Europe Needs to Consider Tax Bonus for Parents
It is beginning to dawn on the Europeans that they are a dying breed, literally. Demographically, white Europeans are the fastest shrinking population in the world. The reason, of course, is that they do not have enough children to replace the dying generations.
Countries have tried different methods to remedy this. A frequent policy in the West is to grant bonuses to women who give birth. Estonia, for instance, has introduced a one year parent salary to the same amount as the mother received in the year before she had the baby. Such methods, however, tend to be state-centred and depend on government intervention in matters of a thoroughly personal nature.
Some are calling for the reintroduction of a childless tax. Under Soviet rule Estonia, like other provinces of the Soviet empire, had a tax on childlessness. Like everything else in the Soviet Union this tax was not very efficient. Hungary, too, had a childlessness tax.
There is, however, a better solution for countries that wish to encourage people to have more children, namely to establish a tax bonus for raising children. For every child living in their household parents could be given a 5% tax break. In a flat tax system where adults are taxed at 30% of their income, a family with two children would then pay 20% income tax, a family with four children would pay 10%, and parents of six children would pay no income tax at all.
Such a system is simple and easy to administrate. There is little room for abuse of the system and it will act as an incentive to have children. It is also in line with the philosophy of small government. Taxes should not punish people or redistribute wealth.
A number of difficult issues will be avoided if the 5% tax break is granted for every child in the household. One would not have to decide, as with the childlessness tax, how young or old someone should be in order to get the bonus. Why should the state decide such a thing anyway? There would be no need either to decide how long the tax measure should be in place. Till the end of fertility (which is at different ages for men and women) or till their retirement? Or till death? With a tax bonus, it is simple. If an 18-year old has a child, the parent will get the tax break. If someone in their 40s starts a family, they will get the break then. And as soon as the children leave home the extra economic burden for the parents is eliminated, so the tax credit will disappear and people will go back to paying taxes at the normal rate.
If a person has raised six children and, consequently, has paid no income taxes, he will start paying once the children leave home or finish their studies and earn their own income. Of course, this does not happen with all children at the same time. Moving into the full paying category will happen gradually, just as moving into the tax break category happened gradually.
This system would also be simple for families. Parents who raise their children on their own get the bonus. A parent not living with the children would pay the regular tax in full. Apart from constituting a significant economic help for single parents it would also motivate adults to raise their children together and not abandon their partner and children.
Such a system will also eliminate accusations that people with fertility problems are unjustly punished, as was the case with the childlessness tax. They are not punished, but simply pay the normal income tax level. Moreover, people who adopt children will also get the tax reduction.
As the purpose of the tax break would be to encourage higher birthrates among Europeans, it is clear that the tax break will apply only to citizens and not to immigrants (though the adopted children of citizens may of course be of foreign origin).
It is clear that the economic burden for large families is far greater than for couples. It is also clear with respect to society that children raised today will have to pay both for their own parents’ pensions and for the pensions of people who choose not to have children. Childless people live at the expense of current parents and their children. A tax break for children will balance this injustice. Some claim that this argument does not hold for childless people who have provided for their own private retirement accounts. These accounts, however, exist in societies whose economic wealth depends on the next generation. If the entire community dies off then the account will do you little good. Moreover, parents with children have less means to save for their own future private retirement funds. Hence, one could also consider to have pension sums dependent on the number of children people have raised.
Immigration cannot provide the solution for the European birth dearth, especially when the immigrants have a fundamentally different cultural background. The current situation in Western Europe shows that if immigrants come in too large numbers they have a highly destabilizing effect on society. There are also indications that in Western welfare state systems immigrants consume more public services – such as social benefits, hospitals, police, jails, schools, etc. – than they contribute. This puts a great strain on the public purse. Moreover, immigrants, too, will retire eventually. Hence in the long run there is no benefit from immigration in demographical terms either. If the birth dearth continues additional immigrants will have to be attracted and the original inhabitants of Europe will become an ever smaller minority.
When one considers national tax receipts one notices that, certainly in a flat tax economy, the contribution of poorer people constitute but a fraction of the sum taken from the richer ones. A tax bonus is beneficial to the poorer end of the population. Statistics show that the more children a family has the higher its risk of poverty. Or, to put it differently: richer people have fewer children. In that regard it is irrelevant which is the cause and which the effect – whether children cause poverty or whether affluence causes a lack of children. What is important is that poorer, larger families would receive support without hurting tax revenue too much.
Consequently, if a progressive child tax break system were introduced, the sheep would be taken care of while the wolves are fed. The poorer, larger families would be helped while the rich would not be punished, the government would not go bankrupt and – most important of all – European peoples, such as the Estonians, will not be extinct by the end of the century.
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