Invest in Human Capital: Cut Taxes

February 01, 2006

By Brian C. Robertson

In addition to reducing Oklahoma's high income tax rate and getting rid of the state's death tax, GOP leaders this year want to enact a tax credit for stay-at-home parents. "We should be encouraging parents who want to stay home with their children," Speaker Todd Hiett said January 25. "It makes no sense and is unfair to exclude stay-at-home parents from tax credits for child care."

If state legislators want to improve the well-being and school preparedness of Oklahoma's children, they would be well advised to take measures like this that would help parents spend more time raising their own children at home. It is widely recognized that a high degree of parental involvement and supervision is essential for healthy child development. Even for older children, the close parent-child bond formed in the preschool years serves as a protective factor that lessens the likelihood of drug and alcohol abuse, sexual promiscuity, and other risky and destructive forms of behavior.

To its great credit, in 2000 the Governor's Task Force on Early Childhood Education recognized the importance of parental time and interaction with young children. The task force specifically pointed out that "the benefits of a parent being a full-time, primary caregiver to a young child are being increasingly recognized."

Moreover, two explicit goals set out by the Oklahoma Partnership for School Readiness Act are "that families will nurture, teach and provide for their young children" and "that families with young children will recognize the importance of parenting their children at home."
The School of Personality

Despite fashionable notions of "quality time," most parents are keenly aware that there is no way around the true dynamic of childrearing: The less time they spend with their children, the greater the role of secondary influences on their children's beliefs and behavior. Something has to fill the time void, and if the parent is not there to transmit his or her values, competing messages will proportionately hold more sway.

There is no substitute for the care a child receives in a home. Defenders of commercial day care tend to emphasize the material sufficiency of the day-care center for the child's normal development: Children will be fed, provided with entertainment, and supervised by an adult - they will essentially receive the same care that they would get at home from a full-time mom.

But there is more to the rearing of children than these material considerations, and the home as traditionally understood is not merely a physical entity; it is a spiritual environment that teaches behavior, not necessarily through any formal instruction, but through example and tacit understanding. Home includes details that are essential in forming the characters of children: family stories; bits of wisdom; inside jokes; enthusiasms for hobbies, sports, music, or politics; intellectual and literary sensibilities; styles of dress and decoration; tastes in food and drink; ways of celebrating and mourning; and keeping the peace by means of little tricks that can only be known through intimacy. In short, a home contains the little things that are the lifeblood of human existence.

The home is the child's school of personality. It communicates the values by which he or she interprets the world. The formation of the will and the development of personality depend on the interaction entailed in family life. No wonder the vast majority of parents are reluctant to surrender this awesome vocation to some anonymous day-care worker whose interest in their child is professional - indeed, financial.

Studies are showing that the greatest detriment to cognitive development and academic preparedness for preschoolers is lack of time and interaction with their mothers. A recent study based on data from the National Institute of Child Health and Human Development Study of Early Child Care showed that maternal time and interaction with children is one of the best predictors of school readiness, and that the intellectual development of young children is adversely affected by time away from the mother. The study found that maternal employment of 30 hours a week or more by the time a baby was nine months old was associated with significantly lower scores on school readiness tests at age three.

Another study two years earlier at the University of North Carolina showed that young children of working mothers tend to have lower verbal, reading, and math skills than children of stay-at-home mothers. It would seem that efforts to improve the school readiness of young children should be focused on helping mothers spend more time taking care of their own children rather than on boosting funding for programs that will increase the time those children spend in nonparental care.

Regrettably, child-care policies on both the federal and state level are far from reflecting the preferences of parents. The federal child-care tax credit is available only to those parents who use commercial day care; the same is true for the Oklahoma child-care tax credit, which is equal to 20 percent of the federal credit. That we are subsidizing the one choice parents wish to avoid - the use of out-of-home care for their preschool children - is positively perverse social policy.

At a time when parents seem to be turning away from an all-consuming careerism and looking for policies that would help them devote more time to raising their own children, it makes no sense for politicians to respond with more of the same policies that have contributed to the "time-bind" fix in the first place.

Providing social and taxation policies that allow parents to invest more time and effort in the development of their children - policies that support this investment in "human capital" - may be the most effective thing government can do to ensure our future economic growth and competitiveness. Decades ago, the federal government's approach to child care was to give families the money (in the form of tax deductions for children) to do what families exist to do - to take care of the children themselves. Oklahoma policy-makers should follow suit.

Three Policy Recommendations
One way to improve child well-being in every respect would be to reduce the tax burden on Oklahoma families. The average Oklahoman had to work from January 1, 2005, to April 7, 2005, just to pay for state, federal, and local taxes last year; and the increasing tax burden over the past several decades has fallen hardest on families with children. Given that the Governor's Task Force on Early Childhood Education acknowledged that "it is difficult in today's economy for even one parent to have the ability to stay home during the early years of a child's life," one of the most important things government can do to alleviate this situation is to let families keep more of the money they earn. Efforts to bring Oklahoma's income-tax rate below six (or even five) percent this year should be encouraged.

A small step in the right direction to alleviate the tax burden on families with children was taken by the U.S. Congress in 1995 when it instituted a child tax credit. President Bush's tax reform included an incremental increase in that credit. To help parents even more, Oklahoma legislators should allow an Oklahoma child tax credit worth some portion of the federal credit.

Thirdly, perhaps the most effective way to help Oklahoma's parents and their preschoolers - and to improve children's school readiness at the same time - would be to universalize, and expand, the current Oklahoma child care tax credit (which is now equal to 20 percent of the federal credit), making it available on a non-discriminatory basis to all families with young children instead of just those who put their children in commercial day care. This would give increased assistance to all parents struggling to provide the best preschool care and education options for their children, not just those parents who put their children in commercial day-care settings. It would help provide the means for parents to provide for the care and education of their preschoolers in ways that will really be to the children's benefit - often by allowing those parents to spend more time raising the children at home. At the same time, single mothers and others who have no choice but to depend on some form of day care would have both an expanded tax benefit and more options.

As the sidebar on page five suggests, this option is a fairly easy case to make in political terms: Why should Oklahomans be subsidizing the child-care choice that is least popular among parents while providing no equivalent subsidy for the more popular options (less formal day-care arrangements or at-home care)? If parents were made aware of it, most would regard the current tax incentive for professional day care as positively perverse family policy. This third proposal would fulfill the goal articulated in December 2000 by the Governor's Task Force on Early Childhood Education: "enabling families to make their own informed and responsible choices."

Conclusion
Far from constituting another extravagant government program, these tax-relief proposals simply let parents keep more of their own money to do what they want to do. They are, in fact, the only political alternative to costly proposals that amount to "more of the same": further subsidization of dual-income families and commercial day care as a way of addressing the growing difficulties working parents have in fulfilling their obligations to both their employer and their children.

To those who would argue that letting parents keep more of their own money is too costly, it should be pointed out that our tax code is enormously more generous to investment in non-human capital than it is to investment in human capital, even though the latter is responsible for the vast majority of our economic growth. These proposals would only restore a degree of equity. Not to make such an investment in our future is an extremely shortsighted view of economic well-being and a serious political mistake as well.

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