Expanding the child tax credit is pro-growth

If Congress ultimately gets tax reform right, it will be both pro-growth and pro-family — generating economic growth, new jobs and higher wages for millions of Americans and providing tax relief to working and middle-income families. 

The question is whether we have the economic sense and political savvy to recognize that pro-family and pro-growth tax reforms go hand in hand.

{mosads}By incorporating the amendment of Sens. Dean Heller (R-Nev.) and Tim Scott (R-S.C.) to double the size of the child tax credit from $1,000 to $2,000 per child, the revised Senate Tax Cuts and Jobs Act released by Senate Finance Chairman Orrin Hatch (R-Utah) does exactly that.

When we think about our families, we probably do not see them as economic units. But in America, families are the most common and basic economic unit. Most Americans who are employed — from entry-level employees to business owners — work to support a family. Most American consumers of goods and services are families. By extension, most American business investment and growth to produce goods and services is intended for families. In short, American families are both the engine and the consumers of U.S. economic growth.

This economic fact becomes stark when considering long-term economic growth — because without children, there is no long-term economic growth. Economic growth is the product of human economic decision-making, and today’s children are the employees, entrepreneurs, consumers, job creators, regulators and elected officials that will be making those future economic decisions.

In other words, only in the realm of abstract economic theory — wholly detached from the real world — does it make sense to pursue pro-growth tax policy without offering tax relief to families. 

This conclusion is critical to getting tax reform right. It means that otherwise pro-growth tax policies won’t lead to economic growth over the long-term, if family considerations are ignored or taken for granted. 

It also means that expanding the child tax credit is pro-growth tax policy, when economic growth is properly understood. By providing a modest amount of tax relief to parents — increasing the child tax credit from $1,000 to $2,000 — tax reform will encourage the family-based consumption that drives business growth, investment and short-term economic growth.

It will also build the family finances that help children become the innovative leaders of tomorrow, which is critical for long-term economic growth. This is backed up by decades of research at America’s foremost research universities, which shows that population growth, technological innovation and increased productivity go hand in hand.

Despite some misguided attempts to cast a negative economic light on expanding the child tax credit, it is in fact a critical element to pro-growth tax reform. It allows working parents to keep more of their own income, while being modest enough to protect taxpayers from the kind of wealth redistribution that would seek to turn raising children into a moneymaking enterprise.

It is also good politics, as recent polls show that 60 percent of voters who have heard about tax reform think the child tax credit should be expanded — far and away the most popular provision of this tax reform. 

As Congress continues its tax reform debate, our elected leaders should avoid the economic siren song that would mislead them to oppose expanding the child tax credit based on flawed economic ideas. Economic growth and strong families are partners, not opposites. The more clearly we recognize that reality, the better our chances to get tax reform right. 

Derek Monson is executive director at Sutherland Institute.