It’s the return of Fix the Tax Code Friday!
Since there’s been some discussion on the blog lately about whether or not parents should receive tax “benefits” in the form of exemptions and credits, I thought I would make it the Fix the Tax Code Friday question:
Should parents be entitled to exemptions and credits to offset the additional costs of raising children? Or should having children be a tax-neutral event?
Hello. My biggest beef with the tax code is the daycare deduction cap. It isn’t remotely realistic to what daycare actually costs, and should at least be a per-child maximum. I spent several times the maximum last year having three kids fulltime in daycare. It isn’t like ANY of that costs is related to anything but the cost of working.
I ended up switching to part time and pulling all but my oldest kid (who’s just about to enter school) out of daycare entirely. I thought it would be tough, but I actually have way more money. I was spending $1,500/month on daycare.
I agree. Did you see this recent post: http://www.taxgirl.com/the-child-and-dependent-care-credit-sucks-or-how-you-can-tell-that-congress-is-full-of-men/
If the government is in the business of trying to influence non-criminal behavior, then giving tax relief to those that invest in the next generation makes sense. If the government is just about maintaining order and sovereignty and otherwise staying out of people’s lives, then it is not as clear cut.
Now to really make it sticky, ask the question of whether adult dependents should generate tax advantages. Because our government does generally foot the bill if individuals don’t, then there is a benefit to the government when people take care of their relatives that would otherwise be taken care of by the government. However, if the government got out of that line of services, then the tax deduction here also wouldn’t make sense.
Okay, so I just told you on Twitter that it is far too early in the morning for me to discuss taxes. Not to mention that I prefer to wait until afternoon to make myself look like an idiot. But here goes:
I did an interview yesterday with NBC Nightly News for their web section on msnbc.com. One of the questions was of my opinion on the government paying for child care and of businesses instituting mandatory work schedules for mothers to balance work and life.
My answer was along the lines of “Where does it end?” The costs that result from parents working are limitless. Who decides who picks up what part of the tab? And yes, what about adult caregivers of elderly parents? Who decides who is valued more?
That being said, this was our first year to have any kind of child care to report and I was surprised and pleased to see that we would be getting some of that money back.
But I also felt that it wasn’t really fair because I am a SAHM mom and my son is in Montessori school for personal reasons, not out of necessity.
But then again, I am a broke SAHM (broke and SAHM often go hand-in-hand, hello sacrifices!), so I welcome any money to help us break even.
Now, as to tax benefits of simply having offspring? I’m going to go back to that it is far too early for me to discuss this, as I feel the word “China” coming up and I don’t even know what that means.
Bottom line? I am usually against the government getting too involved and tinting our sense of responsibility. And I am all for receiving money. How is that for muddled?
It is not yet 8am. I should not be talking about this.
I have no problem with kids being tax-neutral as long as such neutrality is across the board when it comes to the tax code. I wonder if the child-less couples that complained own their own home? If so, they’re seeing a benefit (interest deduction) that people paying rent in the same amount do not see.
The way the tax code is structured, just about every exemption and credit that benefit’s one person, is not going to be a benefit to another.
It just occurred to me that it is insane that msnbc was asking a SAHM her opinion about issues relevant to working mothers.
Um, the topic was actually pollsters labeling moms with labels such as “Soccer Mom.”
NBC considering my opinion on working mother issues is like you considering my opinion on taxes.
Trust no one.
Having children should definitely be tax neutral, as should most decisions really.
At the very least, the various deductions, credits, etc. available should be limited to say, two per return. Maybe with recapture beginning beyond that.
The tax code is full of all sorts of incentives and oddities. If we want to encourage having kids and having them out of wedlock leave the code as it is. In my book you do away with the statuses you get an exemption for each person you support, you get a standard deduction no matter what, but no MFJ or HH or QW or MFS. Spouse does not work Ok you support that person you get the exemption. Also make the courts issue an 8332 unless the parents are married. The child tax credit people love it and it does help people of lesser means. But lets face it it is goofy, kids going to college whoops no more child tax credit when they are 17 and above. Is that because of the hope credit? The thing is so complecated you can’t change one thing cause it changes others. Good luck.
Another Tax Geek – limiting the number of deductions and credits… interesting!
Rick – great point re the complexity of the Code. That’s my biggest beef with the idea of just creating a new tax Code – it would be just as complicated. The reality is that our Congress has made the existing Code as large and interconnected as it is and would do the same to any plan over time.
Hi, Kelly —
I’m not going to get into a big dustup over the fairness or unfairness of child care exemptions and/or credits, or those for mortgage interest, etc. The biggest thing I took away from tax class (on my way to a BS in accounting — with emphasis on the BS!) was that fairness and logic have nothing whatsoever to do with the tax code. The code is all about whatever Congress decided to pass — based on political compromise, special-interest lobbying, pandering to the lowest common denominator of voters’ base desires, and that sort of thing. As noted yesterday, my wife and I have no kids (we also rent our apartment, just for the record) — so our conception of what’s “fair” is going to differ from that of a couple with three kids who own the place (e.g., our landlord and -lady downstairs!).
Basically, at this point, I think anytime Congress, state legislatures, and chief executives make ANY changes to the laws on the books, the result is that things are LESS fair, not more — and they’re more complex. That’s good for tax geeks like Kelly, who get paid big bucks to sort things out, but it’s bad for the average person. Despite having a degree in accounting, I don’t even do my own taxes — that should be a clue that the tax code is too complex (either that or I’m stupid, but let’s assume the former, just for the sake of discussion).
So at this point, I would vote for any candidate who promised to do nothing whatsoever for the duration of his/her term. Don’t make any new laws. Don’t repeal any existing laws. Don’t raise taxes. Don’t lower taxes. Don’t regulate or de-regulate. Just leave things the way they are right now, and we’ll muddle through. But geezus — stop breaking stuff!
The idea of the 16th amendment is just ridiculous in my opinion. The whole mess should be done in ONE sales tax, leave my paycheck and land/property alone ! In this way ALL can pay equally for the American dream. The tax payments I make are so spread out, how is one to know how much is paid ? Which I think is the goal, for us not to know how much we actually pay.
Actually Kelly, if Congress were to ‘clean up’ the Code, I think it would help a lot. Yes, it would get just as complicated over time, but you have to remember that it’s been over 20 years since the last major rewrite. I was in high school then, but I hear that it was a big improvement. The problem now is that we have 22 years of patches, special interest giveaways, new credits & deductions, etc. layered in on top of the ’86 Code.
But the ’86 Code is a perfect example of how money screams. It reduced taxes to two rates, but within two years, big money wanted Capital Gain preferential treatments back and got them, despite the warning of one client of mine, a man who made tons of salary. He said “I like 28%; I wish Bush would stop pushing for capital gains because the Democrats will raise the top rate.”
What happened when 86 passed was that top salaries burgeoned, stock options became rarer and life went on as people found ways to plan…..only when capital gains came back did options really return.
I think it was Moynihan who commented that once you put preferential rates into the Code, there would be a hydraulic effect as planners thought of schemes to take advantage of them.
Raising children should be a neutral event. There should be no incentive for persons to have children they cannot afford to raise. I am for some tax relief for children in day care but we all know people that abuse the system and claim they are paying their parents or significant other is being paid when in fact they are not. This is just another loop hole to benefit the tax cheater. We still need to abandon the current tax laws in favor of some system that encourages thrift and good stewardship. Many of my friends both poor and wealthy favor a consumption tax. I don’t know if that is the answer but it can’t be worse than the abusive system our government uses to raise capital. Steve S.