Free stuff! What could be better?
Our society, like generations before, is reluctant to pay for excellent child-care. That burden falls on parents, who are expected to bear the cost of raising children. Meanwhile, parents have many other financial burdens, not the least of which is student loan debt, which they also recently acquired.
Help may be on the way. “Free stuff” candidates, currently running for the Democratic Presidential nomination, are rolling out plans to cancel student debts. They may not have really thought through the long-term implications of such largess at taxpayer expense. But there is no doubt that cancelling student loans is a popular idea among recent college graduates who are defaulting on student loan obligations at default rates reminiscent of the sub-prime mortgage crisis.
These two ideas collided in my mind this week. My wife spent a very busy week providing child-care for two of our grandchildren so that our son and daughter-in-law could attend a meeting out of state. It is a reminder of how much work it really is to take care of children. Yet it is a labor of love to help shape these young lives into responsible adults.
The collision of these two thoughts, “free stuff” from pandering politicians and the uncompensated but extremely valuable work of raising children into responsible adults, gave birth to the idea of “free income” for parents of children. A few months ago, AOC (aka Rep. Alexandria Ocasio-Cortez, D-NY) proposed a government-provided guaranteed income of $1,000 a month to everyone, whether they want to work or not. It is clearly better, if you want to give away “free stuff”, to give “free money” to people who are doing the most important work society asks people to do: raise the next generation. And by the way, “free money” would also help parents of children pay off student loans; a better way to deal with student loan problems than rewarding the irresponsible behavior of those who choose to default on their obligations.
Let’s imagine how this might work. Suppose the government, through the “Medicare and Childcare Administration”, paid a monthly stipend of $1,000 per month per child under the age of 15, up to a max of two children. Cold hard cash. Not taxable. What might this mean for society?
Well, it might allow working moms (or dads in some cases) the financial freedom to become full-time moms. They could devote their best time and energy to rearing their children. A shortage of workers might result as parents choose to devote more time to taking care of their family. This would cause wages to increase (a little) for everyone else.
For the mothers (and fathers) who choose to continue working full-time, they will have resources to provide for excellent child-care when they are not home. Demand for high quality child-care will increase. The wages earned by workers in the child-care industry will increase. (Child-care providers are some of the lowest paid jobs in America. That would change.) Meaningful new jobs would be created.
In addition to the benefits which accrue to parents and children, there are benefits which accrue to society. Who knows? Maybe a $1,000 per month child-care stipend might help to keep families intact; the extra money would relieve financial strains during the tough years of raising children. Wouldn’t that be great for society? Fatherless homes are highly correlated to many societal problems that impose a high cost on all of us.
The economy may also benefit. The proposed child-care benefit shifts disposable income from middle age years to young adult years where it is most needed. This is what economists think rational people would want to do if they could. But there are not good ways for young families to shift income from their middle-aged selves. The child-care stipend is such a vehicle. Being a fixed benefit, the program increases income equality among families. Across the economy, the program shifts disposable income from gated 50+ communities to neighborhoods with families.
How much would this program cost? There are about 60 million children under the age of 15. Some belong to families with more than two children, so let’s estimate that 50 million children would qualify for the $1000 per month stipend. That means a monthly payout of $50 billion per month, or $600 billion per year. Not exactly chump change. We are talking about real money, almost 3% of GDP.
At this point, pandering politicians usually promise that someone else will pay for the “free stuff”, or hocus-pocus, it will be magically paid for by Modern Monetary Theory. As an economist, I know that is a false claim.
The child-care stipend is a form of social insurance. It provides extra income in the years when it is most needed. The social insurance under this proposal is paid for over one’s whole working lifetime through a payroll tax “premium”. Currently, the 2.9% Medicare tax raises about $300 billion in revenues. That means to raise another $600 billion to pay for the Childcare benefit, the “Medicare and Childcare” tax would have to increase to 8.7%. As with the current Medicare tax, one half (4.35%) would be paid by the employee, and the other half would be paid by the employer. Self-employed entrepreneurs would have to pay the whole thing.
Such a program might find a surprising degree of public support. Young voters will appreciate the financial support through the child-rearing years. Middle-aged and older voters will appreciate the support that will be available to their children and grandchildren. The extra cost is easier to stomach when one sees exactly where it is being spent.
An increase in taxes to raise $600 billion is not a small thing. Would you be willing to pay a higher “Medicare and Childcare” tax to support young parents with child-care benefits as they raise the next generation? Or would you rather just get “free stuff”?
