Tax Analysts Blog

The Conundrum of Taxing Lots of Kids

Posted on Sep 18, 2013

Utah is the home of big families. It has long had the largest household size in the country. It's easy to understand why. About 60 percent of the state's residents are Mormons, and Mormons have traditionally favored big families. All those children have a significant impact on Utah public finances. First, they have to be educated, which requires money. But Utah also has a generous personal income tax exemption for dependents. The bigger the family, the bigger the exemption. Democratic state Sen. Pat Jones would like to change that. She is going to propose legislation that would eliminate the exemption for dependents. The measure would raise $400 million in additional revenue that Jones would like to devote to the school system. It would also cost the average family about $500 a year -- with the bigger families obviously paying more.

This is a conundrum. Exemptions are generally bad tax policy although recipients of exemptions never see it that way. And the state needs more money for schools. There is a good argument that people who have lots of children (i.e., those using the public schools more than others) should be pitching in at least as much as everyone else. In that respect, Jones's plan is solid; it is certainly better than raising rates on everyone. But increasing taxes on big families is not a trivial matter. Big families are seen as a normative good in Utah. And things that are good usually aren't taxed more heavily. Moreover, Utah is not exactly keen on raising taxes under any circumstances. But Jones's approach is better than raising rates or increasing business or consumption taxes. So while Jones is right, the fight will be long and hard.

Read Comments (2)

amt buffSep 18, 2013

All the arguments about why we need immigrants apply equally to children.
Especially in two-parent families children are likely to become net taxpayers
rather than net tax consumers as adults. They should get at least as much a
subsidy as immigrants.

Our current system seems to subsidize children only if the father disappears.
The consequences of that policy are obvious to all who care to look.

emsig beobachterSep 18, 2013

Perhaps school districts should rely more on user fees and charges to finance
their operations rather than taxes. {I'm sure this will warm the cockles of
your libertarian heart.} For example, school districts could impose a per child
registration fee, charge for textbooks, laboratory fees, and other consumables.
In this manner, families with more children in the school system would pay
somewhat more for public education than would those with fewer, or no children
in the system. some of the increased costs per family could be rebated to
families (demogrants) based on their Utah taxable income. The rebates could be
financed by reducing the child exemption and/or limiting the number of
exemptions a family could claim.

One possible consequence is that in the future Utah family size would decrease
as the implicit and explicit subsidies for having children would decline. Also,
higher income Utah households with a substantial number of school-age children
may opt to send one or more of the children to private schools as the increase
use of user fees and charges reduce the out-of-pocket price differential
between public schools and private schools; and they are still required to
subsidize their lower income neighbors. The upside of having fewer children
attending Utah public schools in the future is capital costs required for
building and new schools and maintaining older schools would probably come
down.

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