Wednesday, October 03, 2007

How much should you subsidize childbirth? 

Gerald Prante says Hillary Clinton's $5000 bond for each newborn is in fact already here:'s called the child tax credit, and it was put in place and increased significantly by conservative Republicans (along with President Clinton's signature and President Bush's signature). Every year until a child is age 17, most families can deduct $1,000 from their final tax bill for every child they have. (It's a credit, meaning it's $1,000 at the very end, not a deduction which merely reduces taxable income.) And that $1,000 per year adds up. When that child turns 18, the family will have saved over $28,000 (assuming a 5 percent interest rate). On the other hand, a $5,000 bond only turns out to be around $12,000 over that same time period.
The child tax credit phases out for married couples with AGI over $110,000 ($75,000 for single heads of households, source.)

When I saw this, I thought about the child credits or grants being given in Mongolia. (I'm pretty sure there's a similar program in Mexico, but I don't know it well.) There, the benefit is used to encourage an increase in marriage and childbearing. Even though the payment is small (less than $100), both family activities are responsive to the money, and the money was conditioned on families being intact, getting your children immunized and in school. Even though it appears more than 70% of the money went to families that were above the targeted poverty group -- even including a second round of screening for poverty based on expenditure patterns or other proxies -- it was working, though you could quibble with some operational details.

What behavioral changes could we expect if we further subsidized childbirth in America? That's a question of elasticities. Would we require the family to have two parents (and would gay and lesbian couples qualify?) Would you really encourage marriage this way?