Family-friendly tax reform is needed in Mass.

State code doesn’t recognize the cost of raising children

FAMILY ADVOCATES have been hard at work on Beacon Hill, pushing for reforms to the state’s Temporary Aid to Families with Dependent Children (TAFDC) program. Their laudable efforts have led to a series of reforms meant to help the neediest families in Massachusetts — efforts that should be extended to family-friendly tax reform, too.

After the Senate passed a proposal to lift the so-called “family cap” in TAFDC, which denied benefits to children born to TAFDC beneficiaries, Sen. Don Humason explained his lone no vote by saying: “I hear from constituents who limited the number of children in their family because they can’t afford additional children… I think it’s unfair to ask the constituents back home to pay for a benefit for others that they don’t get themselves.”

Humason has a good point. Our state tax code is stacked against families, doing little to recognize the costs of raising children and unfairly favoring some families over others.

All children are eligible for a $1,000 dependent exemption, which in most families amounts to about $50 per child. The tax code offers an additional deduction for children but excludes many families in the process. This deduction has four fundamental shortcomings.

First, only families with dependents under 12 are eligible for an additional deduction. But, according to federal research, families spend hundreds more when their tweens become teens. By denying the deduction to families once their child turns 13, the state is increasing burdens on families precisely when raising children starts to become more expensive.

Second, the additional deduction penalizes families who choose not to use commercial childcare. Families where one parent stays home with a child or where extended family members care for a child receive a $3,600 deduction, worth about $182. If that same family substitutes their traditional arrangements for commercial childcare, they would receive a $4,600 deduction – worth an additional $50. Favoring one kind of arrangement over another is arbitrary and inequitable.

Third, the deduction is limited to the first two children. By capping the number of children eligible for tax benefits, the tax code effectively punishes larger families who face the greatest financial pressures. The Legislature has made removing TAFDC’s family cap a priority, but lawmakers have completely ignored the tax code’s family cap on middle class taxpayers.

Lastly, the value of these family tax benefits has been left untouched and unindexed for inflation for almost two decades. Their inflation-adjusted value has declined by more than 30 percent since 2001, eroding what little benefit the average family receives in tax relief.

The system is broken and needs fundamental reform. The Tax Cut and Jobs Act of 2017 provides the perfect template for family-friendly tax reform in Massachusetts. Led by US Sens. Marco Rubio and Mike Lee, Congress consolidated several child-related tax benefits into one expanded child tax credit worth $2,000 per child.

Gov. Charlie Baker and the Legislature should follow suit by eliminating the state’s dependent exemption, deduction for dependents under 12, and deduction for business-related child care expenses and replacing them with a new state child tax credit equal to 20 percent of the federal child tax credit. This amounts to a maximum of $400 per child, reversing two decades of benefit erosion.

This change would have several advantages over the existing system. First, it would reduce complexity, making it easier for families to navigate our state tax labyrinth. Much like the popular reform tying the state Earned Income Tax Credit to 23 percent of the federal credit, tying a new state child tax credit to 20 percent of the federal credit would greatly simplify the tax filing process for families.

Meet the Author

Joshua McCabe

Assistant dean of social sciences/Senior fellow, Endicott College/Niskanen Center
Second, the move would eliminate existing disparities between small and large families, those with younger and older children, and those who use in-home and commercial childcare. Most importantly, it would do so by boosting tax benefits for all working- and middle-class families.

We celebrate Mother’s Day and Father’s Day every year to recognize the hard work parents undertake raising children. By applying the same principles of family-friend welfare reform to the state tax code, we can extend that recognition to April 15.

Joshua McCabe is assistant dean of social sciences at Endicott College and a senior fellow with the Niskanen Center.