Very well reasoned post. I do lament the the shrinking population. Are there any solutions that do not involve government or taxes? I'm concerned that any solution to this problem will involve government intervention. We don't need so-called "experts" from government agencies proposing tax incentives. In a free society, taxes should only be for revenue to fund essential functions. Incentives only give incentives to government to continue its social engineering.
We as individuals and families must show how rewarding a bigger family can be. Keep up the good work.
Look, the obvious fact is that people who don’t have children shouldn’t be able to collect retirement benefits, because these programs are pay as you go so if you didn’t have kids there is no funding for your retirement.
But denying SS and Medicare to the childless is a total non starter politically.
Even Ayn Rand collected government benefits when she was old and sick. Olds don’t give a shit anymore, will take what they can, and turn out to vote.
By taxing the childless more today and reducing taxes on breeders we allow the childless to contribute their fair share to creating the next generation that will pay for their retirement benefits (and literally provide the actual services, you can’t buy anything from people who don’t exist).
This is standard insurance shit. People gotta pay their premiums if they want to make claims later. Breeders paid their premiums by having kids. Childless gotta pay cash.
The cost of raising a kid is like $17k a year. Someone with two kids is taking on a $34k a year expense while the childless free ride.
My rule of thumb is that "if a tool always existed and nothing came out of using it, then it's more likely that the tool is insufficient than that nobody ever wielded it".
The "individual" option of just having more kids and convincing other people to do already exist, always existed, it was clearly practiced by millions of people, and... The TFR is still <2
As for the revulsion on tax policy as social engineering, I don't think I really share it, but also I think in this specific case the argument could (and should) be based on ability to pay and fair assessment of the tax base: just like we have married couple filing joint taxes (bc we recognize that it's for all intented purpose joint income), so I think would be fair to have something similar for kids. Just like a bachelor earning X is a different situation from a married couple where the husband earns X, so a married childless couple earning X is a different situation from a married couple with six kids where the husband earns X
Tim Carney has a recent book called "Family Unfriendly" that documents how changing social and labor norms have made it harder ot have kids. It's more or less that a lack of flexibility and a push for a certain type of conspicuous investment in children have made it harder for most families.
The cost of raising a child is $310,605, or $17,000 a year. This is higher in higher income areas.
And as a parent I can attest this is only the financial cost. There is a lot of unpaid labor in that number.
The goal should be to make having children financially neutral. Children produce surplus value for society, if we share more of that with parents they will have more children.
4) Old's get $15,000 in Medicare a year and $24,000 or so in Social Security. They also get Medicaid and lots of other tax breaks. So we spend a lot more on olds then it would cost to fully fund the expenses of having more children.
I think this is totally right from a fairness and moral perspective, and can be justified on those bases as well as on the political support grounds, but I think the perspective of “how efficient is this program per new baby incentivized” is an important and missing analysis with respect to discussions of these sorts of programs
What is the goal here? To save social security? To benefit society or individuals? I can argue that social security will over time destroy our society. To plunder individuals in the name of some perceived good is not moral.
A childless person who invented and produces a product capable of enhancing the population can be as beneficial to society as those having big families.
I am truly concerned about the population decline, but to use coersion to solve these kind of problems will destroy our civilization any way. There is a free market solution, we must work harder to find it.
Disclaimer: we do have two grown married boys in their 40's. Sadly they chose not to have children. That is my failure as much as theirs. With the utmost respect, yours,
My primary goal is to internalize externalities. I belief free riding is a large cause of the fertility shortfall. If parents could internalize the value of their offspring rather than it being confiscated by society I believe a lot of the issues would solve itself.
"but to use coersion to solve these kind of problems will destroy our civilization any way"
Last time I checked I was coerced into paying social security taxes.
Most pragmatic statement have realized that denying social insurance claims to those in need is a losing political formula. So if we are the pay social insurance claims, we ought to make sure that social insurance premiums are in line with claims (as any good insurance company would do). I think that the cost of bearing children are a form of premium payment for future social insurance claims, and we should recognize that the same way we recognize social security taxes.
My understanding is that we have data on this and that long term incentives are nowhere near as effective as simple cash payments on birth.
As such, I tend to think the long term tax breaks are less about actually incentivizing behavior and more about moralizing. Just fucking give people cash for births!
The main reason we need to keep fertility rates above replacement levels is to make the old age pension system work. Why not get rid of pensions to begin with? If not why not just get rid of pensions for people with less than 2 kids. Like if you're not raising kids you can be expected to save for your own pension.
This is directed at TAX efficiency, but that is an incomplete efficiency criterion. It treats inframarginal transfers (for babies that would have been conceived anyway) as a real cost instead of as it should be only the deadweight loss if the tax that finances the transfer.
Now one still might get to something like your progressive in # children incentive if the difference between margina social cost and benefits is greater for the greater number of children.
I think I have a solution that is still much more efficient and also much fairer while being easier to implement.
Why not just pay parents according to the market value of their parenting? Ideally usinf impact grants as proposed e.g. by Scott Alexander.
In terms of efficiency both your and Caplan's proposal have two major properties that are suboptimal: they risk rewarding lemon parents and they discourage specialization. In terms of fairness, tax benefits exclude people who for various reasons cannot have children or wish to make some other valuable contribution to society instead. Regarding ease of implementation, both suggestions require a complete overhaul of the tax system which would be highly political controversial and onerous to push through.
1. Information asymmetry and adverse selection: basically, the market for marginal children is a lemons market. Society, optimally, would be willing to pay parents the time value of the proposed child's economic contribution. This value depends on genetic and environmental factors. The first, society does not allow itself to assess (having people's tax burden depend on their genetics is politically unpalatable); the latter it cannot assess (only the potential parents know how much effort they will put in).
So the best it can do is use some very rough proxy like parents' earning capability as in Bryan's and your proposal and pay parents an average reward based on their taxable income. But not only does this mean that you will buy a lot of lemon parents who don't care for their children; it also incentivizes lemon parenting: the more children you have and the fewer resources you divert from your career towards them, the larger the reward.
2. Which brings me to the second inefficiency: a taxation-based approach completely forgoes the advantages of division of labor and specialization. As with everything, experience will make you a better parent. And why not leverage that into having more children and specializing in parenting?
Parents who raise great entrepreneurs, artists or scholars should themselves be rewarded highly, just as we reward other highly successful people.
Instead a taxation-based approach discourages parents from specializing in parenting.
Impact grants remedy both inefficiencies. The information asymmetry problem is avoided by assessing impacts retroactively; and highly promising parents can make a living and even become rich from parenting.
3. This is also fairer: a non-neglible proportion of the population will always find it hard to reproduce. Maybe they are infertile or they have genetic diseases they don't wish to pass on or they are just too unattractive to find a decent partner to raise kids with. Other people may be genuinely altruistic but feel that their talents and inclinations make them more suitable for other ways of benefitting humanity. These people would be unfairly burdened by higher taxes.
Not so with impact grants: here specializing in parenting just becomes another career option. Everyone's live is not valued by the taxman by the number of children they have. Instead you are being rewarded according to the market value of your contribution.
4. Finally, my proposal is also easier to implement. Good luck trying to pass either of your proposals in any democracy given the current demographics. For impact grants to work in principle, it is only necessary to grant the funding of raising children charity status. Such a change could be tacked on to some random bill without most people even noticing. The rest is marketing (start by pitching it to the effective altruists).
And besides, wouldn't it be cool to fund the next Mozart, Einstein or Gandhi?
Some preemptive defenses:
1. But parenting quality does not matter! Caplan likes to claim this, but I think the evidence is not so clear. In any case, basically everyone agrees that really bad or really good parenting matters (Caplan himseld basically gave his twins aristocratic tutoring, and as the economists like to say: look at their actions not their words). Impact grants enable the kind of parenting (by the parents themselves or someone they hire) that used to be reserved for the offspring of nobility.
2. But there is no evidence for learning curves in parenting! Maybe but here we are talking about the outcomes of children in relatively small, modern families. We are not talking about parents' outcomes and we are not talking about the very large families specialization would result in.
3. But will this not have very bad consequences (eugenics, the racism thing, the sexism thing, ...)!? We already reward people to a large proportion based on their genetic luck in essentially every other career. Why should parenting be different? And if desired, or necessary non-discrimination requirements can be added (e.g. a requirement to fund children from various races proportionately to their race's share of the population)
Actually the six kids and no tax would ensure that some reasonable % of likely very high earners would simply have six kids in their 20s, which would likely be a really good outcome.
Since the most citrusy potential parents do not and are not expecting to pay (income) taxes, this policy does not incentivise them at all, although it may change cultural dynamics in a way that causes them to have more kids.
🙂 It had kind of reminded me of another use of the phrase, one from T.H. Huxley, though I've periodically used it myself -- fairly durable aphorism:
THH: "The truth is that the pretension to infallibility, by whomsoever made, has done endless mischief; with impartial malignity it has proved a curse, alike to those who have made it and those who have accepted it; and its most baneful shape is book infallibility. .... Of infallibility, in all shapes, lay or clerical, it is needful to iterate with more than Catonic pertinacity, Delenda est."
If we hold these truths...that all men are created equal and endowed with un-alienable rights, then it stands to reason that the government has no right to "incentivize" anyone's behavior. Other than the obvious to secure our freedom.
Also, who decides? Some expert like Fouci?
The problem of declining population is to a great degree caused by government and declining confidence that doing right is the best way to pursue our happiness.
Very well reasoned post. I do lament the the shrinking population. Are there any solutions that do not involve government or taxes? I'm concerned that any solution to this problem will involve government intervention. We don't need so-called "experts" from government agencies proposing tax incentives. In a free society, taxes should only be for revenue to fund essential functions. Incentives only give incentives to government to continue its social engineering.
We as individuals and families must show how rewarding a bigger family can be. Keep up the good work.
Look, the obvious fact is that people who don’t have children shouldn’t be able to collect retirement benefits, because these programs are pay as you go so if you didn’t have kids there is no funding for your retirement.
But denying SS and Medicare to the childless is a total non starter politically.
Even Ayn Rand collected government benefits when she was old and sick. Olds don’t give a shit anymore, will take what they can, and turn out to vote.
By taxing the childless more today and reducing taxes on breeders we allow the childless to contribute their fair share to creating the next generation that will pay for their retirement benefits (and literally provide the actual services, you can’t buy anything from people who don’t exist).
This is standard insurance shit. People gotta pay their premiums if they want to make claims later. Breeders paid their premiums by having kids. Childless gotta pay cash.
The cost of raising a kid is like $17k a year. Someone with two kids is taking on a $34k a year expense while the childless free ride.
My rule of thumb is that "if a tool always existed and nothing came out of using it, then it's more likely that the tool is insufficient than that nobody ever wielded it".
The "individual" option of just having more kids and convincing other people to do already exist, always existed, it was clearly practiced by millions of people, and... The TFR is still <2
As for the revulsion on tax policy as social engineering, I don't think I really share it, but also I think in this specific case the argument could (and should) be based on ability to pay and fair assessment of the tax base: just like we have married couple filing joint taxes (bc we recognize that it's for all intented purpose joint income), so I think would be fair to have something similar for kids. Just like a bachelor earning X is a different situation from a married couple where the husband earns X, so a married childless couple earning X is a different situation from a married couple with six kids where the husband earns X
Tim Carney has a recent book called "Family Unfriendly" that documents how changing social and labor norms have made it harder ot have kids. It's more or less that a lack of flexibility and a push for a certain type of conspicuous investment in children have made it harder for most families.
1) Paying per child makes everyone with at least one child a potential supporter of the program.
2) Paying per child naturally scales. Someone with three kids gets 3x the benefit of someone with one kid.
3) Paying per child lines up with the "point" of the reform. To internalize the external value of childbearing from society to the parents.
https://www.investopedia.com/articles/personal-finance/090415/cost-raising-child-america.asp
The cost of raising a child is $310,605, or $17,000 a year. This is higher in higher income areas.
And as a parent I can attest this is only the financial cost. There is a lot of unpaid labor in that number.
The goal should be to make having children financially neutral. Children produce surplus value for society, if we share more of that with parents they will have more children.
4) Old's get $15,000 in Medicare a year and $24,000 or so in Social Security. They also get Medicaid and lots of other tax breaks. So we spend a lot more on olds then it would cost to fully fund the expenses of having more children.
I think this is totally right from a fairness and moral perspective, and can be justified on those bases as well as on the political support grounds, but I think the perspective of “how efficient is this program per new baby incentivized” is an important and missing analysis with respect to discussions of these sorts of programs
What is the goal here? To save social security? To benefit society or individuals? I can argue that social security will over time destroy our society. To plunder individuals in the name of some perceived good is not moral.
A childless person who invented and produces a product capable of enhancing the population can be as beneficial to society as those having big families.
I am truly concerned about the population decline, but to use coersion to solve these kind of problems will destroy our civilization any way. There is a free market solution, we must work harder to find it.
Disclaimer: we do have two grown married boys in their 40's. Sadly they chose not to have children. That is my failure as much as theirs. With the utmost respect, yours,
"What is the goal here?"
My primary goal is to internalize externalities. I belief free riding is a large cause of the fertility shortfall. If parents could internalize the value of their offspring rather than it being confiscated by society I believe a lot of the issues would solve itself.
"but to use coersion to solve these kind of problems will destroy our civilization any way"
Last time I checked I was coerced into paying social security taxes.
Most pragmatic statement have realized that denying social insurance claims to those in need is a losing political formula. So if we are the pay social insurance claims, we ought to make sure that social insurance premiums are in line with claims (as any good insurance company would do). I think that the cost of bearing children are a form of premium payment for future social insurance claims, and we should recognize that the same way we recognize social security taxes.
My understanding is that we have data on this and that long term incentives are nowhere near as effective as simple cash payments on birth.
As such, I tend to think the long term tax breaks are less about actually incentivizing behavior and more about moralizing. Just fucking give people cash for births!
The main reason we need to keep fertility rates above replacement levels is to make the old age pension system work. Why not get rid of pensions to begin with? If not why not just get rid of pensions for people with less than 2 kids. Like if you're not raising kids you can be expected to save for your own pension.
This is directed at TAX efficiency, but that is an incomplete efficiency criterion. It treats inframarginal transfers (for babies that would have been conceived anyway) as a real cost instead of as it should be only the deadweight loss if the tax that finances the transfer.
Now one still might get to something like your progressive in # children incentive if the difference between margina social cost and benefits is greater for the greater number of children.
Limit social security eligibility to people who have some number of children. Children are the resource that make social security possible.
I think I have a solution that is still much more efficient and also much fairer while being easier to implement.
Why not just pay parents according to the market value of their parenting? Ideally usinf impact grants as proposed e.g. by Scott Alexander.
In terms of efficiency both your and Caplan's proposal have two major properties that are suboptimal: they risk rewarding lemon parents and they discourage specialization. In terms of fairness, tax benefits exclude people who for various reasons cannot have children or wish to make some other valuable contribution to society instead. Regarding ease of implementation, both suggestions require a complete overhaul of the tax system which would be highly political controversial and onerous to push through.
1. Information asymmetry and adverse selection: basically, the market for marginal children is a lemons market. Society, optimally, would be willing to pay parents the time value of the proposed child's economic contribution. This value depends on genetic and environmental factors. The first, society does not allow itself to assess (having people's tax burden depend on their genetics is politically unpalatable); the latter it cannot assess (only the potential parents know how much effort they will put in).
So the best it can do is use some very rough proxy like parents' earning capability as in Bryan's and your proposal and pay parents an average reward based on their taxable income. But not only does this mean that you will buy a lot of lemon parents who don't care for their children; it also incentivizes lemon parenting: the more children you have and the fewer resources you divert from your career towards them, the larger the reward.
2. Which brings me to the second inefficiency: a taxation-based approach completely forgoes the advantages of division of labor and specialization. As with everything, experience will make you a better parent. And why not leverage that into having more children and specializing in parenting?
Parents who raise great entrepreneurs, artists or scholars should themselves be rewarded highly, just as we reward other highly successful people.
Instead a taxation-based approach discourages parents from specializing in parenting.
Impact grants remedy both inefficiencies. The information asymmetry problem is avoided by assessing impacts retroactively; and highly promising parents can make a living and even become rich from parenting.
3. This is also fairer: a non-neglible proportion of the population will always find it hard to reproduce. Maybe they are infertile or they have genetic diseases they don't wish to pass on or they are just too unattractive to find a decent partner to raise kids with. Other people may be genuinely altruistic but feel that their talents and inclinations make them more suitable for other ways of benefitting humanity. These people would be unfairly burdened by higher taxes.
Not so with impact grants: here specializing in parenting just becomes another career option. Everyone's live is not valued by the taxman by the number of children they have. Instead you are being rewarded according to the market value of your contribution.
4. Finally, my proposal is also easier to implement. Good luck trying to pass either of your proposals in any democracy given the current demographics. For impact grants to work in principle, it is only necessary to grant the funding of raising children charity status. Such a change could be tacked on to some random bill without most people even noticing. The rest is marketing (start by pitching it to the effective altruists).
And besides, wouldn't it be cool to fund the next Mozart, Einstein or Gandhi?
Some preemptive defenses:
1. But parenting quality does not matter! Caplan likes to claim this, but I think the evidence is not so clear. In any case, basically everyone agrees that really bad or really good parenting matters (Caplan himseld basically gave his twins aristocratic tutoring, and as the economists like to say: look at their actions not their words). Impact grants enable the kind of parenting (by the parents themselves or someone they hire) that used to be reserved for the offspring of nobility.
2. But there is no evidence for learning curves in parenting! Maybe but here we are talking about the outcomes of children in relatively small, modern families. We are not talking about parents' outcomes and we are not talking about the very large families specialization would result in.
3. But will this not have very bad consequences (eugenics, the racism thing, the sexism thing, ...)!? We already reward people to a large proportion based on their genetic luck in essentially every other career. Why should parenting be different? And if desired, or necessary non-discrimination requirements can be added (e.g. a requirement to fund children from various races proportionately to their race's share of the population)
Actually the six kids and no tax would ensure that some reasonable % of likely very high earners would simply have six kids in their 20s, which would likely be a really good outcome.
Since the most citrusy potential parents do not and are not expecting to pay (income) taxes, this policy does not incentivise them at all, although it may change cultural dynamics in a way that causes them to have more kids.
So the broad design appears reasonably robust.
"[delenda esters] delenda est"? 😉🙂
Well yes that fits, if not exactly what I had in mind at the time 😆
🙂 It had kind of reminded me of another use of the phrase, one from T.H. Huxley, though I've periodically used it myself -- fairly durable aphorism:
THH: "The truth is that the pretension to infallibility, by whomsoever made, has done endless mischief; with impartial malignity it has proved a curse, alike to those who have made it and those who have accepted it; and its most baneful shape is book infallibility. .... Of infallibility, in all shapes, lay or clerical, it is needful to iterate with more than Catonic pertinacity, Delenda est."
https://mathcs.clarku.edu/huxley/CE4/
Many a slip twixt cup and lip. 🙂
Nice phrase, funny how much more elaborate English used to be. Thanks for pointing me to it.
If we hold these truths...that all men are created equal and endowed with un-alienable rights, then it stands to reason that the government has no right to "incentivize" anyone's behavior. Other than the obvious to secure our freedom.
Also, who decides? Some expert like Fouci?
The problem of declining population is to a great degree caused by government and declining confidence that doing right is the best way to pursue our happiness.
With the utmost respect, yours