At the Conservative Political Action Conference in March, former President Donald Trump appeared to be informed via his teleprompter of a new plank in his platform: “We will support baby boomers and we will support baby bonuses for a new baby boom, how does that sound? That sounds pretty good.”
Perhaps this would occur through a refundable tax credit for people who can prove they’re pregnant—or maybe it would be through some sort of child tax credit expansion. The most common way governments provide financial assistance or procreation incentives is through tax credits, so one can assume this nascent policy would be delivered through some sort of tax relief. In any event, when you’re dabbling in state-funded population growth initiatives, you’ll want to keep a few things in mind.
This Is Being Tried Elsewhere
Imagine a male political leader who’s been accused of despotic behavior, undermining democracy, and manipulating the government and the media for personal gain and power consolidation. If you’re picturing Hungary’s Viktor Orbán, congratulations.
Orbán late last year announced a cancellation of income tax for new mothers under age 30. The cancellation is permanent and for the mothers’ entire income-earning life. A one-time credit or bonus of some sort is something of a pale simulacrum of the Hungarian model. All the same, the timing would indicate Trump’s suggestion was informed by, if not cribbed from, Orbán.
Orbán announced a similar plan in 2019 but keyed the income tax waiver on individuals having four or more children. In the intervening years, there’s been a small increase in the number of live births in Hungary—about 3,500 more live births in a country with a population of 9.71 million.
That’s about 0.0361% increased live births as a percentage of the population. With the US population of 332 million, that would be an increase of about 120,000 live births per year, assuming a one-time bonus had the same effect here as a permanent income tax exemption did in Hungary.
In contrast, the peak of the post-World War II baby boom saw 4.3 million births in 1957, or just shy of 2% of the total population. This tax credit is going to have to be massive.
Who Qualifies?
A policy-minded individual imagining a “baby bonus” rammed through the tax code would think of a few immediate issues involving who qualifies. First, in the situation of an adoption, the existing child tax credit regime is primed to handle the issue as it turns on dependency—and dependency shifts from birth parents to adopted parents at the time of adoption. There are also tax credits and exclusions for qualified adoption expenses.
But when you’re attempting to incentivize birth, the question gets thornier: Is the tax credit only for the birth parents? If so, on some level, the policy is incentivizing childbirth but not child rearing. That seems like an unintended distortion and is problematic from a social welfare perspective. But if the policy goal is to create some kind of 21st century “baby boom,” then giving bonuses to both the birth and adoptive parents misses the point.
A second issue involves whether the credit would be refundable. The child tax credit is fully refundable for qualifying children, but a credit modeled after the Hungarian income tax exemption would be non-refundable. That is, in Hungary, you needn’t pay income tax, but you aren’t paid for having a child, and one might reasonably imagine the same would be true here.
Only those who make enough money to owe more taxes than the credit is worth would benefit, which would cut out a large portion of lower-income filers. From a selective pressure perspective, we wouldn’t be incentivizing a generalized population boom—we’d be funding people who already are higher up on the socioeconomic ladder.
Alternative
In a society where providing childcare and aiding those who are raising children is a cause most people can get behind, the obvious alternative would be to restore the expanded child tax credit. When it was passed in 2021, it helped to cut child poverty—and when it was allowed to expire a year later, all of that momentum was lost. While President Joe Biden noted this fact in his proposed budget, the Republican majority in the House will almost certainly never send a restored child tax credit to the Resolute desk for his signature.
It would be easy to wave off Trump’s statements as merely chum for his base, but he has a history of taking ideas from Orbán: namely a proposed border fence in 2015. Ensuring a stable population isn’t about throwing “baby bonuses” at the problem and attempting to coerce a population into having more children. If there is truly bipartisan support for providing for families that are providing for children, we have an existing, proven system that works. Let’s try funding that before taking over Americans’ family planning.
This is a regular column from tax and technology attorney Andrew Leahey, principal at Hunter Creek Consulting and a sales suppression expert. Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social.