Fraser Forum

Why subsidize the children of Canadians earning $90,000 per year?

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Having a child is easily the most important decision a couple will ever make. Parents are responsible for nurturing the child from infancy and for providing guidance and encouragement all along the path towards adulthood. Parents are responsible for providing the resources to allow the child to obtain the best education that will open up the best opportunities to them. Ideally, parents will think deeply about this important decision and will plan for the birth of their child (or children) in a way that gives the child the best possible start in life.

Government policies can and do have an important impact on otherwise very personal and private decisions that people make. Any policy that alters the cost-benefit dynamic for a target group has the potential to change people's behaviour. This is captured by the old saying "tax something and you will get less of it; subsidize something and you will get more of it.”

The newly-minted enhanced Canada Child Benefit (CCB) is a good example. It now provides significantly more tax-free money to most Canadian families with children under 18. The new amounts are about $5,800 per child per year. The government has stated that these enhanced payments will be financed by the elimination of benefits to the rich and additional taxes on the rich. The enhancements will cost an additional $22 billion over five years and so there’s the technical question as to whether the additional burden on the "rich" will be sufficient to fund the increased benefits. I will leave that determination to others.

I am more interested in the potential impact on lower and middle-income Canadian families.

Let's look at lower-income Canadian families, say, for example a couple with two children, living on $28,000 per year. Some of them may be on social assistance; some may be working at low-wage jobs; and some may be in transition or doing retraining. The CCB enhancement represents a real increase in their standard of living. In some cases, it will make the difference between a very stringent, near-poverty level standard and a standard with some modest comforts that most people enjoy. The longer-term impacts are less clear.  

The impact on the middle- and upper-middle class is likely to be much less because the CCB enhancement represents only a marginal change in living standard. The headline illustration on the Liberal government's website is that of a couple with two kids and a total annual income of $90,000. This couple would receive an additional $490 per month or $5,900 per year per child from the CCB.

Two questions come to mind.

1) What compelling argument can be made to justify subsidizing the children of people earning $90,000 per year?

2) Since the large middle-class pays most of the taxes, wouldn't it be more efficient (and fair) to let the middle class keep more of their own money and fund their own children?

We have to keep in mind that an increasing number of couples are choosing to have no kids and it’s hard to justify penalizing that choice.

The case for helping poor people while avoiding adverse unintended distortionary consequences seems to be clear. The case for shuffling funds between middle-class families via an expensive bureaucracy while treating differentially couples who make different personal decisions regarding having children is a problem.


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