David Cay Johnston on the Child-Care Credit
by Linda Beale
David Cay Johnston on the Child-Care Credit
crossposted with Ataxingmatter
David Cay Johnston, former tax reporter for the New York Times, now does a column in the weekly Tax Notes called “Johnston’s Take.” This week, he examines Alan Viard’s claim that the child-care credit is a boon for working parents. Download Who Benefits from child-care credit.110810
Viard is an American Enterprise Institute economist/scholar in residence, joining Paul Wolfowitz, Lynne Cheney and other prominent names from the Bush right-wing support squad. He has touted the child care tax credit and gotten some supporters. For example, legislation was introduced in the House this spring to increase the credit and remove the income limitation, so that even well-to-do couples could get the full credit (current law limits credit to $600 for familes with income above $43,000). See Martin Vaughn, House Plan Targets Child Care Tax Credit, Wall St. Journal, May 11, 2010.
Johnston argues that the incidence of the child tax credit, like the corporate income tax, is uncertain. (The corporate tax may be borne by shareholders, but it may also be passed off to employees, vendors or customers. That, of course, is if there is any tax paid at all….) The credit is not so obviously a benefit to those who ostensibly receive its benefit. Johnston works through some simple formulas to show how wages decline with the availability of the credit–both because employers can pay less (since the government is in effect picking up part of the tab) and more employees come into the labor market because of the credit (which lowers wages because of the increased supply of labor).
buffpilot, if you would read my column you would see that is the very question I go into along with reasons that an economist who calls himself “conservative” would want top muck up the tax code with such stuff.
How about reading the column and then commenting again?
David and Rdan,
First I apologize for my intial reaction. I had not read the attached link and was still in a bad mood from once again interacting with some of the big government overlord types here at AB.
The article was excellent and I felt was a perfect example of both the effects of unintended consequences (actually helps business more than parents) and the just gross nonesense of this type of complexity in the tax code. I especially liked your Swiftian list of potential business tax deductions we could set up to help all the other ‘XXX-challenged” out there.
As someone who regularly pays to have his tax returns done each year I would really like some tax simplification. If even my professional tax preperers can make mistakes in the byzantine world of the IRS (costing me an additional $400 – luckily no penalty), there is no hope for us non-professionals…
And my wife at home raising the kids is worth far more than this trivial tax credit.
Islam will change
Let’s see, which hat to wear – CPA, former executive, tax professor.
From the executive standpoint, I never knew or gave me thought to who might ir might not be benefiting from the child care tax credit.
I think the cause-and effect assumptions about wages and labor supply are very weak. I have never known an employee I managed (or at a client’s workplace) who went to work because of the child care credit.
“Let’s get back to broadening the base, simplifying
taxes for the vast majority, and sustaining that
ancient—and therefore profoundly conservative—
moral and practical principle that the greater your
economic gain, the greater the tax burden you must
bear so that the society that made your gains
possible will endure. Those are simple and sound
principles that actually will benefit children.”
Nothing more need be said about the matter.
“Let’s get back to broadening the base, simplifying
taxes for the vast majority, and sustaining that
ancient—and therefore profoundly conservative—
moral and practical principle that the greater your
economic gain, the greater the tax burden you must
bear so that the society that made your gains
possible will endure. Those are simple and sound
principles that actually will benefit children.”
Nothing more need be said about the matter.
Sorry for the duplication Dan, but the delete button doesn’t seem to be working.