On Thursday, House Republicans announced they would restore the adoption tax credit that their proposed tax reform bill had initially eliminated. It was a popular move, especially among social conservatives, but the whole discussion should remind us that there are a lot of things in the tax code that have nothing to do with taxes. A proper tax reform bill would address these things. Unfortunately, this one doesn’t.
The Government Should Support Adoption
There are some good things about the Republican tax bill, but true tax reform it isn’t. While there are some positive changes, the tax bill merely tinkers at the edges of the system that has been in place for decades. In doing so, it misses the chance for real tax reform, the best chance Republicans may get for a while.
It also lets Republicans shoot themselves in the foot by eliminating popular provisions in the tax code. One focus of public ire was section 1102 of the bill, which repealed the adoption tax credit, which grants a tax credit of up to $13,570 per child adopted in that tax year. Similarly, section 1406 repealed the exclusion from income for funds received from an employer that are designated for use in adoption assistance (also up to $13,570).
It provoked the usual finger-pointing from the Left and their typical derision at conservatives who want to ban abortion but not care for children after they are born. Here, the catcalls are not completely without reason. As John McCormack noted in The Weekly Standard last week, “the pushback is understandable because the tax credit costs the federal government so little, but the costs of adoption can be enormous for American families.” Eventually, the pressure got to them, and they deleted that part of the draft.
Why Is This In the Tax Code?
The focus on the loss of a useful benefit obscures what would be the larger question in a more sweeping tax reform: what does any of this have to do with income taxation? It’s a question that you could ask of much of what the Internal Revenue Code covers. Other questions that conservatives should consider, even if none in Congress are willing to do so, are: Should the government be encouraging this at all? And if they should, is this the best way to do it?
To take the second (and easiest) of the three questions first: based on the response from across the political spectrum, it appears that most Americans believe government should encourage adoption. Children need families, and families are willing to open their homes to them. Adopting a child is one of the most selfless, generous, and decent things a couple can do. The process can be expensive, and it seems right that we should help people who are willing to shoulder part of the burden that would otherwise fall on the government.
But is this the best way to reward that behavior? It is not. For one thing, we are encouraging something that would, in almost every case, happen anyway. No one contemplates adopting a child for the tax credit. Kids are way more expensive to raise than $13,570 would cover, and more consuming in non-monetary ways. The motivation in adoption is emotional and spiritual, not financial. It is doubtful that this credit results in more adoptions than would otherwise occur.
Should Government Financially Reward Generous People?
Given how expensive it is to adopt a child, though, many would say that government ought to reward those decent people who go through the arduous process. Again, that’s a point most could agree on, but a tax credit is one of the worst ways to do it.
For one thing, it is government that makes adoption expensive. Even the necessary part of the bureaucratic process—the home visits and other regulation designed to ensure a child is placed in a safe situation—is expensive. Instead of trying to reduce regulation or subsidize costs, they keep the costs high, make people pay, then give them back some of their own tax dollars in an inefficient and over-complicated manner.
Also, as Speaker Paul Ryan explained, non-refundable tax credits like this one primarily benefit the rich and upper-middle classes of taxpayers. That is indisputably true: because the credit is not refundable, you can only get it to the extent that it cancels out taxes you actually paid. A person making $60,000 pays $10,778 in taxes under the present system; if that were the income of a married couple filing jointly, their taxes would be just $8,076. A large part of the adoption credit would never find its way to them, even though the costs they bear are the same as a couple making much more money. It’s a clunky system that does not put the money where it would do the most good.
This brings us back to the original question: what does this have to do with taxes? The answer is: nothing. But its location there is no coincidence. Hiding social engineering and social welfare benefits in the tax code makes them less of an issue for a politicians trying to present themselves as small-government conservatives. If a senator says that his new bill would provide a $13,000 grant to adoptive parents from the Department of Health and Human Services, he gets called a tax-and-spend liberal. If he does the same thing less efficiently through the tax code, he’s fiscally responsible and compassionate.
As far as the government’s bottom line is concerned, it’s the same thing. There is a certainly a moral difference between welfare paid for by other people’s taxes and keeping more of your own money, but financially—and eliminating the credit was motivated by financial concerns—it is the same. A targeted tax cut is not a handout, but it’s not a sign of a healthy taxation system, either.
The better and more honest thing to do would be to pay grants through the appropriate federal bureaucracy, reduce the costs government imposes on the process, and leave the tax code to its intended purpose: raising revenue. Instead, Republicans have tried to do just half of that and would have left a vulnerable and deserving segment of the population much worse off. They should remember their conservative roots and rethink their principles about the aims of government and the ways they choose to achieve those aims.