Much of the fireworks surrounding President Barack Obama’s latest tax reform proposals focus on his aggressive (and laudable) proposal to pare back tax breaks for the capital gains income enjoyed by the wealthiest Americans.
But those interested in a fairer and more sustainable tax system should question the president’s plan to use some of the added revenue from these capital gains hikes to pay for a tax credit for two-earner couples.
The idea is straightforward: married couples in which both spouses work would be able to claim a tax credit equal to 5 percent of the first $10,000 of earnings for the lower-earning spouse. White House materials note only that the credit is designed to “help cover the additional costs faced by families in which both spouses work.”
On the surface, this sounds reasonable. But in practice, it’s not a sound plan. There are already tax law provisions designed to help offset child-care costs that two-earner couples (among others) incur. The dependent care credit sensibly allows middle-income families to take a tax break for a certain percentage of their child care expenses, if they actually spend money on child care—and Obama’s plan would increase the value of this credit for many parents. There is no need to pile another tax break—one that gives second-earners tax breaks even if they don’t have children to put in day care—on top of this.
I’m sure the idea of a tax-credit for second earners polls well, and it’s possible that is the entire reason why this proposal was included in the president’s plan. But if the goal is to reduce the cost of living for families in which with both spouses are in the workplace, there’s already a tax credit that does a great job achieving this. Adding a second credit that does a less-good job will needlessly complicate the task of filing income tax returns. And, of course, at a time when the federal government continues to run routine budget deficits, with no prospects for returning to the black anytime soon, the most obvious thing to do with any new revenues from closing capital gains tax loopholes is to pay down the deficit and fund vital public investments.