There’s Nothing ‘Pro-Family’ About Tax Breaks That Discourage Parents From Raising Their Own Kids

Frank DeVitoJuly 25, 2022

It is no secret that there is a legitimate demographic crisis in most of the Western world. Birth rates in America and most of Europe have declined well below the level needed to replace the population. There are plenty of religious, patriotic, economic, and social reasons for Americans to be deeply concerned about this trend. This has caused an interesting willingness among conservatives to embrace heterodox policy ideas that traditional libertarian economic thinkers find abhorrent. One now finds conservatives calling for Republicans to get serious about the government’s family and public health policy, as well as Republicans such as Sens. Mike Lee of Utah and Marco Rubio of Florida being the insistent voices for increased child tax credits.

There is an inherent tension here. On one hand, conservatives are suspicious of any increase in government spending or interference in the lives of citizens, rightly believing that most charity is best distributed at the local level by families, churches, charitable organizations, etc. On the other hand, we are staring at a civilizational crisis where people are not having enough children to sustain the population. This has serious consequences for our ability to function as a stable society with a thriving, healthy economy.

Conservatives will have to continue this dialogue about how to enact pro-family economic policies that encourage stronger, larger families without unnecessary government intrusion into family life. Child tax credits created through the tax code and administered by the Internal Revenue Service are one thing; the Family Security Act proposed by Sen. Mitt Romney, R-Utah, which would give families a monthly payment administered through the Social Security Administration is quite another.

Conservatives will have to make distinctions and draw lines in the sand to determine how much government expansion we are going to tolerate to accomplish these policy goals. Creating another welfare program through the Social Security Administration seems to go well beyond pro-family tax reform. If conservatives are willing to accept that some pro-family policies may be good even if they come with taxpayer expense and a new government program, we need to start developing a framework to distinguish good family policy from bad.

Pennsylvania Just Passed Bad Family Policy

Pennsylvania’s new Child and Dependent Care Enhancement Program that was just passed in the commonwealth’s budget is a perfect example of bad family policy mistakenly being celebrated as good family policy. It would be one thing if this were passed in a state thoroughly controlled by Democrats. But both houses of the Pennsylvania Legislature are controlled by Republicans. Budgets are creatures of compromise, and there is nothing wrong with Republicans moving toward tax policies that encourage having more children. But conservatives need to be wary of how such pro-family policy is crafted and what preferences are contained within such policies. Republican legislators must take care that they are not unwittingly embracing leftist ideals in the name of pro-family reform.

Supporters point out that this new tax credit will help low-income families by defraying the costs of childcare. But those same supporters are falsely claiming that “the tax credit is fashioned after the federal child tax credit, which was increased by the American Rescue Plan in 2021.” There is a big, clear difference between the federal tax credit and the new Pennsylvania tax credit: The federal credit is a tax credit given to families under a certain annual income, based on how many dependent children they have. The new Pennsylvania credit allows parents to recoup a percentage of their childcare expenses.

Incentivizing Full-Time Institutional Daycare

At least someone in the Pennsylvania papers caught the difference, to a certain extent. The Pittsburgh Post-Gazette editorial board realized the obvious: Some people choose to make sacrifices to have a parent stay home with their children. Others are too poor to afford costly childcare and rely on family members to take care of their children while they are at work. Both these categories of parents are apparently excluded from the Pennsylvania tax credit because they are not paying for daycare.

The editorial calls for at least a “smaller standard credit” of a few hundred dollars per child for those who “choose to keep care in the family.” This proposed compromise is still inadequate. Both for reasons of fairness and of good social policy, it is bad for the government to incentivize full-time institutional daycare rather than a family caring for its own children full-time.

The editorial points out what should be common sense: Most of the time, a two-income family earns more money than a one-income family. If families choose for a parent to stay home and care for children full-time, that is an economic sacrifice for most families. If the purpose of these daycare tax credits is to ease the costly burdens of childcare, why does the policy only ease the burden of daycare and not the burden of the one-income family who sacrifices a second income to keep a parent home for childcare?

This is not merely an economically unfair governmental choice. There is a serious and insidious social policy preference in the childcare tax credit. Most tax policies express preferential choices. Corporate entities are taxed differently — often more favorably — than individuals because we acknowledge that incentivizing LLCs, corporations, and partnerships to be more profitable creates jobs and produces good results for society. “In kind” payments (payments made with products, services, or something other than cash) are still treated as taxable income because we prefer not to let businesses get away with not paying taxes by bartering. And we have a federal child tax credit because we prefer people to have children. Each of these examples has both an economic reason (it is good for our economy to have this preference) and a moral one (it is good for our society to be this way).

The childcare tax credit adopted in Pennsylvania is not good for our society because it expresses a bad policy preference. If a family has children, both the mother and father work outside the home, and the family uses full-time institutional daycare for the children, the government will subsidize that with thousands of dollars in tax credits. If a family has children and one parent works while the other stays home to care for the children, the government does not subsidize the parent’s decision to stay home with the children. If both parents work (or if it is a single-parent household) and the children are cared for by a relative, the government also does not offer the tax credit. There is a clear policy preference expressed by the Pennsylvania government: It is better for families with children to have two working parents and to pay someone else to care for their children. This is bad policy.

A Parent Staying Home with Kids Is Better

There are many reasons it is beneficial for families to have a parent stay at home with children. Children tend to do better educationally when a parent stays home with them and/or chooses to homeschool. There is also good research suggesting that children develop more behavioral problems like stress and aggression when cared for full-time by out-of-home daycare rather than by a stay-at-home parent. Admittedly there are challenges for stay-at-home parents, such as the desire to return to work outside the home and the danger of social isolation. But having a stay-at-home parent is a good decision for raising intelligent, well-adjusted children.

Society benefits from having more intelligent, well-adjusted children. So the government should enact policies that encourage a parent to stay at home and be the full-time caretaker for children. If families decide they want or need two incomes to support their household, they are free to make that choice. But when the government actually incentivizes the decision to have one’s children cared for full-time by a paid childcare institution rather than by the children’s own parents, it raises a question: Is this really good for families, for children, for society? Or is the government incentivizing the further distortion of the natural family? Is this a proper pro-family policy or a nod to socialism?

Incentivizing families to have more children through child tax credits, like the current federal tax code does, is a reasonable policy preference for conservatives concerned about our nation’s demographic decline. Subsidizing only those families who choose full-time institutional daycare, while disincentivizing families choosing to have a stay-at-home parent or using extended family for childcare, favors a socialist understanding of family and work life. Conservatives in general and Republican legislators in particular should be sensitive to this distinction.

Frank DeVito is an attorney living in eastern Pennsylvania with his wife and three young children. His work has previously been published in The American Conservative, the Quinnipiac Law Review and the Penn State Online Law Review.