President Obama has proposed tripling the tax credit for paid child care. Critics have said that since most parents prefer other forms of child care, it would make more sense to offer them tax relief that let them take care of their children as they wish. Defenders of the plan, some of them on the right, say that a larger child-care credit is necessary to level the playing field.
The problem, they say, is that mothers who stay out of the paid labor force aren’t being taxed. Here’s how John Goodman makes the point:
One of the amusing anecdotes that all students learn in Econ 101 relates to the fact that house work is excluded from the official estimate of GDP. “If a man marries his maid and she continues doing exactly what she did before, GDP goes down,” professors tell their students.
The tax code works exactly the same way. If a man marries his maid and continues giving her the same financial support that he did before, federal income taxes go down. We tax the value of productive labor only if it’s sold in the marketplace. Services performed in the home are entirely tax free.
What a pity President Obama didn’t slip these charming lines into his State of the Union address.
Goodman goes on to argue that “the current tax system overwhelmingly favors work done at home rather than work done in the marketplace. It also overwhelmingly favors spouses who stay home.” Hence we need both a child-care credit and a tax code that goes further toward treating workers as individuals with no regard for whatever family arrangements they happen to make.
I see two flaws in this analysis. First, it ignores that marriage is, among other things, an economic partnership, something a tax system based on individuals rather than families can’t capture. Second, it ignores the large implicit tax on larger families that our old-age entitlement programs entail. Such families disproportionately, as one would expect, include mothers outside the paid labor force married to fathers who draw a paycheck. Account for these facts, and the overall bias of federal policy is already toward dual-earning couples. To put it a different way: Government policy may offer a good deal for couples with no children or one child and a wife who stays home, but those people do not exist in large numbers.