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Should the Tax Code Subsidize Families?

Raising children is an expensive undertaking, with some estimates putting the total cost of raising a child at $300,000 or more. But a controversial proposal that would give parents tax breaks at the expense of those who choose not to have children has sparked intense debate about the role of the tax laws in providing financial support to families with children.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, takes a critical look at the proposal. Dan notes that the argument in favor of the proposal is that raising kids involves extra expenses that non-parents don't have to pay, and so making non-parents who earn above the median household income pay more in taxes essentially makes economic prospects more even. Yet Dan points out that past attempts to provide tax subsidies to encourage certain activities hasn't always worked out well, noting the role of tax incentives in the savings and loan crisis of the late 1970s and 1980s. Even today, tax-favored vehicles have come under fire, with Kinder Morgan Energy Partners (NYSE: KMP  ) and similar master limited partnerships, Annaly Capital  (NYSE: NLY  ) and other real-estate investment trusts, and Prospect Capital (NASDAQ: PSEC  ) and its business development company peers being seen by some as tax-motivated enterprises that have resulted in overinvestment in their respective areas. Dan concludes that with tax incentives for families already in place, further moves would make the decision to have a family too economically motivated.

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  • Report this Comment On April 13, 2014, at 2:15 PM, desertrattwo wrote:

    The tax code should NOT subsidize families. Most children are accidental. That doesn't necessarily mean they are not wanted; however, too many people have more children than they can afford simply because they don't understand "planned parenthood." That behavior is irresponsible and should not be rewarded with tax subsidies. Two children per family should be the limit in deductions for children, with "special allowances" for adoptions. In addition, the world is already overcrowded and farmland to grow crops and raise animals to feed everyone is disappearing.

  • Report this Comment On April 14, 2014, at 2:30 AM, markt wrote:

    THE TAX CODE should NOT punish a person whether they HAVE children or DON'T. It should ALSO NOT punish you whether you are

    MARRIED or not. WHAT PART of

    FAIR TAX LAW is missing from the politicians vocabulary?

  • Report this Comment On April 14, 2014, at 9:09 AM, GenYfool wrote:

    It shouldn't promote single parent households, that's for sure. That is the single largest common factor in poverty in the US. A huge percentage of "homeless" people are single mothers and their children.

    That factor alone (single parenthood) causes so many problems down the road that it should be discouraged by the tax law and any other means Constitutionally allowable.

  • Report this Comment On April 14, 2014, at 12:16 PM, taxprogirl wrote:

    I don't have a problem with a small break such as the child tax credit. I thing that the Earned Income Credit should be eliminated.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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