Stay-at-Home Parents: Economics and Fairness
There's quite the debate raging about the tax treatment of stay-at-home versus working moms. Obama would like to hike federal tax relief for working parents who pay for child care. Many conservatives are saying that's discriminatory against mothers who stay at home, but both Josh Barro and John C. Goodman have pushed back against that argument.
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.
This no small matter.
He goes on to note that, according to one estimate, if we counted home productivity in GDP, GDP would rise 26 percent.
I actually agree with Barro and Goodman that dual-earner couples should not be taxed as much as single-earner couples with the same income. But the best argument for this proposition stems from basic fairness, not some broad principle that work we do for ourselves should be treated exactly like work we do for pay.
Barro concedes that comprehensive "efforts by the government to measure how productive we are at home would be intrusive and inaccurate, not to mention politically toxic." But it goes beyond that: Even if we could overcome the political difficulties and find an accurate way of tallying up this work, we usually shouldn't tax it.
Why? Think through a few of the implications. You have to send a check to the government if you spend the day cleaning, but not if you spend the day sleeping. If you mow your lawn more often than your bad neighbor does, you pay more in taxes than he does. If you're unemployed and use your time to fix the sink, you owe taxes on that value -- we wouldn't want to treat you differently than we'd treat someone who can afford a plumber, but we do want to make sure you're taxed more than an unemployed person who sits around playing video games. And if one stay-at-home mom teaches her kids the alphabet while another has them watch TV, the first mom pays more in taxes. After all, higher-quality child care is worth more.
To be sure -- and here's what makes this idea attractive to economists -- these problems are present to some degree with the income tax too. You don't owe it if you don't bother to work, and the more and higher-quality work you do, the more you owe.
But there are key differences. First, in addition to reflecting the effort each person puts in, income taxes target the various ways that luck contributes to our fortunes, giving some people higher intelligence, better connected parents, and so on, than others. Home-productivity taxes may capture some of this (some die-hard do-it-yourselfers are inherently capable of doing things the rest of us are not), but in general they're just taxing people who take pride in their homes over people who don't, and they might even be regressive, seeing as the poor rarely hire maids or gardeners.
Further, the incentive effects of income and home-productivity taxes could be quite different; it's hard to predict how much DIY lawn-mowing wouldn't get done if DIY lawn-mowing were taxed, but there's no reason to assume it's the same reduction that's caused by the taxes on professional lawn-mowers. I sure wouldn't mind an extra excuse as to why I didn't do my share of the chores around the house.
In other words, there is a fundamental difference between unpaid work and paid work, and the tax system has to treat them differently. When it comes to unpaid work, we have to look at each situation and decide what is fair and efficient, rather than simply assuming that the ideal solution (practical concerns aside) would be to tax unpaid and paid work equally. But I do think Barro and Goodman have a point in the particular case of stay-at-home moms, as I wrote in the Fall 2014 issue of National Affairs.
Imagine two couples. Both earn $60,000 -- but one does this with a single full-time worker, while both individuals in the other couple work at $30,000 apiece. The first couple has no daycare expenses, more free time, and roughly half the commuting expenses. Is it really fair to tax them both the same when one couple is plainly better off?
Weighing in from the corner opposite Barro and Goodman, my old National Review colleague Ramesh Ponnuru responded to this argument last week:
One [argument for helping dual earners] is that two-earner couples have higher costs than single-earner couples making the same income, so it's harder for them to pay the same taxes. But that seems like using the tax code to counteract the efficiency advantages of a particular way of dividing a family's labor, which doesn't make much sense. And it seems like an especially weak argument since, in the real world, single-earner couples have smaller incomes.
I disagree. The difference between our two $60,000 couples is almost certainly not how they "divid[ed] a family's labor." Except in rare circumstances, someone earning $30,000 isn't earning $30,000 because he chose to earn that instead of $60,000; he's earning that because it reflects the value of his skills in the labor market. We're treating these couples differently because one is more fortunate than the other, not merely because they made different decisions about whether one parent should stay at home. If one of the individuals in the dual-earner couple did stay at home, it would become a $30,000 couple, not another single-earner $60,000 couple.
And I don't see the significance of the fact that the typical single-earner couple makes less than the typical dual-earner couple: There are plenty of both types of couples with all sorts of different incomes, and the tax system must apply to all of them. There really are, to return to our hypothetical couples once again, both single- and dual-earner families with incomes of exactly $60,000, and so we really do need to think about whether their equal household incomes should override all other considerations on Tax Day.
Family taxation is one of those endlessly debatable topics, because the same rules must apply in countless situations, and what may seem obviously fair to some is obviously discriminatory to others. With the wide diversity of family structures and working arrangements we have today, it's good we're starting to grapple with these questions.
Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen