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A modest pro-family tax policy: Index marginal rate thresholds to family size


My friend, AEI colleague, and fellow Catholic dad Ramesh Ponnuru writes that the GOP should expand the child tax credit as a pro-middle-class, pro-family policy. Maybe. I’m not big on tax credits, but I agree we should have some more pro-family tax policy. So here’s my idea:

The tax brackets should get wider as your family grows.

Let me begin my explanation by pointing out two facts about our tax code currently:

1) I get six times the personal exemption of a single person, because I have a wife and four kids. A single person’s first $4,000 is tax free ($3,900 technically, but I’m going to round it off for simplicity’s sake). My first $24,000 is tax free. I think this is good.

2) A married couple gets to make twice as much money before being bumped from the 10% bracket into the 15% bracket — and then again for being bumped into the 25% bracket. So, a single woman starts paying 25% on every marginal dollar after $36,250 in taxable income. A woman supporting her husband doesn’t start paying 25% until $72,500 in taxable income. I think this is good, too.

So, as your household grows from one person to two, your tax brackets get twice as wide. But as your household grows beyond two (as you start having kids) the only “bracket” that gets wider is your “0% bracket” — that is, your personal exemption.

The chart below shows what I’m talking about. As your household grows past 2, the only color band to grow wider is the 0% bracket. The other thresholds get higher as family size grows, but only because the widening 0% bracket pushes them up.

Married with no kids, you get taxed at 25% on all income above $72,500 in taxable income (which is total income minus exemptions and deductions). Married with six kids, and you still get taxed at 25% above $72,500 in taxable income.

So, here’s my proposal: All brackets, not just the 0% bracket, should get wider as household size grows. If a single gets $9,000 at the 10% rate, and a couple gets $18,000 at the 10% rate, a couple with a kid should get an additional $4,500 at that 10% rate (I’m counting kids as half an adult) for a total of $22,500 at the 10% rate.

Here’s why. I see the rates in a progressive tax code this way: When you’re dirt poor, we don’t tax you at all. When you actually have a bit of money, but are still in poverty, we tax you at 10%. When you are out of poverty, but still not really enjoying luxuries, we take 15% of your money. Once you have a bit of a cushion, we take 25% of your money. As you get wealthy, we take a higher portion.

Well, the distance in income between those categories — poverty, basic needs met, a bit of a cushion — grows as you have more dependents. So the distance between the income-tax-rate thresholds should grow, too. Here’s what I’m suggesting it should look like:

You see, not only do the bracket thresholds get higher as your household expands, but the bracket bands get wider, too.

Pro-family tax policy without new credits!