Samuelson: Higher Taxes Inhibit Having Children, Will Destroy Economy

As media predictably pound the table for Congress to allow the Bush tax cuts to expire, an interesting analysis by Washington Post contributor Robert J. Samuelson should raise a caution flag.

Higher taxes inhibit couples from having children which in other developed nations has led to longterm economic paralysis.

In a western civilization that got drunk on entitlement programs in the previous century, population growth is essential as all of these schemes have a Ponzi component to them: they only work if you continually have new people entering the system to pay for those collecting benefits.

As Samuelson outlined in the Post Monday, our federal income tax structure is quite at odds with our best interests as a nation:

For a middle-class husband-wife family (average pretax income in 2009: $76,250), spending per child is about $12,000 a year. Assuming modest annual inflation (2.8 percent), the report estimates that the family's spending on a child born in 2009 would total $286,050 by age 17. A two-child family would cost about $600,000. All these estimates may be understated because they do not include college costs.

With those numbers in mind, here's the bad news:

Our society does not -- despite rhetoric to the contrary -- put much value on raising children. Present budget policies punish parents, who are taxed heavily to support the elderly. Meanwhile, tax breaks for children are modest. If deficit reduction aggravates these biases, more Americans may choose not to have children or to have fewer children. Down that path lies economic decline.

Societies that cannot replace their populations discourage investment and innovation. They have stagnant or shrinking markets for goods and services. With older populations, they resist change. For a country to stabilize its population -- discounting immigration -- women must have an average of about two children. That's a "fertility rate" of two. Many countries with struggling economies are well below that. Japan's fertility rate is 1.2. Italy's is 1.3, as is Spain's. These countries are having about one child for every two adults.

As Samuelson noted, most recent figures from 2007 show our replacement rate at 2.1 children per woman. That means without immigration - legal or otherwise - our population is just barely growing.

Without such growth, programs like Social Security and Medicare are doomed for bankruptcy as the rise in payers into the system can't keep pace with the growth in recipients.

Japan is already experiencing this as its population recently began shrinking due to low birth rates, and the economic ramifications are obvious.

Most of Europe is projected to see its population decline in the next two decades making the economies of an entire continent unstable:

By some studies, the safety nets for retirees have reduced fertility rates by 0.5 children in the United States and almost 1.0 in Western Europe, reports economist Robert Stein in the journal National Affairs. Similarly, some couples don't have children because they don't want to sacrifice their lifestyles to the time and expense of a family.

Indeed. And despite claims by the left and their media minions, the Bush tax cuts were a great benefit to parents with lower tax rates at each marginal bracket, an easing of the marriage penalty, and an increase in the child tax credit.

Add it all up, and allowing these changes to expire will represent a huge tax increase to existing families as well as a financial disincentive for couples to have more kids.

As Samuelson noted, this is a recipe for disaster:

We need to avoid Western Europe's mix of high taxes, low birth rates and feeble economic growth. Young Americans already face a bleak labor market that cannot instill confidence about having children. Piling on higher taxes won't help. "If higher taxes make it more expensive to raise children," says demographer Nicholas Eberstadt of the American Enterprise Institute, "people will think more about having another child." That seems common sense, despite the multiple influences on becoming parents.

Of course, Samuelson understands that something needs to be done about our exploding budget deficits, but concludes, "Parents ought to be shielded from the steepest increases" in taxes.

Although this seems logical, the current administration and the Party it represents don't seem to get that.

Consider that likely the hardest hit by ObamaCare will be families as they simply have more individuals to insure, and the rising healthcare costs associated with this absurd scheme will clearly add to recurring monthly expenses.

On top of this, if the Democrats get their way and cap and trade eventually passes, the rise in energy bills will be frightening to couples with children.

All this comes at a time when people are scared about their jobs (if they have one), scared about the future, and have seen retirement savings in their investment accounts as well as home equity plummet or stagnate in the past decade.

Now throw a significant tax hike in the mix, and maybe a lot of couples are going to decide they just can't afford to have another child or any children at all.

If this happens, America's longterm economic prosperity is doomed.

Taxes Economy Oil & Gas Prices Unemployment Wages & Prices Stock Market Personal Finance Real Estate Social Security Recession Washington Post ObamaCare Robert J. Samuelson
Noel Sheppard's picture

Sponsored Links