Testimony on the Future of Family Programs
House Committee on Ways and Means
Douglas J. Besharov, January 17, 1995
Chairman Archer, members of the committee, it is my great pleasure to come
before you today to discuss the important topic of tax relief for families with
My name is Douglas Besharov. I am a resident scholar at the
American Enterprise Institute for Public Policy Research where I conduct
research on issues concerning children and families. I am also a visiting
professor at the University of Maryland School of Public Affairs where I teach
courses on family policy, welfare reform, and the implementation of social
There are other people here who have much more technical expertise
on this matter. Therefore, in the time I have, rather than discuss the technical
details of your proposal, I will address the conceptual issues surrounding it.
Over the last 30 years, a greater portion of the federal payroll
and income taxes has been shifted to (1) low- and moderate-income workers and
(2) families with children. As you know, one of the main reasons for this shift
has been the decline in the relative value of the personal exemption. Gene
Steuerle, who is also on this panel, has provided some of the best analysis of
this issue. Rather than steal his thunder--and his data--I will let him detail
this 30-year decline.
As I described in the attached article from the Wall Street
Journal, 1 this greater tax burden on lower-income workers and families puts
added financial stress on them--and creates more pressure in two-parent
households for both parents to work.
Some experts justify this shift in tax burden on the basis that
low- and moderate-income families now receive additional benefits from the
federal government. But why do we need to take money from families in order to
give it back to them? Although many reasons are offered for why we do so, when
you get right down to it, the answer is simple: social engineering.
Taking money from families (or all taxpayers, for that matter) and
giving it back to them in the form of categorical assistance is a way of
controlling their spending decisions. So, for example, when tax funds are used
to provide student loans to middle-class families, we are taking money from one
pocket and putting it into another-- because we do not think that parents can
(or will) save the money themselves.
This kind of forced saving, or inter-temporal redistribution of
wealth, sometimes makes good policy sense. But we do it far more than we should.
In fact, the process can easily get out of hand, and can hook
Americans on a never-ending upward spiral of tax increases to pay for programs
designed to relieve the very burdens created by those taxes.
Lest you think I exaggerate, let me remind you of what almost
happened two years ago with the original Clinton proposal to expand the Earned
Income Tax Credit (EITC). If you remember, the administration proposed providing
a welfare-like "benefit" to families earning almost $30,000--even as we tax the
same families to help pay for the benefit. The administration quickly withdrew
this proposal, although I must add that the current EITC has many problems that
should be addressed.
So, I am a strong supporter of the kind of tax relief that you
have proposed because--besides aiding families--it comes with no strings. It
empowers families to decide how best to use their own money. 1 Douglas J.
Besharov and John C. Weicher, "Return the Family to 1954, Wall Street
Journal, July 8, 1985, Op Ed page.
That, by the way, is why I would be concerned about the
president's proposed tax deduction for college and other post- secondary
tuition. As the parent of a child about to enter college and another about to
enter graduate school, I suppose that I have a real interest in seeing his
proposal become law-and soon.
But his proposal has many technical drawbacks which others have
cited. For example, it is regressive and will likely result in higher tuition
charges. More importantly for me, it is a form of social engineering that tries
to control how families allocate their own resources.
Some experts object to your proposal because, even assuming
deficit neutrality (which I take to be an economic and political necessity),
they think any tax cut should go to reducing marginal tax rates. I, too, believe
that lower marginal tax rates could be an engine for great economic good.
Nevertheless, I think that you can pursue both goals--given the beating that
low- and moderate income families have taken in the last three decades.
Before closing, I would like to make three subsidiary points.
First given the current tax structure, I think that budgetary prudence and
political sensibility argue for a cap or phaseout of the credit. I leave to you
the decision of where to draw the line, but I would note that many families
earning $100,000 are comprised of two hard working parents each making the less
grand sum of $50,000. They do not feel rich at all. Instead, they feel stretched
in time and finances.
Actually, again given the current tax structure, you might
consider phasing out the credit at the same rate as the personal exemption. This
is not a perfect solution but it at least avoids creating yet another phase out
rate--and utilizes a politically acceptable precedent.
By the way, the tax distribution tables have always been the enemy
of thoughtful decisions about where such credits and other tax provisions should
be phased out. I recommend that you present the distributional effects of the
credit on a per capita basis or by family size.
Second, if you have the money, I hope that you will not limit the
credit to younger children. Children do not suddenly become less expensive after
age thirteen, although there is a difference in costs between children who
require day care and those who are old enough to be left alone. Your objective
should be to return decision-making to families.
Third I do not think that you should not make the credit
refundable to families with no income tax liability. Such families are in great
need, but, as I mentioned, there are enough worries about the operation of the
EITC to pause before creating even greater reason to file false claims while
also further distorting work incentives.
I hope that you will start thinking about the long-term problem of
marginal tax rates for workers and families near the poverty line, which Gene
Steuerle has studied extensively. But this is a complex problem involving the
interaction of a number of tax and welfare programs.
Finally, even though I am an amateur in these things, I would like
to make one more political point: There will likely be great opposition to the
cuts that you plan to make in the funding of various programs--many of which
provide benefits to lower- and moderate-income families. I hope that, as you
propose these cuts, you show their connection to the tax credit that you have
also proposed. For, as I have tried to describe, they really are two sides of
the same reform agenda. If you succeed, more of the money that now goes from one
pocket to the other will stay where it belongs--with America's families, who
will use their own good judgement about how to spend it.
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