Bigger Child Tax Credits? Don’t Nudge Me, Bro

Bigger Child Tax Credits? Don’t Nudge Me, Bro

Stop rewarding people for decisions they’ve already made and instead offer others the financial freedom to follow their lead.




The debate about how to use the child tax credit to turn back time to the glory days when everyone got married young and had at least 2.5 kids is back. As usual, there are some compelling and reasonable-sounding arguments to support it. Parents, although they’re constantly unhappy, want more kids. Well, half another kid. But they can’t afford that half. Or a third, or even a quarter of another rugrat. The argument, as Jim Pethokoukis restated it, is:http://www.aei-ideas.org/2014/06/why-expanding-the-child-tax-credit-is-pro-growth-supply-side-tax-reform/

http://family-studies.org/why-are-american-parents-so-unhappy-a-theory/

http://www.aei-ideas.org/2014/06/why-expanding-the-child-tax-credit-is-pro-growth-supply-side-tax-reform/

Basically, on average, parents would prefer an additional half kid, more less [sic]. It’s a preference that’s been steady since the late 1970s, according to Gallup polling. What’s the problem? Well, according to Gallup, 76% cite financial or economic reasons. Specifically, 65% mention ‘not having enough money or the cost of raising a child,’ and another 11% name ‘the state of the economy or the paucity of jobs in the U.S.’

As a father of three, this is unsurprising. Kids are expensive and the child tax credit is a nice subsidy when you can get it. Just don’t bring in too much income or you’ll find yourself ineligible. When it comes to influencing behavior, it’s useless—unless you count the possibility of strategic divorce.

More on that later. First, the fine art of losing your entitlement.

When you miss a call from your wife and she immediately follows it with a “We need to talk now” text, you’re not about to receive good news. If it’s April and she’s just come from a meeting with the accountant, prepare to bend over and grab your ankles. So when this happened to me, I assumed the position and made the call.

“You’re not going to believe how much we owe.” ”[Flurry of expletives]. Are you serious? Don’t we at least get credit for the kids?” ”Your severance was paid in a lump sum and even though it included money you would’ve been paid in 2014, it’s now 2013 income. That moved us into a higher tax bracket. We’re not eligible for the child tax credit now.”

I immediately set about teaching my phone that I’d typed what I intended to type, which was most assuredly not “duck the government.” Then I embarked on my annual tradition of being a staunch anarchist for the next 24 hours.

As a result, I’m not big on being laid off in November and receiving a lump sum payout. I’m also with Ben when it comes to the child tax credit.http://thefederalist.com/2014/06/10/should-the-government-define-the-american-dream/

The politics of dramatically expanding the child tax credit entitlement (and yes, it is an entitlement) just don’t make all that much sense to me. Consider the landscape of America today, where more people are staying single longer and having fewer kids of their own volition, as they pretty much always do all over the world as cultures become more highly educated.
Is money a factor when it comes to the decision to have kids? Hell, yeah, save the truly orthodox amongst us. Is the child tax credit a factor? It does possibly put money back in our pockets. But, no, it absolutely is not a factor. No one looks at the child tax credit and thinks, “Yes, now I can have kids.” Dear Wonks:You’re not normal and that’s great, but understand that what motivates you is not what motivates regular folks.

What motivates regular folks was best expressed by Method Man: “Cash rules everything around me, C.R.E.A.M. Get the money—dollar, dollar bill, y’all.” And though the child tax credit is theoretically dollar, dollar bills, y’all, it’s undependable, c.f. my family, and it isn’t money in the bank every two weeks, like, say, a family would get if payroll taxes were reduced.https://www.youtube.com/watch?v=PBwAxmrE194



It’s true that reducing payroll taxes isn’t tied to a specific outcome, like baby-making, but people with more disposable income are more disposed toward marriage and kids. Moreover, Pethokoukis and other fans of the child tax credit nudge tend to look at the data and draw an incorrect conclusion. Namely, people who are already married with kids would like more kids. And the child tax credit might help them do that. Where in the responses from people who are already married with kids is the data that definitively proves that singles or childless couples are just waiting for an expanded credit? Bueller? Bueller?

Instead let us look back at an economist we love to cite and then ignore: Milton Friedman. The permanent-income hypothesis states that “people will spend money at a level consistent with their expected long-term average income.” Which speaks to expected income—undependable and arbitrary tax credits or more cash in the bank every pay period?http://www.investopedia.com/terms/p/permanent-income-hypothesis.asp

Of course, the answer is cash; to keep more of our dollar, dollar bills. That’s not quite a nudge, but historically it has a much better track record than child tax credits when it comes to helping people earn, save, diversify, and multiply. And as for those tax credits, they might, just maybe, have an unspoken dark side. When the wife and I were looking at our 2013 returns at the end of that dark day in April, I mentioned that we’d be financially much better off if we got a divorce. Separately, we’d be in more amenable tax brackets, plus she’d get the full credit for all three kids. It’s an annual joke that coincides with my annual 24 hours of anarchism.https://www.youtube.com/watch?v=VsEpjTcWkyw



Normally she responds with playful anger. This year I got a long, thoughtful glance.

By Rich Cromwell