And Baby Makes Five

In 1979, China launched what would become the world's toughest population control measure, the "one-child policy." Families with just one child got rewarded with a "one-child glory certificate" and five yuan per month (about as exciting as a stack of Wendy's coupons). There were always exceptions: in most areas, you could apply for a second child if your first was a daughter. However, as China's people grew older and more affluent, the government raised the limit to two children to stave off economic risks from the aging populace.

Last month, still dismayed by a fertility rate of just 1.3 children per woman, China raised the limit to three kids per family. But just giving parents permission to have more isn't enough. Kids are expensive, in China just like they are here. (They're sticky, too.) So the government also rolled out a package of financial incentives, including tax and housing support and limits on "sky-high" dowries. The government also plans to educate young people "on marriage and love," which sounds about as hot and sexy as . . . you know what, let's just not go there.

Naturally, that got us thinking about the role that taxes play in family planning. The USDA estimates that the average "affluent" family (earning over $107,000) spends $372,210 to raise a child from birth to age 17. That's before college, grad school, and maybe a wedding (but fortunately not a dowry). While our tax code offers up a few specific goodies for parents, they don't add up to $372,210. But let's take a look at how our tax code does help families carry that load.

Here in the United States, the Tax Cuts and Jobs Act of 2017 eliminated the personal exemptions we used to take for granted. At the same time, it doubled standard deductions, lowered overall rates, and boosted the Child Tax Credit. Most working families wound up coming out ahead, except those in high-tax states who saw deductions for state and local income and property taxes slashed to just $10,000.

Some policies have always been a slap in the face to parents. For example, child support payments are nondeductible and nontaxable. Since child support is usually paid by the ex with the higher income, this means the money for the children is usually taxed at that parent's higher rate.

Some tax breaks for children are capped even for bigger families. For example, the Child and Dependent Care Credit currently gives working families up to $4,000 for daycare expenses for one child, $8,000 for two children, but nothing beyond that. Similarly, when it comes to college, the Lifetime Learning Tax Credit limits you to $10,000 in eligible tuition expenses per year, no matter how many scholars you're financing.

Speaking of college, paying that bill is a hugely different challenge for us than for Chinese families. Chinese universities typically cost $3,000 to $10,000 per year, with only one (Beijing's Central Academy of Drama) charging more than $16,000. Here in the U.S., the rack rate at the University of Chicago runs $80,163. It's just a matter of time before some school with the chops to get away with it cracks the six-figure line, and does it with a straight face. Forget about covering that bill with your run-of-the-mill 529 plan!

We're certainly not here to tell you how many children you can afford. Our job is to help you take advantage of every opportunity the tax code gives to keep more for them and their pricey schools, sports, hobbies, and other activities. So call us when you have questions, and enjoy your time with them until they think they've outgrown needing your money!