An Artificial Baby Boom
In today's Daily Article, I write on a hidden effect of the (wrongly named) Earned Income Tax Credit. Developing from a tax program that rewards childbirth, that warps the marketplace, and blurs economic reality for parents, we discover a perverse outcome: more children are born into poor families. It is just the kind of thing the utopians in government wanted to try to alleviate, yet they have made it worse.[Full Article]
Comments (14)
Like so many wrong-headed government initiatives, this one has among its causes yet another government initiative, the "old age insurance" of social security. Before that affront to civilization was enacted, people looked in part to their children to provide comfort and perhaps an additional year or two at the end of their lives. Now, through social security, many suppose they can look to OTHER people's children, and have fewer, or no, children.
Such people, however, tend to be the richer ones, further skewing the economic assymetry of the combined effects of government programs. We rich shall, indeed, look to the children of others to support us. The children of the poor.
Published: March 22, 2005 8:37 AM
The "demographic transition", wherein more affluent folks have fewer children, has been documented in most developed countries. The phenomenon is probably overdetermined, but Mr Potts has a good point. Social Security is one more factor that makes children less desirable. In addition to the ever increasing costs of having and raising children, there are ever diminishing returns, and those satisfactions that endure are analogous to "entertainment value". Child rearing has become just another act of consumption, a very expensive hobby, not unlike having long lived pets.
On the lower end of the socio-economic scale, children are less costly to begin with because expected investments are not as great as on the middle and upper end (and many of these, eg education, are provided by the state). Financial incentives like the EITC or AFDC will be enough to tip the scales in favor of reproduction.
Published: March 22, 2005 8:52 AM
All trees and no forest. The social environment of a civilization is fundamental to its longterm survival but of course one must value longterm survival. If there is no value in this then shaving another slice off the tax rate can fully occupy the mind. But who cares and what does it matter?
Published: March 22, 2005 9:13 AM
[I]f you are a single, childless, wage-earner, and the IRS terms your "taxable income" as ranging between $28,950 and $29,000, you get no money in the EITC. If you have one child, you can qualify for a "credit" of $218. If you have two children, the "credit" increases nearly five-fold, to $1,155.
If your income is $29,000, your FICA liability directly from your paycheque is $2189.50. That doesn't include employer contributions. Medicare will take another $400 or so. There are the increased prices due to tariffs and corporate income taxes. All told, a $29k earner probably pays more than $3500 in federal taxes a year.
$3500 > $1155
Perhaps the EITC is misnamed, but the poor are paying more than enough in taxes.
- Josh
Published: March 22, 2005 10:50 AM
One good example of this "rewarding people for having babies" initiative comes from Quebec where to offset a declining birthrate, the provincial government was actually willing to reward single ladies for having babies. Numerous teenage females subsequently took the government up on this offer.
Perhaps the Italian Mayor may come to his senses if he were to visit a welfare ghetto in the USA and witness firsthand the social problems caused by state welfare programs.
Harry Valentine
Published: March 22, 2005 11:08 AM
Silly government, lessing the financial burdens of having children for poor people. If we got rid of this "market distorting" public school system, then parents would more fully understand the costs involved in raising a child, and poor people would return to the proper balance and would far less over-populate our decaying cities.
Published: March 22, 2005 11:08 AM
Paying parents for children is not a new phenomenom. A friend of mine, who is from Kazakhstan, told me last year that the Govt. of Kazakhastan was paying a "bounty" for parents who gave birth to children.
Apprently, there is a birth rate problem in Kazakhastan.
I don't know if this bounty is paid to ethnic Russians, Kazakh's, or both.
Also, I can't provide any website citation to backup my claim.
Otherwise, I enjoyed your article.
Larry P. Maloney
Published: March 22, 2005 11:11 AM
***All trees and no forest. The social environment of a civilization is fundamental to its longterm survival but of course one must value longterm survival. If there is no value in this then shaving another slice off the tax rate can fully occupy the mind. But who cares and what does it matter?***
As ghastly is it may seem to some, I have little or no regard for the longevity of humankind. The sun will expire sometime and I have little belief that man will pollenate the universe. I operate under the conception that it existed for many years before I graced this mortal coil, and will so for some time after I exit. My objective is to maximize my life to the fullest while according the same to everyone else. Nowhere in this set is the notion that a select few should be appointed to impair my ability to maximize my life for some collective notion that without cultivation, mankind, and his culture, will vanish.
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This is just another example where the (incorrectly applied) notion of helping others is eventually transformed by embedded bureaucrats into active stimulation of behavior. It is alarming the level of transfer is now well within the wheelhouse of the middle class. You couldn't get a decent $2.5 trillion budget, and an $8 trillion debt, off the ground without concrete belief that the State apparatus can perfectly lead the Grand Behavioral Parade.
Published: March 22, 2005 11:14 AM
The US government scheme is working perfectly well. The intent is to encourage children & that has indeed happened. The problem is that, for perfectly comprehensible reasons, it is disproportinately affecting poor "non-white" mothers rather than increasing the number of white middle class children. This is inate to a system that provides more money to poor mothers (I strongly suspect that equally poor white mothers will be doing the same disproportionate breeding but that the numbers are to small to be statistically significant).
I am sure that a system that gave 10% of income per kid to all mothers (except non-whites or Russians in Kazakhstan) would work though the little Rockefellers would be quite expensive.
Alternatively make it 15% & limit it to mothers using artificial insemination by Nobel prizewinners irrespective of race.
Published: March 22, 2005 1:22 PM
First, STOP whining about other people’s tax breaks! Second, get the whole idea of an “end tax user� out of your vocabulary!
A wage-earner with “adjusted gross income� of $29,000 doesn’t actually EARN $29,000. I believe FICA was 7.65% not 7.55%, and I will use the higher number for my calculation, apologies to Josh if I’m off. Pardon me if any numbers are slightly out of date but they should do for rough analysis.
29000 + 0.0765 * 29000 = 31218.50 is actual income with FICA. Add 400 for Medicare (from Josh’s example) and make it 31618.50. Add assorted payroll taxes and administrative costs from unfunded government mandates (I’m pulling a number out of my @$$ here) of 1% of salary or 290 to make the total thus far 31908.50.
So we go from 31908.50 (what the employer spends on the employee and could potentially pay him) to 29000.00 and see that FICA “employer’s contribution,� Medicare, Payroll Taxes, and unfunded mandates approach a 9.12% tax rate.
The FICA “employee’s contribution is 7.65% of 29000 or 2218.50 which is an additional 6.95% tax on actual wages of 31908.50. Wow, we’re up to 16.07% of income taxed by the federal government already!
Now moving from “adjusted gross income� to “taxable income� with a standard deduction of 4750 and personal exemptions of 3050 for himself and 3050 for each kid, if mister taxpayer is childless his “taxable income� is 21200, with one kid it’s 18150, with two its 15100. Assuming an effective federal income tax rate of 13%, that’s a burden of 2756 with no kids, 2359.50 with one kid, and 1963 with two kids. On real income of 31908.50 that’s an additional rate of 8.64% with no kids, 7.39% with one kid, and 6.15% with two kids. ON TOP OF the 16.07% already calculated!!!! Even with the exemptions, the tax of 0.1607 + 0.0615 = 0.2222 * 31908.50 = 7090.07 is paid before the EITC is calculated.
So the EITC actually IS a tax credit, and we should all APPLAUD any person who gets any loophole or benefit! Even with a credit of 1155 as stated in the article, this person is paying federal tax of (7090.07 – 1155) = 5935.07 or 18.6% of income!
Now if we want to get REALLY creative about how much tax this person pays, assume state and federal gas taxes of 0.43 per gallon, a car that gets 18 mpg, and 12000 miles per year. Also assume that 25% of income goes to shelter, and property tax makes up 1.5% of the rental rate. Now assume that all other income is spent with zero savings and the effective tax rate on that spending is 7% (which includes sales tax, the property tax paid by businesses he frequents, licensing fees paid by businesses he frequents, etc.). Oh, don’t forget a state income tax of 2%!!! If I’ve done the math right, that is about 1551.59 in additional taxes, making his tax burden (with 2 kids as exemptions and EITC of 1155) equal to 7486.66 or 23.46% of income!
Often it’s said that federal government employees are “end tax users� – well, maybe for the federal income, FICA, and Medicare taxes, but not for all taxes. In the above example of $29,000 adjusted gross income, single with 2 kids, working for the federal government, the “real� gross income is 31908.50 with 5935.07 federal taxes and 1551.59 other taxes. You could argue that the actual income is 31908.50 – 5935.07 = 25973.43 since the fedgov doesn’t really pay him and then get paid, it’s more like it just pays him less. But he still pays taxes as described above, which on income of 25973.43 is a rate of 5.97%.
That was fun, wasn't it?
Published: March 22, 2005 1:41 PM
Bill R., a question: by your definition and calculation, wouldn't all welfare payments qualify as a kind of tax rebate? In fact, since nearly the whole population of the private sector pays more into the government than it gets out, wouldn't nearly all government spending be thereby plausibly redefined as nothing but a tax rebate and be therefore defensible based on your argument?
Published: March 22, 2005 2:11 PM
I have to correct myself. Government employees are net "end tax users" since their salary would be zero if not for tax collection. So "get the whole idea of an 'end tax user' out of your vocabulary" was a bit strong, just replace it with "don't refer to any NON-GOVERNMENT employee as an 'end tax user!'"
I'm still conceptually confused about people who work for companies that contract with the government, though. When Boeing stock pays a dividend, and stockholders pay taxes on it, do they really pay taxes on it? Or is the amount of the "post tax" dividend better thought of as a credit against their federal income tax burden thereby reducing their tax rate? Would that dividend be zero if not for tax collection, or does Boeing actually sell some airplanes to someone who doesn't want to bomb $#!T?
And I think the conversation about tax rates (which I did enjoy participating in, though)detracts somewhat from the article's excellent point about the perversity of tax "incentives." Oh well.
Published: March 22, 2005 2:17 PM
Conceptually, to be a "tax rebate" it should meet two criteria: (1) it should be equal to or less than the amount paid by the taxpayer(s), and (2) it should be in cash.
If a welfare payment exceeds the total tax paid to all taxing agencies, it violates condition (1) and becomes a redistribution of wealth.
Government spending per se can't be seen as a rebate. I may have preferred to spend my money on new rims for my Cadillac or invest it in Euro-denominated CD's; if the government taxes my income and spends it in any way other than a cash payment to me, it violates condition (2) and becomes a PERMANENT theft - as opposed to the TEMPORARY theft that occurs when they give me a cash rebate on my withholding.
Note I stated taxpayer(S) for condition (1). Imagine a family unit consisting of a couple and one of their elderly parents. The elderly parent is getting just about as much in welfare transfer payments as the couple is paying in federal taxes. The family pools resources and lives in one home. Is this a tax rebate?
Published: March 22, 2005 6:18 PM
Brad Dexter writes: "As ghastly is it may seem to some, I have little or no regard for the longevity of humankind. The sun will expire sometime and I have little belief that man will pollenate the universe. I operate under the conception that it existed for many years before I graced this mortal coil, and will so for some time after I exit. My objective is to maximize my life to the fullest while according the same to everyone else. Nowhere in this set is the notion that a select few should be appointed to impair my ability to maximize my life for some collective notion that without cultivation, mankind, and his culture, will vanish."
This seems ghastly for the simple reason that it is. In the first place, to have "no regard for the longevity of humankind" is to have no regard for the future, including that of one's own children, who are reduced, along with everyone and everything else, to mere objects during the course of "maximiz[ing] [one's] life." In which case time is not an arrow but simply a series of points, aimless in relation to every other point, each of which is inherently solipsistic.
This in turn leads to nihilism in that the self-maximization you espouse, while it "accord[s] the same to everyone else," in no way precludes anyone from doing so at anyone else's expense. Result? The anarchic void is filled by the State -- i.e., by "a select few...anointed to impair" everyone's abilities save their own.
This is what prevails today, of course, and is threatening humankind's longevity accordingly.
Not that you would care.
Published: March 22, 2005 8:28 PM