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The Obama administration's new tax reform proposal includes two important pieces of assistance to middle class families that include two working parents. One is the proposed creation of a Second Earner Tax Credit that would knock $500 off the tax bills of two-income families. The other is the proposed expansion of the Child Care Tax Credit to cover up to $3,000 in child care expenses.
One natural question to ask about this is why not just do a bigger child tax credit rather than specifically focusing the credit on child care? In other words, why not deliver financial assistance to two-parent families with only one working parent? Tim Carney sees "social engineering" by the Obama administration, while Ramesh Ponnuru dubs it "Obama's War on Homemakers."
The administration's actual thinking on this is explained by chart 20 in a report on labor force participation that Obama's Council of Economic Advisors put out last summer:
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A country's GDP is in part a function of what share of its population goes out and looks for work. In terms of prime-age women, this is an area where we've fallen behind Canada and northern Europe and where we appear likely to be surpassed by Japan. The administration wants to build a welfare state that's conducive to economic growth rather than one that undermines it, and that means emphasizing the kinds of new family assistance initiatives that support market work.
You may or may not find that way of thinking compelling. But that's the basic tradeoff we're looking at. A new child benefit that you get whether or not you do market work will marginally discourage market work, while a new child benefit that you only get if you do paid work will marginally encourage more paid work. One provides help to recipients in a way that's more flexible, the other provides help to recipients in a way that boosts economic growth.
When it comes to programs for poor people, conservatives are generally quite worried about work incentives. But when contemplating government assistance for middle class families, that same kind of emphasis seems to look to many conservatives like an assault on traditional values. But the basic thinking is essentially the same — GDP will be higher if the government subsidizes work than if it does untargeted subsidies.
