Family policy brings into focus the importance of direct, government-driven measures ordered to achieve outcomes in accordance with the common good. For too many years in the United States, however, family policy has, in effect, been caught in the middle between Republican Party libertarianism and Democratic Party welfarism—both out of step with the broad wishes of the American public to make childbearing more affordable. Republicans in particular have tended to combine polarizing rhetoric on abortion with halting, primarily indirect methods of fostering family formation. Democrats, by contrast, have favored limited forms of welfare payments (e.g., family leave or childcare support), combined with other rhetoric and policies more hostile to family formation. Together they have mimicked what Nancy Fraser has called the “reactionary neoliberal” and “progressive neoliberal” approaches to American policy.1 Each side talks a good game but offers limited, primarily indirect measures for supporting families.
The primacy of abortion politics obscures the widespread appetite for national policies to foster family formation as well as the vocation of child-rearing.2 Since the matter of abortion shows no signs of undergoing fundamental change, Republicans in particular should consider firmer state support for families. While Republicans profess to be in favor of traditional rather than progressive family structures, it is Democrats who have proposed the most robust recent forms of state support for family formation. Yet Democratic rhetoric that denigrates traditional family structures undermines their credibility on this point with Republican voters. The result is a situation of considerable political flux, in which policy entrepreneurs, particularly on the right, could make considerable strides.
Polling shows that many American women are having fewer children than what they would consider ideal, and only around 4 or 5 percent of the population does not want to have any children at all—a number that has been consistent since 1990. As Lyman Stone has recently put it, “women report greater childbearing ambitions than they have achieved or are likely to achieve, and this has been the case for a long time.”3 Additional research shows that financial concerns are often the main obstacle to family formation,4 and more ambitious responses to these issues should be considered.
As of 2015, the average family benefits public spending outlay in OECD countries was 2.0 percent of GDP; at the upper end, Sweden and the United Kingdom were at 3.5 percent, while Denmark, Iceland, and Luxembourg (3.4 percent) also spent heavily on family benefits. At the bottom sit Turkey (0.4 percent) and the United States (0.6 percent). America should not be the last country to catch up with the broad trend toward greater family support among OECD governments.5 Australia, Austria, Ireland, Luxembourg, New Zealand, and the United Kingdom all offer direct cash transfers for the rearing of children.6 An excessively limited view of the state’s role in supporting the family has hampered the freedom of Americans to choose to begin or grow families.
The Incentive Temptation I: Tax Credits
On the American right, the leading idea of the last ten or fifteen years has been to increase the child tax credit. This proposal was the hallmark of “reform conservatism,” a Bush-era intellectual movement premised on the need for modest, indirect political interventions to shore up the building blocks of American civil society. Praiseworthy as these efforts were, they stemmed from the mistaken view that the conditions of the American polity required only modest changes. It would be difficult to find a more serious indictment of American “conservatism” than its blasé attitude toward public support for family formation.
The earned income tax credit (EITC) scheme originated in the 1970s (first implemented in 1975) as a conservative response to welfare. Rather than direct welfare payments such as “Temporary Assistance to Needy Families” (TANF), we would instead have tax assistance to working families. The EITC is a credit aimed at low-income families, increasing for the number of children, and decreasing in amount up to a phase-out income level, at which families are no longer eligible for the tax credit. In 2018 the credit was $519 for a childless family, $3,461 for a one-child family, $5,716 for a family with two children, and $6,431 for three or more, with various income limits for each situation. (It should be noted that these credits begin phasing out at relatively low thresholds: a household with two parents and two children with a combined income of $45,000 would receive less than $1,500.)
Reformist conservatives have frequently argued for these and other tax credits on the grounds that they increase fertility rates.7 Yet research has shown very little effect on fertility from the earned-income tax credit, in a comprehensive study of its varied state-level implementation between 1990 and 1999. In fact, a major recent study shows that “the expansion of the EITC is inversely related to fertility rates.”8 Reagan Baughman and Stacy Dickert-Conlin suggest that expansions of the tax credit among families with children cause families to increase “quality” rather than “quantity” of children: “While the financial incentives of the EITC for the childless individuals are on the margin of whether or not to have a child, the financial benefits of an EITC expansion for those with children may also affect the quality of, or human capital investment in, existing children. In other words, parents may substitute quality (that is, greater investment in education) for quantity (that is, more children) in response to increases in the EITC.”9 But the EITC is not the only tax incentive that increases with the number of children.
The Child Tax Credit was introduced in 1997 as a way of providing a benefit more directly tied to child-rearing.10 But determining the impact of family policies is notoriously difficult. A 2005 analysis of the dependent tax exemption and the childcare tax credit by Cristóbal Ridao-Cano and Robert McNown suggested that “the impact of politically feasible changes in tax policy on fertility is likely to be offset by other economic forces.” They concluded that “The magnitude of the tax exemption effect is only moderate, in part because the value of the tax exemption per child is small relative to typical annual costs of children.”11 Recent analyses of fertility and tax incentives in the United States from 1913 to 2015 have suggested that “there is no statistically significant evidence of an effect of tax subsidies on the general fertility rate.”12
A narrow preoccupation with fertility rates can also underlie arguments from fiscal conservatives going in the other direction—claims that public family support is unnecessary or counterproductive because it has not led to higher birth rates in other countries. Since the United States already has a higher fertility rate than nations that provide greater family support via cash transfers, childcare support, parental leave, and support for services and education, there is no reason for us to adopt similar policies, according to this thinking.
Consider the highlighted countries in the chart below. The United States spends around 0.75 percent of GDP on family benefit public spending (FBPS), while Denmark spends around 3.6 percent of GDP. In other words, Denmark spends about five times more on family benefits than the United States, yet the United States has a higher birth rate than Denmark. Or consider Norway: due to its generous system of state-subsidized childcare and parental leave, Norway is currently ranked the best country on earth to be a mother,13 yet Norwegian birth rates currently hover around 1.72. Norwegian prime minister Erna Solberg made this the theme of her 2019 New Year’s speech. “In the coming decades, we will encounter problems with this model,” Solberg said. “There will be fewer young people to bear the increasingly heavy burden of the welfare state.”14
“Very importantly,” as Anne H. Gauthier has put it, “studies using macro-level data have . . . concluded that the impact of policies on fertility is most likely on the timing of births rather than on the total number of children.”15 Gauthier also calls attention to “the persistence of higher fertility levels in some countries despite lower levels of state support for families and/or despite the absence of policies targeted at higher-parity births.”16 As her comments suggest, cultural choices should not be reduced to economics, and we should not rely on crude economic models of people’s behavior.
Nevertheless, incentives matter, and regardless of whether benefits are spent on the “quality” or “quantity” aspect of family formation, they are important as an indication of what a society considers worthy of support. Increasing benefits through family-oriented policy is valuable even without a strong effect on fertility rates.
Thus the doubling of the per child tax credit under President Trump’s Tax Cuts and Jobs Act is praiseworthy, but it is doubtful that it will have a transformative effect on the affordability of child-rearing. The American Family Act, currently before Congress and supported by Democrats in both houses, is a step in the right direction. “By expanding the current but inadequate child tax credit (CTC),” Jared Bernstein explains, “the bill would provide $3,600 per year for children younger than 6 and $3,000 for children ages 6 to 16, paid in monthly installments. The credit phases out slowly for households with incomes well above $100,000.”17 As we will argue below, a more robust family benefit is an essential element of improving American family policy. Among other Western countries, policies supporting family formation take a wide variety of forms beyond tax credits, some of which should be considered.
The Incentive Temptation II: Universal Childcare
The approach of many European countries since the 1960s, particularly the Scandinavian countries, has been to subsidize third-party childcare. But whatever the benefits of state-supported childcare may be, relying too heavily on childcare replacement introduces its own set of problems.
The third-party system of childcare seems questionable even by its own stated goals. In the United States, for example, around 92 percent of childcare workers are female, and a similar number is found in the UK (89 percent) and Europe. Subsidized childcare, in other words, drafts women into the labor force only to have them look after the children of others for a modest commercial gain. The idea of increasing childcare spending is to allow women to do other things. But if at the same time this childcare spending is simply going to women to look after the children of strangers on a commercial basis, what is really being achieved? The answer is that childcare payments, whether from the state or from private employers, have gradually commercialized child-rearing and family life.
Some might suggest that the subsidized childcare approach increases female labor choices, and that those who want to look after children can work in childcare while those who want to do something else can do that. This view, however, is based on the naïve assumption that everyone in the workforce is career oriented, when in reality this describes a limited proportion of parents. Recent trends also seem to suggest that this view is misleading. According to Pew, between 1999 and 2012 the percentage of American women who decided to stay at home and look after their children rose from 23 percent to 29 percent.18
Evidence has also continued to mount that being raised by one’s own parents has long-term benefits for children. In a recent study of social democratic Norway, Eric Bettinger, Torbjørn Hægeland, and Mari Rege concluded that “parental care is not easily substituted,” and that increased commercial provision of childcare in Europe and the United States “may affect child development.”19
In the United States, the childcare “free choice” model also has disparate racial impacts that should be unsettling in the contemporary political environment. Although whites make up the largest share of childcare workers by number, the percentage of blacks and Hispanics in childcare work is much larger relative to their overall population share. Subsidized childcare models are, in many respects, paying for the childcare labor of those who might (other things being equal) prefer to raise their own children instead. As we can see in the following chart, not only are women of color disproportionately engaged in childcare, but these groups tend to have higher fertility rates, compounding the absurdity of this approach.20
In terms of fairness and equity as well as in its attempt to sustain family formation, commercialized childcare has proven to be a failure. More women want to stay at home and look after their children today; raising children has not become more affordable; birth rate declines have not been halted; the development of children seems to be negatively impacted; and the current system introduces significant racial disparities.
We propose that this problem should be looked at in a different way.
A New Childcare Proposal
A better method is to channel the money that would be spent on childcare directly to parents themselves in the form of small salaries or stipends. This approach would affirmatively recognize that raising children is work—work that contributes to the health of the country as a whole, and which deserves respect and dignity. Stipends for at-home childcare will reverse the late-neoliberal trend in which the most valuable occupations command the lowest or, indeed, no market price.
One objection to such an approach might be that subsidizing childcare decreases the “efficiency” or “economies of scale” of paying for childcare, as one childcare worker can look after a large number of children, while a parent can only handle a handful. We would suggest that an efficiency-driven way of looking at family formation overlooks its intrinsic value as the beating heart of a healthy society. And even if economies of scale are necessary, a childcare direct payment program could be geared toward “communal childcare sharing,” where friends and family pool their resources to care for each other’s children.
Many other OECD countries already offer direct cash benefits. In Australia, the Family Tax Benefit Part A offers a base rate of AUD$58.66 per child every two weeks (AUD$1,525.16 per annum) up to a maximum of AUD$182.84 fortnightly for a child for up to twelve years (AUD$4,753.84 per annum).21 In Austria, a monthly child benefit of at least €114 (€1,368 per annum) is available for parents of one child, with supplements for additional children available, as well as other tax credits.22 In Luxembourg, a generous family allowance provides €265 per child per month (€3,180 per annum), increasing €20 per month at age six and €50 per month at age twelve.23 In the United Kingdom, the child benefit provides £20.70 per week (£1,076.40 per annum) for the eldest or only child and £13.70 per week (£712.40 per annum) for additional children. Hungary’s program is primarily geared toward subsidizing the cost of a home for couples with children. Hungary also offers couples around $800 in tax breaks per year for a single child.24 Recently, the Hungarian government announced a program that would offer eligible couples a $33,000 loan upon marriage, and this debt would be entirely forgiven after the birth of their third child.
While our proposal offers a higher total cash transfer than current cash transfer systems, it is comparable to the overall level of family benefit public spending, and social welfare spending, in those countries with the most generous forms of family support. We simply allocate that money toward at-home parental caregiving, thus directly benefiting families. Our program combines the generosity of the most active countries (Denmark, Finland, Iceland, Norway, Sweden) with the emphasis on cash transfer found in other countries noted above.
FamilyPay and the CarePoints System
We propose a family-oriented stipend program with two components. FamilyPay, which will be a straightforward cash transfer; and CarePoints, which will be credits that can be used for purchasing items relevant to childcare and child development (or which can be invested in CareBonds, as we discuss below). The FamilyPay system and its accompanying CarePoints assistance program will be designed to support sustainable family formation, with declining incremental benefits after the third child.
These figures are the product of a compromise: to illustrate maximally generous support for families without introducing excessive strains on the economy. For the program to be effective, it must have a substantial impact on a family’s total income. Although we allow FamilyPay to taper off slightly after the third child, those who do choose to have more than three children will still be adequately compensated.
In order to minimize attempts to take advantage of FamilyPay, we propose a new mechanism: CarePoints. CarePoints are cash-like vouchers that can be spent on childcare expenses, very broadly defined. Similar to but broader than the WIC program, CarePoints can be spent on everything from diapers to baby food to private school tuition. They can even be saved as CareBonds in a special government account for postsecondary educational needs (a rare instance in which this “money” carries over past the child’s eighteenth birthday); we discuss this element further below.
The table that follows shows how the disbursements will look in FamilyPay versus CarePoints, corresponding to number of children. The idea is that the more children people have, the more of their overall income will necessarily go to spending on the children themselves, which can be provided through CarePoints.
Such a system is not easy to compare to programs that are being tried in other countries. But we believe that immediate cash payments provide more direct support for families than tax breaks.
Finally, our goal is to encourage stable families, not unstable ones. The program would disincentivize single parenthood by phasing out benefits more rapidly (just as current tax incentives do), though this would be offset by increased child support payments from the other parent. (And in cases in which a court decides that one parent tried as best they could to maintain a stable household and the other made it impossible, single-parent reductions could be waived.) Additionally, the program would incentivize adoption and especially adoption of foster children, in recognition of the support provided by adoptive families to the particular needs of adopted and foster children.
Deadbeat fathers must be further penalized since, with a scheme strongly favoring family formation, they have no excuse for not getting their act together. Accordingly, child support payments must be increased on noncompliant parents. Currently the average payer of child support pays around 17 percent of their income. Under the new program they will pay differential rates depending on whether they are at fault for abandoning the child. If they refuse to live with the mother and child under the new system, they will pay a higher rate to compensate for lost public support, while if the mother refuses to let them live with them they will pay a lower rate. Given that couples will be looking at large subsidies if they live together and penalties if they do not, the program will incentivize holding the family together.
Sometimes there will be unusual situations where the system breaks down, however. For example, there may be a case of an alcoholic or drug addict father who wants to live with the family and use family cash payments for illicit purposes. In such a situation, a judge will examine the case and rule according to what is best suited to the situation. While the program does seek to encourage couples to stay together for the sake of their children, it should in no way be construed to diminish protections against domestic abuse.
Financing FamilyPay and CarePoints
A fertility rate of three children per family provides an illustrative scenario for financing FamilyPay and CarePoints. In such a case, a household with three children would see their income rise $17,000. With a median U.S. national household income of around $62,000, the program would offer households a nearly 30 percent rise in after‑tax income. Such a program would grow in line with the productivity growth of the overall economy, and thus should track wages well.
The program would have an initial cost, assuming the illustrative scenario of three children, of around $1.8 trillion per annum, or around 8.7 percent of GDP. Currently the United States spends considerably less of its GDP—around 18.7 percent as of 2015—on social welfare compared to other OECD countries. An increase of this variety would simply bring American social welfare spending in line with high-income OECD countries such as Germany (25.1), Sweden (26.1), Austria (26.5), and Italy (27.9).25
Financing such a program is less difficult than might at first appear. We aim to increase the structural budget deficit by around 5 percent of GDP. We base this on recent estimates of the capacity for structural budget expansion by policy economists. We would also note that, if the population increases organically, tax revenues should rise through time—so this deficit can be seen as an investment in future taxpayers. The funding requirements of this program, however, will mean that it is the only purely consumption-directed stimulus available (and indeed the only one the U.S. economy is going to need). This family program will crowd out proposals for job guarantee programs and universal basic income, but with the advantage of aiming directly at the neediest members of the population.
The program as a whole adds up to around 8.7 percent of GDP. Beyond the increase in the structural budget deficit, the remainder will be financed with (1) tax increases and (2) budget cuts.
First, the tax increases: We will return to a pre-2018 standard income tax deduction and exemption schedule. Next, we propose increasing excise taxes on various “vice” goods, such as gambling, pornography, video games, nightclubs, tobacco and vaping, tattoos and piercings, and cosmetic surgery, along with new taxes on economically sterile sectors such as fine art and certain other luxury goods. Moreover, due to the damage that social media causes to child development, the program will also impose a significant tax on advertising revenue from social media companies.
Finally, we would impose a financial transaction tax, which we estimate could bring in over $200 billion alone. Our estimation of the revenue potential of a financial transaction tax is taken from Robert Pollin, James Heintz, and Thomas Herndon, who analyzed the Inclusive Prosperity Act that was introduced in the U.S. House of Representatives in 2012 and in the U.S. Senate in 2015. The Act included tax rates of 50 basis points on stock transactions, 10 basis points on bond transactions, and 0.5 basis points on the notional value of all derivative trades.26
As for cuts, the program will scrap the existing Child Tax Credit, as it is no longer necessary. Scrapping the Child Tax Credit will save around $60 billion. We also expect that the new program will allow for some savings from reduced SNAP and TANF payments to parents who now have a more stable income source, as well as allow for some savings on the WIC program (though these programs will not be eliminated).
In the above, illustrative example of three children per family, the program would cost around 8.7 percent of GDP. But the average family today does not have three children. This fact means that the program will, at least initially, cost considerably less than 8.7 percent of GDP—around 6.5 percent of GDP at a current fertility rate of 1.8.
As soon as the program is approved, borrowing would begin straightaway as stimulus, which means that funding to the tune of 5 percent of GDP would be available immediately. Our immediate need would only be to raise 1.5 percent of GDP in cuts and tax raises; plenty of time would thus be available for the changes to be implemented. In fact, in the first few years it is quite likely that the program would overshoot on funding. Any funding that overshoots should be placed in a fund that can be drawn on in years when revenue fluctuates substantially due to recession, thus building in a countercyclical element to the program.
Finally, a note on financing the debt. The United States will issue CareBonds to finance this program. As already explained, some of the program’s disbursements will not be in cash but rather in CarePoints (which, again, are like WIC stamps for child-related expenses). CareBonds will act just like regular U.S. government debt except if they are bought using CarePoints. If CarePoints are used to buy the CareBonds, the CareBonds will offer a 20 percent premium on the interest rate of government debt. So, if a U.S. 10-year Treasury bond is yielding 2 percent annually, a CareBond bought with CarePoints will yield 2.4 percent. CareBonds will thus encourage parents to save for their children’s futures. And they lock up expenditure that would otherwise be spent on goods and services now, thus removing some of the inflationary pressure from the program.
Republicans and Democrats alike are looking for ways to support stable family structures, in order to facilitate the choice to start or grow a family for Americans who wish to do so. The modest, existing forms of family support, chiefly in the form of tax credits, have not and almost certainly will not achieve these goals. A more robust proposal would include a mixture of direct cash transfers (FamilyPay), credits toward child-related expenditures (CarePoints), and possible investment toward future expenses (CareBonds). Financing such a scheme is well within the realm of possibility, both compared to typical levels of social spending in OECD countries, and in view of our proposed changes to the U.S. tax code. It’s time for American lawmakers to take a serious look at new ways of supporting American families, both now and in the future.
This article originally appeared in American Affairs Volume III, Number 3 (Fall 2019): 67–81.
2 Lyman Stone, “How Many Kids Do Women Want?,” Institute for Family Studies (blog), June 1, 2018: “no matter whether you use intended or ideal fertility, women report greater childbearing ambitions than they have achieved or are likely to achieve, and this has been the case for a long time.”
3 Lyman Stone, “How Many Kids Do Women Want?,” Institute for Family Studies, June 1, 2018.
4 Claire Cain Miller, “Americans Are Having Fewer Babies. They Told Us Why,” New York Times, July 5, 2018.
5 See Lyman Stone, “Is Hungary Experiencing a Policy-Induced Baby Boom?,” Institute for Family Studies, July 10, 2018; Stanisława Golinowska and Agnieszka Sowa-Kofta, “Combating Poverty through Family Cash Benefits: On the First Results of the Programme ‘Family 500+’ in Poland,” Polityka Społeczna (2017): 7–13; Claude Martin, “Parenting Support in France: Policy in an Ideological Battlefield,” Social Policy and Society 14, no. 4 (October 2015): 609–20.
6 Esther Yin-Nei Cho, “Child Benefit Portfolios across OECD Countries,” Social Indicators Research 132, no. 3 (July 2017): 1110.
7 See, for instance, Ross Douthat and Reihan Salam, Grand New Party: How Republicans Can Win the Working Class and Save the American Dream (New York: Doubleday, 2008), 167, 189; Robert Stein, “Taxes and the Family,” National Affairs, no. 2 (Winter 2010).
8 Reagan Baughman and Stacy Dickert-Conlin, “The Earned Income Tax Credit and Fertility,” Journal of Population Economics 22 (2009): 554.
9 Baughman and Dickert-Conlin.
10 Margot L. Crandall-Hollick, “The Child Tax Credit: Current Law and Legislative History,” Congressional Research Service, January 19, 2016.
11 Cristóbal Ridao-Cano and Robert McNown, “The Effect of Tax-Benefit Policies on Fertility and Female Labor Force Participation in the United States,” Journal of Policy Modeling 27 (2005): 1095.
12 Richard Crump, Gopi Shah Goda, and Kevin J. Mumford, “Fertility and the Personal Exemption: Comment,” American Economic Review 101, no. 4 (June 2011): 1624.
13 Save the Children, “The Urban Disadvantage: State of the World’s Mothers 2015,” (Fairfield, Conn.: Save the Children, 2015).
14 Geraldine Gittens, “‘Norway Needs More Children’—Prime Minister Issues Desperate Plea to Its Citizens to Have More Babies,” Irish Independent, January 18, 2019.
15 Anne H. Gauthier, “The Impact of Family Policies on Fertility in Industrialized Countries: A Review of the Literature,” Population Research and Policy Review 26, no. 3 (2007): 334.
16 Gauthier, 342.
17 Jared Bernstein, “The American Family Act Answers the Question: What Are We Waiting For?,” Washington Post, March 18, 2019.
18 Gretchen Livingston, “Stay-at-Home Moms and Dads Account for About One‑in-Five U.S. Parents,” Pew Research, September 24, 2018.
19 Eric Bettinger, Torbjørn Hægeland, and Mari Rege, “Home with Mom: The Effects of Stay-at-Home Parents on Children’s Long-Run Educational Outcomes,” Journal of Labor Economics 32, no. 3 (2014): 444, 463.
20 Note that the numbers in the chart only add up to 95 percent rather than 100 percent because we have not included other racial categories.
21 Australian Government Department of Human Services, “FTB Part A Payment Rates,” accessed July 24, 2019.
22 European Commission, “Austria—Family Benefits.”
23 Government of the Grand Duchy of Luxembourg, “Applying for Family Allowance,” accessed July 24, 2019.
24 See Lyman Stone, “Is Hungary Experiencing a Policy-Induced Baby Boom?,” Institute for Family Studies, July 10, 2018.
25 Organisation for Economic Co-operation and Development, “Social Expenditure Database.”
26 Robert Pollin, James Heintz, and Thomas Herndon, “The Revenue Potential of a Financial Transaction Tax for US Financial Markets,” International Review of Applied Economics 32, no. 6 (2018): 772–806.