child care, then it has to raise taxes on other families to pay for it,” Steuerle said. “Every tax change is going to impact families. The question is: Which families?”
Steuerle said he is sympathetic to the argument that tax reform should do more to allow child care deductions, even for middle- and upper-middle-income families “in the sense that one of the goals of a tax system should be to treat equals equally.”
Democrats on Capitol Hill have panned the president’s tax proposal as a massive giveaway to the rich, arguing that it would benefit the top 1% of wealthy Americans at the expense of the poor and middle class, while increasing the nation’s debt.
While not commenting directly on tax policy, six bishop-chairmen from the U.S. Conference of Catholic Bishops in May wrote a public letter in advance of Trump’s budget proposal reaffirming that the federal budget is a moral document “with profound implications for the common good of our nation and world.”
The letter warned of the possible impacts of steep cuts to domestic assistance programs, which the bishops said would darken the prospects for vulnerable people when also taking into consideration the administration’s plans for health care and tax reform.
Register correspondent Brian Fraga writes from Fall River, Massachusetts.