Baby bonuses, tax credits or cheaper houses, comparing pro-family policies

Ask ten conservatives how to help young families and you will get eleven answers and a lecture on the Tenth Amendment. That is not a weakness. It is what you would expect from a movement that believes the problem is complicated and that no single lever fixes it. But it does leave the voter with a menu and no prices, and a menu without prices is how Washington likes to take your order.

So here are the prices. This post compares six tools that conservatives offer to help families form and raise children: the child tax credit, a larger dependent exemption, one-time birth payments, zoning reform for family housing, flexible work rules and school choice. I rate each for cost, for its effect on work and for federalism, and then I describe the real argument among conservatives about cash. No tool is perfect. Each is aimed at a different obstacle, and the honest question is which obstacle is yours.

Three yardsticks

I use three tests for every option.

Cost means what the policy takes from the Treasury or from taxpayers, and who ends up paying. A policy that costs the Treasury nothing is not necessarily free; a regulation can impose costs on builders or employers instead.

Work incentive asks whether the policy rewards earning, ignores it or discourages it. A benefit that rises with earnings encourages work. A benefit paid regardless of work is neutral, and a benefit that shrinks as income rises discourages it. This matters to conservatives for two reasons: work is how families rise, and a benefit that penalises work creates the dynamic described in the marriage penalty buried in welfare programs, with the math shown.

Federalism asks who should decide. A policy that belongs to the states, to localities or to families themselves fits the constitutional design better than one that requires a single national rule, a principle explored in Federalism Lets Fifty States Experiment, and the Constitution Planned It. The ratings below are my judgement, and I say so because a table of ratings looks more scientific than it is.

The table

Now each in turn.

One: the child tax credit

The child tax credit is a dollar-for-dollar reduction of income tax for each qualifying child. The 2017 tax law doubled it from $1,000 to $2,000 per child and raised the income level at which it phases out. Whether the credit is refundable, which means a family can receive it even if it owes no income tax, is the hinge of the conservative argument. A fully refundable credit helps families with low earnings and no tax liability, but it pays them without regard to work. A credit that is refundable only against payroll taxes or earnings keeps a link to work.

Its virtues are simple: it is easy to understand, it is delivered through a system families already use, and it recognises that children cost money. Its problems are the usual ones: it costs revenue, and a flat credit treats a large family and a small one alike per child, which is its intent but also its limit. The size of the credit now may have changed, and the IRS and Congress.gov publish the current amount.

Two: a larger dependent exemption

Before 2018 the tax code allowed a personal exemption for each dependent: in 2017 it was $4,050 per person. The 2017 law suspended it, replacing it with the larger standard deduction and the larger credit. Some conservatives want an exemption back, and a much larger one.

The arithmetic matters because an exemption and a credit are not the same thing. An exemption reduces taxable income, so its value depends on the family's tax bracket. Take a $4,050 exemption. For a family in the 12 percent bracket, the saving is $4,050 times 0.12, or $486. For a family in the 25 percent bracket, it is $4,050 times 0.25, or $1,012.50. A credit of $2,000 is worth $2,000 to anyone who can use it. So an exemption helps a higher-bracket family more, and a credit is flatter.

That is the exemption's weakness and also its appeal for those who think the tax system should recognise that a family with four children has less ability to pay than a single person with the same income. It treats the child as a cost of earning, not as a subsidy. That is a principled argument, and it explains why the idea persists.

Three: one-time birth payments

A baby bonus is a lump payment at birth. The idea is to offset the immediate costs of a child and to signal that the country values births. Its advantages are visibility and low administrative cost. Its disadvantages are that the evidence from countries that have tried it suggests small effects on the number of births, though some effect on timing, and that a payment of a few thousand dollars is small next to the cost of raising a child to eighteen. Parents may also welcome it and still not change their plans.

On work incentives it is neutral: it is paid regardless of earnings. On federalism it can sit at either level. Several states have the legal authority to do it and the budget to try, and a state that experiments gives the others data.

Four: zoning reform for family housing

This is the cheapest policy for the Treasury and perhaps the most powerful. A young couple's decision to have a child is closely tied to whether they can afford a home with a bedroom to spare. Rules that require large minimum lot sizes, ban small houses and apartments, or add years of review to a permit raise the price of family housing and shrink the supply. They work as a tax on families, collected by the landlord and the seller instead of the government.

The best example is Houston, which has no conventional zoning code and where, as argued in houston has almost no zoning, and its houses cost less to prove it, housing is said to cost less than in comparable metropolitan areas that restrict building, though the evidence is debated, especially for the lowest-income renters. Reform that lets builders respond to demand costs the Treasury almost nothing, rewards work and lies squarely in the powers of cities and states. In the federalism column it earns the highest rating, because it is local government's job.

Its political difficulty is that people who already own homes benefit from scarcity and vote. Conservatives who believe in property rights should have the clearest voice here, since a rule that prevents a landowner from building a modest house on his own lot is an interference with property.

Five: flexible work rules

A family with young children needs flexibility, and many workers want it. Conservative proposals here include letting employees choose compensatory time off instead of overtime pay, easing rules that block home-based work and ensuring that occupational licensing does not bar a parent from working from home. These cost the Treasury little and reward work. The risk is that rules meant to expand choice can be written in ways that favour employers over employees, and the details matter. Whether such rules belong at the federal or state level depends on the rule; many are matters of state labour law.

Six: school choice

A family's choice to have another child is affected by what they expect to pay for a child's education and whether they trust the school they can reach. School choice, which lets public funds follow a child to the school the parents select, is a family policy as well as an education policy. The case for it is made elsewhere on this blog, and the state-level story appears in Arizona Made Every Child Eligible for an ESA, How the Idea Spread So Fast. Cost to the state is roughly neutral per child, since the money moves with the pupil, the work incentive is neutral, and the federalism rating is high, because education is a state responsibility.

The conservative split over cash

Here is where conservatives genuinely disagree, and each side has a point.

The case for cash payments. The argument is that parents know what their children need and that the state should support them with money rather than with programs. A cash payment respects the family's judgement, costs little to administer and reaches families whatever their circumstances. Senator Mitt Romney proposed, in 2021, a Family Security Act that would have paid a monthly benefit per child, partly financed by consolidating other programs. Supporters see it as pro-family and pro-child, and as a way to recognise that raising children is work that benefits everyone.

The case against. The counter-argument is that cash with no work requirement weakens the link between earning and receiving, the thing that welfare reform of 1996 sought to restore. A payment that arrives regardless of whether either parent works can become a substitute for a paycheque, and the monthly payments of the expanded credit in 2021, which had no work requirement, show the model. Critics also fear that a new permanent entitlement will be hard to restrain, will add to the deficit, and will put one more program into the hands of the federal government. Their alternative is to channel support through the tax code, tied to earnings, or through housing and school choice.

I do not think either side is silly. The first is right that parents, not bureaucrats, should decide how to spend. The second is right that a family policy ought to reward work and that the Treasury cannot afford every good idea. A reasonable compromise is a credit that pays more as earnings rise to a point, so that the benefit is tied to work, and which is paid in the tax system and not through a new agency. That is close to what the earned-income approach has always tried to do.

Which tool for which problem

A comparison is useful only if it ends in a choice. Here is how I would match the tools to the obstacle.

• The obstacle is the cost of children. Use the child tax credit or a larger exemption. Pick the credit if you want help to families at all income levels evenly; pick the exemption if you hold that the tax system should recognise ability to pay.
• The obstacle is the cost of a home. Use zoning reform. Nothing else comes close for the money.
• The obstacle is the moment of birth. A one-time payment is the least bad tool, but its effect on the decision to have children is modest.
• The obstacle is time and flexibility. Use work-rule reform.
• The obstacle is distrust of the schools. Use school choice.

And be wary of the temptation to do only one. A family that cannot afford a house will not be rescued by a $2,000 credit. A family that can afford a house but has no flexibility at work will not be rescued by zoning. The tools are complements.

The Founding test

The Constitution gives Congress the power to lay and collect taxes, but it does not give Washington a general authority over the family. The debate in Madison and Hamilton Fought Over Two Words, General Welfare, and We Still Pay over the reach of the General Welfare Clause is relevant here: Madison read it narrowly, Hamilton broadly, and a family policy run mostly through the tax code and the states fits the narrower reading better. The policies that fit most naturally are the ones that leave families, cities and states in charge, and the ones that lean most heavily on Washington should carry the heaviest burden of proof.

That is also why a falling birth rate is a conservative problem, not a culture-war slogan frames the policy question as it does. The goal is not a quota but a society in which starting a family is no harder than it needs to be. And the family came before the state, so why does the state act like a parent? reminds us that the family is prior to the state, which is why policy should help the family and not replace it.

The case in brief

1. Conservatives have six main tools for helping families form: the child tax credit, a larger dependent exemption, one-time birth payments, zoning reform, flexible work rules and school choice, and each answers a different obstacle.
2. An exemption and a credit differ: a $4,050 exemption saves $486 at a 12 percent bracket and $1,012.50 at a 25 percent bracket, while a $2,000 credit is worth the same to every family that can use it.
3. Zoning reform costs the Treasury almost nothing and fits federalism best, while cash payments divide conservatives over whether benefits should be tied to work.
4. The sound compromise ties support to earnings, runs it through the tax code and leaves housing, schools and work rules to states and cities.
5. The tools are complements, so a family policy that uses only one will leave most obstacles in place.

What you can do: check your city's zoning code for minimum lot sizes and whether a small house or duplex is allowed on a residential lot, and bring the question to a planning board meeting.