U.S. birth rates fell to an all-time low last year, and if it stays that way, the native-born population will shrink. There's every reason to think that this is where we're headed. Marriage rates also are on the decline. (While not a prerequisite for child-bearing, marriage does tend to encourage it.) In economic terms, this is bad: When the fertility rate falls below the replacement rate, as it has in some European countries and did last year in the U.S., it becomes a threat to economic growth and undermines the ability to pay for social services and pensions.
So the state has a vested interest in encouraging marriage and, moreover, family-making. It has been trying for centuries. When ancient Rome was in a similar position, it levied a tax on its unmarried men, hoping to cajole them into marriage and family. In the early 20th century, towns in Germany, Italy, and the state of Montana also levied bachelor taxes. Perhaps unsurprisingly, they were extremely unpopular, and many people considered them discriminatory.
There’s still a version of a singles tax in effect, but it applies to both men and women. The figure below shows the percentage point difference in income tax rates for average-earning singles and marrieds (to a lower earning spouse) in countries that are members of the Organization for Economic Co-operation and Development:
Governments like to encourage marriage because it is associated with more stability and wealth accumulation — even if in this era of dual-income households it can mean a more rigid labor market. But one of the biggest economic benefits of marriage, at least from a tax perspective, is that it often leads to children. Married couples with kids pay less taxes than couples without in every developed country except for Greece.
In the last decade many countries in the Organisation for Economic Cooperation and Development have changed their tax code to encourage more marriage and babies. It hasn't worked: fertility and marriage rates have been declining since at least 2000. That could be because, since then, the slow economy has led people to delay baby-having. Also, income tax rates are only part of the tax burden. Many European countries also levy hefty sales taxes and, as almost any parent will tell you, having children requires buying stuff.
Some interventions, though, do work. There's evidence that financial incentives in France induced people to have a third child, though they many not have much impact on the decision to have any children at all. Another study, based on Israeli data, estimates that decreasing the cost associated with having kids is more effective than giving parents money. That could mean government would get more bang for their forgone tax buck by offering services, subsidizing maternity leave and child care, instead of tax-breaks.
In the United States tax benefits are the biggest governmental financial incentive for middle class people to have children. (There are other, private financial incentives, namely that your kids will take care of you when you're old.) The cost of services, paid maternity leave and child care, are largely born by individuals or employers — unless the family is poor. If the U.S. eventually decides it wants to boost fertility, it may want to rethink how it spends its resources.
