[UPDATE: In a statement after the speech, possibly inspired by criticisms such as the below, the Trump campaign announced that workers will also be able “to exclude childcare expenses from half of their payroll taxes — increasing their paycheck income each week,” and that there will also be a “credit to stay-at-home caregivers.”]
Donald Trump just proposed a dramatic increase in federal subsidies for child care. Right now, parents can deduct a moderate amount of their child-care expenses—up to $6,000 for two or more children. He would allow parents to “fully deduct” the “average cost” of child care. (The average cost varies substantially by region and the age of the child, so the details will matter, but $17,000 a year is a decent estimate for a family with an infant plus a four-year-old in a day-care center.)
There are certainly problems with the ways we tax families, as I argued at length in National Affairs two years ago. But this is a questionable way of addressing them.
To begin with, tax deductions are inherently problematic. Many Americans have no income-tax liability and thus can’t use deductions. Richer Americans are in higher income-tax brackets and thus benefit more. (Someone in the 25 percent tax bracket saves 25 cents for every dollar they deduct, and so on.) And up to the limit of the deduction, in this case the “average” cost of child care, the government pays more for people who choose more expensive options.
And more broadly, it’s less than ideal to subsidize child care specifically, whether it happens through deductions or other means. Government subsidies blunt the incentive to avoid unnecessary expenses. Finding alternatives to daycare (such as care by family members) becomes less urgent when the government is picking up part of the daycare tab and that benefit will be lost if it’s not used. Child-care subsidies also discourage stay-at-home parenting.
One alternative approach I find attractive is simply to give parents a flat amount of money per child and let them make whatever decisions they want with it. We already do this to a degree with the child tax credit, though it’s not available to all poor families—who instead rely on poverty programs that give higher benefits to recipients with more children, but that phase out as the recipients’ income increases. Those other programs could be scaled back if the child credit were universally available.
However, there is also a good case to be made that two-parent-working families are overtaxed relative to families where one parent stays at home. As I wrote in National Affairs:
Under current tax policies, a working man who is married to a non-working woman will often find himself in a lower tax bracket than he would as a single man — the thresholds for the couple will be doubled, unless his income is rather high — and he can use his wife’s personal exemption. But because the couple then rises through the tax brackets as a single unit, if the woman enters the workforce, her first dollar is taxed at the same marginal rate as the man’s last dollar. If she doubles the household’s pre-tax income, for example, she will actually contribute a smaller amount than her husband to the household’s post-tax income, because her entire income will be taxed at a higher rate.
Further, the tax system gives the same treatment to households with the same income, regardless of whether it takes one worker or two to earn that income. For example, if a husband and wife both make $35,000, they’ll be taxed the same as a couple in which the man makes $70,000 and the woman stays at home, even though the latter couple is clearly better off, benefiting from uncompensated child care and avoiding the various other expenses associated with having two people going to work every day.
One could argue that child-care subsidies address this problem. But a better approach would be to simply tax two-parent-working families less (and possibly, within reason, stay-at-home families more) and let them make their own child-care decisions, rather than tying taxes to specific ways of making those decisions.
Robert VerBruggen is managing editor of The American Conservative. Follow @RAVerBruggen