Why family policy should not punish the parent who stays home

Washington has found a wonderful way to help you raise your children, provided you hand them to somebody else to raise. Hire a stranger with a license and a clipboard, and the government will lend you a hand. Raise them yourself, at your own kitchen table, with your own unpaid hours, and the government will lend you a seat in the audience. It is the only business I know of where the person doing the job for free is the one who gets nothing for it.

Now, nobody wrote that rule on purpose. Nobody stood up in a committee room and said, "Let us penalize mothers and fathers who stay home." It happened the way most bad policy happens: one reasonable-sounding program at a time, each one aimed at a real problem, each one defined by the thing it could measure. Receipts are easy to measure. Love is not. So the code pays for the receipts.

Today I want to make the case that family policy should be neutral between the choices parents make, and I want to make it fairly, including the best argument from the other side. Along the way I will walk through the main provisions of the tax code that touch this question, so that you know what they do and what they leave out. If you disagree with me at the end, fine. But you should disagree with the real law, not the cartoon of it.

Two kitchens

Picture two families. Both are hypothetical, and the numbers are round on purpose.

The Carters live in one house. Both parents work, and the youngest child is in a licensed center. Suppose a state program covers $800 a month of that center's bill. That is $800 times 12 months, or $9,600 a year, and with two children in care it is $19,200.

The Lopezes live in the other house. One parent works. The other parent left a paycheck behind to be home with the same two children. The same state program offers them $0, because there is no center bill to cover.

Same state, same ages, same number of kids, and the Lopezes have just given up a second income. Their household is down a paycheck, and now it is also down $19,200 in help that the family next door receives. One family chose paid care and was rewarded. The other chose unpaid care and was ignored.

You can say the Carters did nothing wrong, and I agree. They are doing what they think is best for their kids and I would never tell them otherwise. The complaint is not with the Carters. The complaint is with a rule that quietly tells the Lopezes their work does not count as work.

What the code actually does

Let me walk through the real provisions, because the details matter.

The Child and Dependent Care Credit. Congress turned an older deduction for child-care expenses into a credit in 1976. Today it lives in Section 21 of the Internal Revenue Code. It covers expenses you pay for the care of a qualifying child, generally under 13, so that you can work or look for work. If you are married, both of you generally have to be working or looking, with limited exceptions such as a spouse who is a full-time student or unable to care for himself or herself. The credit is a percentage of the expenses, up to a cap. For most of its history it has been nonrefundable, which means it can reduce what you owe but cannot create a refund out of nothing. The percentages and caps have been changed by Congress more than once, so check IRS.gov for the numbers that apply to the year you are filing.

Read the purpose clause again: so that you can work. That is the entire design. The credit is a work-expense credit. A parent at home has no qualifying expense, so the credit is zero.

The dependent care account in Section 129. Many employers offer a plan that lets employees set aside pre-tax wages for dependent care. Section 129 is the provision that makes those benefits excludable from income, within a limit. Here is the part that matters for our argument: the excludable amount cannot be more than the earned income of the lower-earning spouse. If one spouse earns nothing, the limit is nothing. Again, the design assumes two paychecks.

The child tax credit. This one is different, and I want to give credit where it is due. The per-child credit does not care how you arrange your family. The Tax Cuts and Jobs Act doubled it to $2,000 per child in December 2017, and it goes to the Carters and the Lopezes alike, provided the family has the earnings the credit requires. If you want the longer story of how it grew from a few hundred dollars, I told it bill by bill in the child tax credit from $400 to $2,000, told bill by bill. And if you want the fight over whether it should pay families with no earnings at all, that is Should the child credit pay families who don't work? The 2021 argument.

So the per-child credit is the neutral tool in the box. The care credit and the care account are the tilted ones. And the biggest direct subsidies, the ones that states and the federal government hand to child-care providers or to families for licensed care, tilt the same way.

The principle: neutrality

Here is the principle in one sentence. When government decides to help families raise children, it should help the family, not the arrangement.

That is a conservative idea before it is anything else. We say government should not pick winners in the economy. We say a bureaucrat should not decide which business gets the subsidy. We say parents, not the state, know their own children best. There is a whole line of Supreme Court cases, from the 1920s forward, holding that the child is not the mere creature of the state. I laid those out in Meyer, Pierce, Yoder and Troxel Prove the Constitution Puts Parents First. If that is true about schooling, it is true about the years before school.

A policy that pays for institutional care and not for parental care is a policy that has decided, quietly, what the good arrangement is. It has decided that the child is better off in a center than at home, or at least that the family should have a financial reason to think so. A government that makes that decision for a million households has no business telling us it is neutral.

The argument in four steps

Let me put it the way a debater would.

One. The state has a legitimate interest in the well-being of children and in the strength of families, and helping with the cost of raising kids is a legitimate use of the tax code. I accept that premise, and so do most people on the other side.

Two. Help that is conditioned on buying a particular service changes behavior at the margin. Make something cheaper and families will buy more of it. That is not a conspiracy theory. It is the oldest observation in economics.

Three. Parents at home produce exactly the thing the subsidy exists to buy: the daily care of a child. The economist Gary Becker made a whole career out of pointing out that households produce things, not just consume them. When a family spends a year at home with a toddler, it is not idle. It is producing care, and care that would cost money in any other setting.

Four. Therefore a policy that rewards purchased care and ignores produced care is not neutral. It taxes the home-produced kind, relatively, by subsidizing the market-purchased kind. And if the goal is to help families, the policy should give them the money and let them choose.

I think each of those steps is solid. The first is a value claim, and the other three are claims about how incentives and households work.

The options on the table

Reasonable people have proposed several ways to restore the balance. Here are the main ones, with the honest tradeoff of each.

1. Raise the per-child credit. It is simple, it is neutral by construction, and it helps every family with a child regardless of how they arrange their days. The tradeoff: it costs revenue, and it is a blunt instrument that does not scale to the actual price of care in an expensive city.

1. Give the stay-at-home parent a comparable benefit. Some proposals would create a credit or allowance for a parent who cares for a young child at home, so that the code does not hand help only to the family with a receipt. The tradeoff: it is harder to administer, and critics worry about paying people for what they were doing anyway.

1. Let the dollars follow the child. Instead of a subsidy paid to a provider, create a flexible benefit the family can spend on a center, a relative, a church preschool, a neighbor, or can keep to offset the loss of a second paycheck. This is the school-choice logic applied earlier in a child's life. If you want to see how the arithmetic of choice works in education, Four Families, One Education Savings Account, and the Math of Choice runs through it.

1. Fix the pieces of the code that assume two paychecks. The code already does this in places. A working spouse can fund an IRA for a spouse with little or no earnings, and Social Security pays a spousal benefit based on the working spouse's record. Those provisions show that Congress can treat a household as a unit when it wants to. The care provisions are the ones that forgot.

1. Make sure family care is not penalized in the care credit itself. Payments to some relatives, such as a grandparent, can qualify under the existing credit, though not payments to your spouse, to the child's parent, to someone you claim as a dependent, or to your own child under 19. Read the IRS instructions for the current rules. The point is that the existing credit is more flexible than many families realize, and that the rules about relatives are worth knowing.

None of these is free. I would rather say that out loud than pretend otherwise. Every dollar of neutrality has to come from somewhere, whether from a cut elsewhere, a reorganized subsidy, or a bigger deficit. A conservative should insist on the first two.

The strongest objection

Now the other side's best argument, which I want to state in terms it would accept.

The objection goes like this. The care credit is not a reward for buying a service. It is a recognition that care is a cost of earning income. A business deducts the expenses it incurs to make money, and a family that must pay for care in order to work is incurring such an expense. A parent at home incurs no such expense, so there is nothing to relieve. Treating the two the same would actually be unequal.

Further, the objection continues, society has a strong interest in labor-force participation. Work builds skills, earns Social Security credits, pays taxes, and provides independence, especially for single parents. The 1996 welfare overhaul rested on the premise that parents who leave public assistance for work need help with child care to make it stick, and it consolidated child-care funding into a single block of money for the states. Take that help away and you push the poorest families back toward the program they just left. And many families need two incomes simply to cover the mortgage, so a policy that nudged one parent home could leave them worse off.

That is a serious argument, and part of it is simply right. For a single mother moving from welfare to a job, child-care help is part of the bargain, and conservatives who wrote the 1996 law knew it. I am not proposing to take it away.

The answer

Here is why the objection does not settle the matter.

First, notice that it proves less than it claims. If the care credit were purely a work-expense offset, it would not need to be a credit at all. It would be a deduction, and commuting costs, which are as much a cost of earning a living as a babysitter, would be deductible too. They are not. The code already treats the credit as a policy choice about family support, not as an accounting identity.

Second, "labor-force participation" means paid labor, and paid labor is not the only labor that matters. Raising a child is work, and the output is the next generation of workers, taxpayers and neighbors. A policy that measures only the paid hours will undercount the other kind every time.

Third, the objection assumes that neutrality means taking help away from the Carters. It does not. I am not asking anyone to lose a dollar they get now. I am asking that when the next dollar is handed out, the Lopezes are in the room. You can keep the work-expense credit exactly as it is and still add a per-child benefit that does not care where the child spends the day.

Fourth, the mortgage point cuts my way. If many families need two incomes to get by, then a family that chooses to live on one is making a bigger sacrifice, not a smaller one, and it is exactly the family that a decent policy would not leave out in the cold.

And one thing more. The objection treats the choice as a pure matter of preference for the family at home. Many parents who stay home do not feel they are making a lifestyle choice at all. They are making a trade, and many of them make it on a thin margin. Respecting that trade is part of respecting working families.

What neutrality is not

I want to be careful, because this argument is easily misused.

Neutrality does not say that parents should stay home. It does not say that mothers, in particular, should stay home. Plenty of fathers do it, and plenty of couples reverse roles at different stages of their kids' lives. It does not say child care is bad, or that the Carters are making a mistake, or that day-care workers are anything but dedicated people doing a hard job.

And it does not say that a government benefit is the only way to honor family work. A lot of what keeps stay-at-home parents going is not a check at all. It is a church that notices, a neighbor with a casserole, a grandparent who takes the kids on Thursdays. Tocqueville understood that. I wrote about the civic ties that hold families up in What Tocqueville saw in American clubs and why conservatives still quote him. A tax rule cannot replace that, but it should at least not work against it.

What neutrality does say is simple: when the law helps, it should not quietly decide for you.

The bottom line

• If a program helps with the cost of children, ask whether it helps the family or only the arrangement. A benefit that requires a receipt from a provider is not neutral.
• Use the tools you have. Check IRS.gov for the Child and Dependent Care Credit and for your employer's dependent care account. They are worth knowing even if your family qualifies for neither, because the rules tell you what the law assumes about you.
• When your state legislature or Congress debates child care, ask the one question that matters: where is the family that is doing it themselves? Put it in a letter and send it.
• Back the per-child approach and flexible benefits over provider-only subsidies. They are the conservative answer because they trust parents.
• Do not let anyone tell you that the parent at home is not working. The paycheck is missing. The work is not.