Proposing a Novel Form of Wealth Tax

I've been mulling over a policy proposal that's currently outside the Overton Window and I'd be interested to hear the sub's thoughts. In short, the idea is a variation on a wealth tax (like Elizabeth Warren's) that specifically offers major discounts to wealthy couples based on the number of children they have. You'd want to think carefully about the specifics, but just as an example, the policy might be: individuals pay a 3% annual wealth tax on assets in excess of $25 million. For each child under the age of 25, the tax percentage drops 0.5%, to a minimum of 1% at four children. In the present context, I'm less interested in the details of the tax policy (or even that it's a tax on wealth rather than income, say), but rather the idea that we adopt tax policies that provide powerful incentives to the rich to have more children

Some quick arguments in favour of this kind of policy.

  • New citizens who are likely to have good lifetime outcomes. Children from wealthy backgrounds have better outcomes in pretty much every domain, including health, crime rates, lifetime earnings, etc.. Maybe this is due to genetic advantages, maybe it's the fact that successful people are likely to also be good parents, or maybe it's just the advantages of having family assets you can use to get started in life - it doesn't really matter. The point is just that if you want more happy productive citizens, rich parents are going to be disproportionately likely to create them.
  • Increased long-term tax base. Related to the above, the children of rich parents are disproportionately likely to be net tax contributors in the long run, and much less likely to required sustained government support. To the extent that we care about ensuring a good ratio of citizens who pay into the system compared to those whom the systems supports, thereby ensuring the sustainability of generous welfare states, more kids from rich families is a helpful move.
  • Helps intergenerational equality by encouraging division of assets among multiple offspring. I've heard it suggested that Napoleonic codes of inheritance - according to which each child must be given a fair share - helped break up large estates in France. While the US (outside of Louisiana) doesn't enforce this particular code, social and family pressures mean that most families will split their inheritances relatively equally in most circumstances. If the wealthy have more children, this would provide a brake on the long-term accumulation of wealth within family lineages, as each generation divides up the wealth further. For those concerned about inequality, this is a good thing.
  • Fosters long-term thinking among the wealthy. More speculatively, one might think that if the rich and powerful had more children, it would encourage them to be more invested in long-term issues like climate change and social stability. Maybe the marginal effect of having a fourth child is small, but the effect of going from zero children to one might be significant.
  • Potential to lift birth-rates society-wide. In much of the developed worlds, large families are currently a negative status marker, as fertility rates are higher among the poor than the rich. This in term might influence aspirational middle classes to have fewer children as an implicit form of social signalling. By breaking this negative association, we might change the perceptions of large families society-wide.

A few quick objections -

  1. The very rich are unlikely to have more children just for tax reasons. As Scott discussed in his blog last week, people's behaviour is less affected by monetary incentives and penalties than you might think. That said, I imagine the ultra-wealthy are possibly more likely to be affected by these incentives than the median citizen. For one, if you're worth $25 million, dropping from a 3% to 2.5% wealth tax bracket would mean your children more than paid for themselves. For another, the ultra wealthy can likely avail themselves of nannies and fancy schools to reduce the parental labour.
  2. This is unfair on the rich who want to remain childless. As a liberal society, why should we penalise people for having fewer children? That's their right as individuals! Well, yes, it's their right. But children are incredibly expensive, so by not having children, you're essentially increasing the amount of disposable income you have to spend on other things, hence childless couples can be subject to higher rates of tax without it affecting their ability to live very comfortable lives. More generally, I'd want to frame the policy in terms of children from rich families being a positive externality: they're likely to contribute very significantly to society as a whole (as taxpayers at the very least) over the course of their lives. Companies that build wind turbines aren't inherently more deserving than companies that build diesel generators, but because they differ in terms of externalities, it's not a morally fraught issue if we decide to tax them differently.
  3. Unfair on those with fertility issues. Of course, the policy might seem unfair to rich parents who want to have children but can't. However, you'd want to design the policy so as to include adopted children. And of course, rich families adopting children is itself a social good we want to encourage.
  4. A giveaway to the rich and fecund! Shouldn't we be aggressively taxing the rich regardless of fertility levels? Well, policy as suggested is compatible with a bunch of different marginal rates of tax - it's just a proposal for how the tax burden is distributed within the set of wealthy people. So rather than taxing everyone at 2%, say, we tax some at 3% and some at 1%. Total tax revenue obtained can be held constant by varying the specific marginal rates.
  5. Will have the usual distorting effects of any tax. Should we worry that a policy like this will lead to the rich callously churning out babies to save a few bucks? Maybe they'll adopt orphans and keep them locked up for their tax benefits? In practice, I think this is very unlikely. We have incredibly strong social norms about being a responsible parent, and biology means that most parents can't help but be very interested in their children's well-being. I can't imagine many rich parents would choose to have extra children for tax reasons that they went on to neglect.
  6. EUGENICS! Obviously, there's a big upside for a policy like this for people worried about dysgenics, insofar as it will lead to higher fertility rates among a subset of society that is more productive and intelligent than average. But you don't need to care about those issues per se (and strategically probably shouldn't mention them) in order to be persuaded of the policy's merits - building a sustainable tax base and breaking up massive intergenerational transfers of wealth are two good reasons in themselves.

I realise that the idea of subsidising children isn't anything new, but as far as I'm aware, no-one has implemented it specifically for a rich subset of society. Interested in the sub's thoughts!