Because Tim Carney dislikes tax credits — presumably because they reek of favoritism — he proposes that we index marginal tax rate thresholds to family size. It is an interesting idea, and I wouldn’t dismiss it out of hand. To understand why Robert Stein’s expanded child tax credit might be a somewhat more attractive approach, however, it is important to understand one of the chief objections to the Stein approach. Recall the basics of Stein’s CTC:
To correct for this inadequate treatment of households with children, the existing dependent exemption for children, the child credit, the child-care credit, and the adoption credit should be replaced with one new $4,000 credit per child that can be used to offset both income and payroll taxes.
Notice that this new child credit is not a refundable credit. Rather, it can be used to offset both income and payroll taxes. Households with no payroll tax liability won’t receive a check in the mail. Moreover, Stein’s concept doesn’t have a cut-off, and so it will benefit a large number of affluent households with children. And so Stein’s concept is not as progressive as, say, a child benefit that would go to all parents below a certain income threshold, whether or not they earn a market wage. In my view, Stein’s approach is defensible because, among other things, it helps correct the anti-parenting bias of Social Security and Medicare. Yet it is more progressive than Tim’s approach, which will be of little use to households with little income tax liability but a burdensome payroll tax liability. That said, I would be delighted in Tea Party conservatives like Sen. Rand Paul rallied around Tim’s new tax proposal, as it would help shift the tax reform debate in the right direction.