What kind of a tax system would encourage well-off to have many children?

Question

This question is inspired by the Would high fertility rate among the rich crowd out commoners? . The tax rate presented doesn't seem to encourage the desired behavior.

The starting assumptions are:

• The country is developed and wants to promote natality among the well-off using the tax system.
• The citizens are not able to avoid paying taxes, without emigrating and renouncing their citizenship.
• The government is ready to sacrifice the economic growth for social engineering purposes. The citizens who don't want (many) children should work less or leave the country.
• The government won't pay any subsidies. Parents should raise their children on their own income.

What kind of a tax system would encourage upper income people to have many children?

Answer 1

Give tax breaks for having kids as a reduction of your tax rate.

Say an income tax rate is 50% - 5% per kid. A person making 1 million a year makes 50k per kid, a person making 10 million is incentivized with half a million a year per kid. Lower incomes don't care nearly as much. Or divide income by the number of people in the family. A person alone pays tax on all income, with a partner that pay half that, with 8 kids they pay 1/10th.

Encourage polygamy.

Say by making property tax a main tax and exempt a property per woman with children, possibly allowing a bigger property the more kids she has. To afford many expensive properties a rich man must have many wives and a horde of children.

Limit maximum income.

Say a person may only take home a million a year, but allow money to be counted as being earned by a person's children. For some value of the income cap this will not even be subsidies, but an increase on rich people who don't adopt the workaround.

Answer 2

Your fictional country could:

• Make all expenses from raising kids tax deductible, and have the amount deducted from payable taxes, not from taxable income, so rich people get 100% of those costs back.
• In return for this, stop subsizing schools and kindergartens. Make them finance themselves via fees. Rich people can deduct the fees from their taxes, of course.
• Tax childless adults for being childless. Call it making sure there is an working population a generation from now, and punish "freeloaders" who don't raise that generation.

Answer 3

1. Rich ladies often don't want to bear many children. It is physically arduous, and many of these ladies are rich because they themselves work. If you want your country to be full of the genetic descendants of rich people, use surrogates. Carrying a baby to term is work like any other and women can and do accept pay for this. If the government does not want to be involved except through the tax code, then make the entire cost of the surrogate deductible from income. It is a deduction poor people will not use and so it will only help the rich who are interested in having more children this way.

2. Adoption is another way to get more children into rich families (if you do not care about genotype, only about upbringing). Adoption is expensive and cumbersome. Leave it expensive, so that it is a path available only to the rich. Then as with surrogacy, make all costs deductible from income.

3. Rich people often rear their children with nannies and the like. The rich people spend much of their own time staying rich. Make the expenses of child rearing (like nannies) deductable from income.

4. 100% income tax bracket. This would be for the top bracket, of course. High earners must find deductions from income to avoid being in that 100% bracket. Aside from the deductions above for child costs one could have a standard deduction which is not per child but which increases as the number of children increase. Additionally, the standard deduction (as done on US taxes) is a flat amount. If there deduction were 1% off the income tax rate per child this would be worth much more to the rich than to the poor.

One could have a floor below which income tax rate goes no lower such that the rich would still pay some tax - maybe 20%. This would also ensure that people who already play 20% or less do not benefit and so are not also encouraged to have children.

The end result of this will be large stables of children putatively of wealthy persons. These children will be raised by employees and may or may not have contact with their parents. This is an existing mode for wealthy persons to deal with their children, and it would just be scaled up for tax reasons.

Should someone pursuing this route suddenly suffer a financial calamity he or she might suddenly find the huge loads of kids very financially burdensome. There would need to be insurance such that the government or other interested entity could take over the maintenance of the children and also facilitate their transfer to persons still rich enough to benefit from them.

Answer 4

Short of a tax that could turn the well-off into not well-off, nothing.

It should not be surprising that the rich buy the lifestyle they want, and if they don't want a lot of kids, they will pay whatever it takes to avoid that. That is the case with most of them: They have a lot of money, they do not want to be absentee parents, but they also do not want to be weighed down and prevented from traveling, entertainment, projects and such by having to care for six kids.

They want their child-bearing to be a few kids close together, so their "parenting" time is a relatively short decade, after which kids are in school.

Rich mothers do not want what having a lot of kids does to their bodies; and does to their social life and available hours and career: Especially mothers that are independently rich through a career of their own, like those in entertainment, law, real estate or business. They have a busy life, and more than a few years away is all they can afford.

Rich fathers are often the same. They want to love their kids and spend time with them, but they are busy staying rich.

What you would be encouraging, by forcing them to have kids or lose fortunes, is absentee parents, multiple classes of kids: he first two they wanted and love, and the other six they had through surrogates to avoid millions in taxes, that will be raised by nannies without really knowing their parents, because this was more cost effective than paying the taxes.

If it doesn't cost them more than the surrogate-and-nanny solution: they will just pay it, people earning a million a year can get by just as well on \$900K, they will just start donating to an opposition party that promises to repeal the tax you imposed. Or if that is impossible, find ways to hide their income using overseas companies, shells, trusts, etc.

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added:

Because much of being rich is about power and lifestyle, both of which they can financially engineer by being in charge of money, corporations and property that they do not technically own. For example, they can transfer their wealth to a Trust for their kids; which they are in charge of until they die (no matter how old the children get). The trust owns the house, the stock, the companies, the cars and planes and boats; and because they are in charge of it, the Trust lets them do whatever they want with those things. They can also buy whatever they wish, they are just doing it on behalf of the Trust. Technically they are not rich, they don't own a thing and earn no salary.

The Trust can also own all the stock in a company, and since the guy that formed the trust decides how the Trust votes, he votes himself as the CEO every year. If he wants, he can pay himself some modest salary or bonuses, like $250K a year, not exactly rich, just pocket money for Vegas. Even their credit cards can be in the name of the Trust; which (like a corporation) they can make an independent "person" in the law. So even when somebody sues them and wins, if they are suing the person instead of the trust, the person is a pauper and they get nothing. And if American law gets in the way, there are other countries perfectly willing to accommodate them with bullet proof financial protections. They just need to know where to look.

Answer 5

You would need the change the culture, so that the wealthy want more children, rather than simply having more because its forced on them.

People have families because they want some children. Being rich gives you the option to have as many children as you want, and no government scheme will make them want more (though it may make them have more in order to maximise their assets). Many will conclude that it might be cheaper to fight or change the government, or leave for a friendlier nation, than to give in to punitive taxation that forces them to do things they don't want to do.

The way to get around this is to make it cool or necessary to have large families; maybe emphasise the idea of clans or family-run corporations or a pride in one's lineage (reviving the idea of the noble classes). Maybe there is some shadowy organisation in the background that kills off the children of the wealthy, giving them an incentive to have more (though the rich will almost certainly try to take out this organisation).

One issue with this as a concept is that the more children the wealthy have, the more their wealth is diluted amongst the children they do have, making this a self-defeating idea in the long term.

Assuming that this downside is acceptable to the government, a lesser issue is that the rich women will want to pass on their genes as well as rich men, but many wouldn't want to spend a significant part of their lives pregnant or nursing babies. An entirely new class of bonded surrogacy services, would arise from this.

Answer 6

Bring back feudalism and mix it with corporate capitalism.

In medieval times, the most wealthy people (nobles) always tried to have many children, because they needed an heir to continue ruling their realm after their death. Children were also needed for political marriages. Also, they needed some children in reserve in case your heir apparent dies.

In our modern world, we would have to make some adjustments to this system. Titles of nobility do not count for much. But there is something else in our modern world which we could make hereditary: Companies. Decree that company ownership can not be sold. It can only be inherited or gifted to ones children. When an owner dies and there are no heirs, the company is liquidated and the proceeds go to the government.

In our modern world, the risk of losing your only child to the bubonic plague is rather low. But there is a risk which is almost as bad: a child might turn out to be incompetent. So a successful business owner might want to have multiple children to make sure at least one turns out to be capable of not running their company into the ground immediately. This of course requires that the company owner can choose which child inherits which companies (splitting a company is of course always an option a company owner might or might not consider).

That means company owners have a strong incentive to have children to continue their company. Investors, employees and business partners will get nervous when an aging company owner is childless, because they know the company will go belly up when they die or become incapable. You could further increase this pressure if you have certain conditions which force company owners to suddenly "abdicate" their position to one of their children. For example if they are convicted for any form of corporate misdeeds:

"The company you work for failed the last OSHA inspection. Your boss is prohibited from leading any companies for a year. What, she has no kids to take over for the time being? Not even a toddler you could make owner in-name-only while the middle managers keep the company running? Well, then the company unfortunately needs to be liquidated and you are out of a job."

A company where the owner has many well-educated children will seem much more secure and future-proof.

Another reason to have children in this system: What do you do if you want to merge your company with the company of someone else? You marry into it!

1. You gift your company to your daughter
2. The owner of the other company gifts their company to his son
3. Your daughter and his son get married and have some kids
4. They gift their companies to their most qualified child
5. The child merge the companies
6. (optional) your daughter gets a divorce so she can be used to repeat the process with some other company

The problem with this process is that it takes at least two generations. But it might be possible to speed it up with some legal tricks. For example, you might make it possible to formally give a company to a child but de-facto still retain full control over it. So you can gift a company to your infant grandson, but only under the condition that you keep managing it for them.

Answer 7

Taxes are not the answer at a first order level, although tax policy can be harnessed to influence more important first order influences on fertility.

The biggest drivers of total fertility rates and age of child bearing are the risk of losing a child and the risk of dying before you can have more children. People systemically overestimate both of these risks and over respond by increasing their fertility and age of reproduction than they would if these risks were not present.

For example, gang members in places where gang membership is deadly have children early and often, leading to high total fertility rates even though their children are almost certain to grow up in poverty. The same is true of countries with extreme levels of infant mortality and privation like Afghanistan and the poorest countries in sub-Saharan Africa.

So, the first order response ought to be to require or otherwise encourage the affluent and their children to serve on the front lines of all military conflicts and in other dangerous jobs so as to maximize the risk of losing a child or dying early.

While poverty due to having to support more children does discourage child bearing and tax policy can make a minor tweak to this, it is by far a second order effect.

Still, perhaps there is a way to achieve the goal of higher risk with tax policy. This would be to enact huge tax breaks (perhaps total tax exemptions) for military veterans who earn military valor awards, and for members of other high risk civilian professions (e.g. CDC hot zone responders) who are similarly recognized. Since these tax breaks are much more useful to the affluent or for people who expect to be affluent, than they are for the average person, these tax incentives might disproportionately lure affluent people into these high risk posts, and these high levels of risk, in turn, might do their magic of enhancing total fertility rates among the affluent people who take these risks.

Answer 8

If you want your rich people to have more children, limit the amount of money which they can leave to each child. If each child can inherit no more than one million dollars in cash, assets and possessions combined and if I have built a twenty million dollars fortune from my inheritence,...

I'm going to sire kids like a bunny rabbit, just to keep the bureaucrats from getting my hard earned money when I die.

Answer 9

From the POV of tax policy, in broad terms there's one way to incentivise rich people to do X while avoiding incentivising poor people to do X. That's to provide a tax break for doing X which poor people find themselves unable to claim.

It seems to me that you cannot simply reward all child-related expenditure, because poor people spend a significant proportion of their income directly on their children and therefore would be incentivised too. We don't want to give poor parents any kind of break, right, only rich parents? So if a rich parent is spending 10% of their income on their child, and a poor parent is spending 30% of their income on their child, you make that deductible from tax, then that's still a huge incentive to the poor person even though the dollar amount for them is less. Similarly, the other question you link to that inspired this one is still giving a lot of incentive to poor people to have children, because dropping from 40% to 10% marginal rate is pretty huge.

So, provide reductions of taxes that rich people pay and poor people (entirely or mostly) don't. For example the top rate of income tax, capital gains tax, property taxes on the most valuable property. Since X is children, costs related to live-in nannies or private education could be made tax-deductible, but not for food or clothing. At least, not ordinary food or clothing.

To really drive the point home that you hate poor people, set a threshold at which the benefits kick in. For example if you spend at least Y amount of money on X (your own children), including childcare and education and maybe money paid into trust funds and whatnot, then you get the benefit. Less than Y, none of it kicks in. Then choose Y to be roughly an amount that rich people with children are spending on their children already, and poor people don't have available to spend.

Finally, the number of children needs to be taken explicitly into account in the tax system, otherwise there's nothing to encourage a rich person to have 8 children, as opposed to just spending 8 times the money on one child.

Of course all these things are pretty blatant, so don't expect the policy to provide a covert nudge. You've won election on a "more rich kids" manifesto, right?

• The citizens who don't want (many) children should work less or leave the country.

I assume you mean rich citiens who don't want children. I don't think there's any way for a tax system to drive people out of the country other than by overtly punitive taxation. Really you should look more to criminal law to do this effectively: simply arrest those who should have children but don't, and they'll start fleeing if they can. But that's not the premise of the question.

So, if you really want this, then set the top rate of income tax and capital gains tax at 90% (or heck, 120%, but arguably once you're past 100% it's not even tax policy any more, it's just a fine for wrongful behaviour). Reduce it per child. But do bear in mind that rich people find ways to ensure that their income is not legally classed as income, so it's genuinely quite difficult to place taxes in places that catch them.

One innovative suggestion for catching the rich is to tax property instead of income. Since you're willing to sacrifice the economic well-being of the country, many of the usual objections to it fall. Then ensure that rich people provide an honest evaluation of their property by giving them a straightforward tax return: they say one number representing their opinion of the total value of everything they own, and they don't need to provide any justification for that number. The government then has a choice between accepting some percentage of that number as that person's tax for the year, or else purchasing from that person everything they own in return for the number they said. Of course this would lead to a rapid uptake of crypto-currency, Swiss bank accounts, buried treasure, and other assets that cannot readily be confiscated. But you've already stipulated that in your world, tax avoidance is somehow difficult, so I will hand-wave that away by assuming this government somehow polices such things.

Applying this to the encouragement of children: "some percentage of that number" will depend on the number of children. To ensure that it only incentivises the rich to have children and not the poor, then again you make sure that this tax regime only applies to rich people: people with minimal discernable assets and whose main income is a job with a salary below a certain amount continue paying income tax as before, while the rich are moved to property tax.

Of course, this really only works if rich people broadly support your goals, agree with you that they all ought to be having more children, and enthusiastically set about having them to avoid the penalties for not doing so. Otherwise you've just seriously upset all the rich people, in which case they won't emigrate, they'll have you assassinated. Deposed if you're lucky.

Answer 10

You ask about using Tax System to increase birth rate from well-off (rich) family.

The difficulty here is that is target population THE RICH, not THE POOR. Therefore, we have to make some rule that can only benefit the rich.

Tax deduction: (@o.m. idea) everything you pay for children (health care, education, ... ) is count as tax. For example, the family have to pay $1000 tax a month. They have a child. They send their son to a school cost $700 a year. When the family pay tax, they only pay $300 (they already 'pay' $700 in children education)
My opinion:
It still benefit the poor, but not very much because they cannot get $700 off their tax for their son because they do not have $700 in the first place. They can get $100 off, however.
The proposal still benefit a middle class a lot, who have just enough money to invest in their kid.
The very rich does not care much about this.

More tax for childless: Who does not have child will pay more tax. Each children they have, they pay less tax.

My opinion:
this is not going to work. It hurt the poor. Because, if you have children, you cannot raise it, but when you don't, you have to pay more tax. It might work if combine with Tax deduction
The rich doesn't care because they can 'paid' for their lifestyles.

Tax thresholds for privileges: Tax thresholds is use to measure how RICH the family is. If family pay tax above the thresholds (for example, more than $1000 a month), their children can access to public school. More, then better public school. And healthcare, bus, flight, etc ...
It is depend on how the government want to social engineering, they can give a list of threshold (targeting) and following privileges.
Note that the privileges can not only for children, but for their parent as well. For example: A minister chair only for those who pay $10000 tax (max sure he is well-off class) and have 3 kids.

An example I just think of:

`$1000:` public school (increase birth rate among middle and upper class but reduce those from lower class)
`$5000:` one of best public school in nation (Harvard or Yale for example). This allow you to create a group of best citizen from rich family. 
`$10000:` and 3 child: Can become Minister of ... (increase birth rate among those rich politician)
`$x0000:` and x child: Have royal title (?!)
`$x00000:` and x child: Can have y private plane (more children = more plane :3 )

Answer 11

To make the rich do something is very difficult.

The simple answer is this:

For tax paid over one million per year,

each child you have eliminates one quarter of your taxes.

(Note too that, especially, the system includes death taxes)

They'd call it the "25% kid" rule...

So to be clear -

1. For ordinary poor people (ie, people who pay under $1m a year in tax), the law does nothing. They are not affected in any way.

2. For rich people (those who pay more then $1m a year in tax), the saving is incredible, stupendous.

Say you're paying 10 million a year tax. All you have to do, is have four children ............... and you now pay basically no tax!! (You only pay the modest baseline $1m a year.)

For the profoundly rich who pay 100s of millions a year in tax, it would be insane to not have four children: every single truly rich person would have four children: it would be absolutely ridiculous to not do so.

As mentioned above - especially - death taxes are the truly hated thing amongst the rich. Consider tycoons with a wealth measured in the billions. When they die, basically the government takes most of it. By simply having four children, they get to keep ALL of their money (ie, the inheritors get it all, the government gets nothing).

The above system would certainly and absolutely ensure that everyone who pays more than, say, about $2m a year in tax, would, almost certainly have four children - it would be crazy not to.

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Note that one huge social effect would be: women who want to have many children would be in incredible demand amongst the super-rich.

(Indeed, it would apply to men too: imagine a super-wealthy family and consider one of the females in that family. It would be totally ridiculous if she married a man who "only wanted one or two kids" - you'd be literally throwing away billions.)

Almost certainly women (and men) would start having children very, very young (why risk billions of dollars on an older partner - fertility declines with age, there is chance of not being able to have the four children, when one starts older).

One plot point could be .... perhaps women would tend to have one "demonstrator" child at a young age, I mean to say as a single mother, at say 16. They would then be really "proven" (i.e. to the world's rich) that they can easily bear healthy children.

Conversely older men with lower fertility, would be summarily discarded by the world's female rich: there'd be no room for niceties in the need to quickly reach four children.

Don't forget, for the truly rich you'd be throwing away 100s of millions a year, until you got to the "four quarters"; every year you waited until getting the four children would be more zillions down the drain; it's possible very young marriages would become the norm again (as for all of history before about 100 years ago).

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Note that you would almost certainly have to make it that only biological children count, and that it has to be fully proven with technology who the biological parents are. (This would harken back to, imagine say the days of the French court, when the birth of a child was a big legal occasion, it had to be absolutely witnessed that the baby came from the correct mother, and no subterfuge, trickery etc was involved.)

Answer 12

Scale inheritance taxes based on how thinly the estate is spread. This would come with two components: Number of people, and similarity in size between their shares. Both would reduce the amount of tax the government charges.

For similarity in size, the smallest share pays nothing, larger ones pay 50% tax. For example, \$5 billion split \$3b for one and \$2b to the other, would result in after-tax inheritances of \$1.5b and \$2b, respectively.

For number of people, the starting rate could be 50%, and it halves for every two people. Leave your estate to one or two heirs, and 50% goes to the tax office. Leave it to four, and only 25% gets taken. Leave it to six, and it's down to 12.5%, and so on.

To disincentivise them leaving it to a company or charity instead of their kids, those bequests are taxed even more heavily, say 75%.

If you want to ensure as much of your fortune stays in the family, you have a lot of kids, leave equal amounts to each of them, and leave it directly to them, without using company or charity intermediates.

Answer 13

Extremely high transfer taxes on spending/withdrawing (simpler to make withdrawing money near illegal) money for expenses, moving your money out the country, corporate fringe benefits, corporate money transfer for anyone above your target income then you exempt everything related to childcare and household including the personnel and their fringe benefits- as long as you have put the worst sharks of your tax department to police this plus extremely legal reform so they can't get past this. Then special tax exemption bodies for this siblings so the money they receive is actually worth something. Why have any exemptions for non-citizens/emigrants? This sort of heavy taxation is going to have an effect- it will do the social engineering. Transfer taxes are impossible to get past with a modern banking system as it in the financial institutions/property registers. Hideous taxes on holding cash and possibly basically support (like they basically can't insure against such robbery- a tax on that) for criminals to rob them.

Answer 14

First have a regressive (fixed amount) flat-tax per year per child, something like $15,000. That reflects the government's cost in education and healthcare. Then have a progressive (percentage) tax deduction or credit per year per child, e.g. your taxable gross income is reduced by 10% per child. Reducing your AGI 10% reduces your taxes by more than 10% if the tax system is bracketed or curved.

Say also that an ordinary family typically takes \$10k/year of other deductions (standard deduction and all that). The \$15k/kid/year is also tax deductible since governments don't tax tax.

  Income     0 kids tax   3 kids tax     extra kept income per kid
     $40k        4k          40k (all)       -12k
    $100k       22k          46k              -8k
   $1M         400k         300k              33k
  $10M        5M           3.5M              500k

For the very rich: the proportions stay about like this, letting them keep 5 more % of their income per kid.

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Gory details

You make \$40k/year, no kids. Minus the \$10k, you're in a 15% bracket so paying ~$4000 in tax.

You make \$40k/year, 3 kids. You are underwater because your $45k 3-kid tax > your income.

Make \$100k/year, 0 kids. Taxable income is \$90k/year putting you in a 30% bracket, tax is ~22,000 figuring for the curve. You keep $78,000.

Make \$100k/year, 3 kids. Taxable income is 30% less (-\$30k) - the 10k standard - the \$45k tax you pay, or \$15k. That's in a 10% bracket so \$1500. Total tax is \$46,500, you keep $53,500, or about what an American nets after also paying state tax, FICA, healthcare and higher education.

Make \$1M/year, 0 kids. You're in a 45% tax bracket, so \$400,000ish tax, you keep \$600k.

Make \$1M/year, 3 kids. Deduct \$10k, \$300,000 for the 3 kids, and the \$45,000 kid tax you paid, giving \$645,000 taxable income. Taxed at 45%, about \$255,000. With the kid tax that's \$300k, so \$700k you keep. You're being paid $100k to raise 3 kids.

Make \$10M/year, 0 kids. Taxable income is \$9.990M, putting you in a 50% bracket for almost all of it. Tax is \$5,000,000, you keep \$5,000,000.

Make \$10M/year, 3 kids. Deductions are the 10k standard, 30% (\$3M) for the kids, and the \$45,000 tax you paid for the kids. That's \$3,055,000. Net income is \$7M, back in the 50% bracket so \$3.5M. Add the \$45,000 kid tax you paid, tax is $3.545M, you keep \$6.455M. You are literally being paid \$1.455M to have kids.

Make \$10M/year, 9 kids. Deductions are 10k, 90% (9M) for 9 kids, and $135,000 kid tax you paid. That's \$9,145,000, leaving \$855,000 taxable at 45% or ~\$370,000 plus the kid tax. You keep \$9.5 million. You are literally being paid \$4.5M to have 9 kids.