Two kids are enough.

Two kids are enough.

Two kids are enough.

Making government work better.
March 29 2004 3:58 PM

Two Is Enough

Why large families don't deserve tax breaks.

Illustration by Nina Frenkel

The U.S. government encourages families to have children, as many of them as possible. Child tax credits, child-care tax deductions, and family leave policies all reward parents with big broods. The pro-child policies are based partly on romantic notions about mom, family, and apple pie, but they also have a rational goal: We subsidize kids so that our next generation of workers is ready to win in the global economy.

Problem is, these two goals—more kids and better-prepared kids—are at odds. If we really care about kids' welfare and accomplishment, the United States should scrap policies that encourage parents to have lots of children. As my recent research shows, having more than two children is tantamount to handicapping their chances for academic, and thus economic, success. In this information economy, what we ought to be doing through the tax code is making it easier for parents to ensure the quality of their first one or two children, not stimulating quantity. Pro-fertility tax policy is an outdated notion from an industrial era when we needed bodies to fill manufacturing plants. Today we need fewer, highly skilled kids who will compete with our rivals in math and science.

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It's long been known that kids from large families perform worse in school, but it has been impossible to explain why. That's because research about the relationship between family size and children's educational achievement has been plagued by a nagging issue: Large families tend to be different from small families on a number of fronts—religiosity, commitment to education, orientation to the future, maybe even intelligence level. So it has been hard to assess the impact of the number of children in a family as distinct from these other differences. (Maybe Johnny can't read because he has unintelligent parents, not because he is the sixth of nine kids.) After all, with all due respect to Chairman Mao, we can't randomly assign parents to have different numbers of offspring for the purposes of social experimentation—that is, to find out if additional kids handicap offspring.

Here's where my research comes in. I deploy a natural experiment: I examine which sexes parents get for their first two children—a seemingly random event. The key is that families with two kids of the same sex are 17 percent more likely to go on and have a third than those with two kids of the opposite sex. As it turns out, no matter what most people say on surveys (or when their kids pop out), many parents desire at least one of each kind. So my research strategy boils down to the following: comparing children from families in which the first two were of the same sex ("treatment group") to those in which the first two were of the opposite sex ("control group") in order to see who fares better educationally. In other words, while only some of the variation in who goes on to have a third child is accounted for by the sex mix (that 17 percent), that variation is "pure"—that is, unbiased by all the other factors that determine family size and determine achievement—since it is a result of the random event of the sex mix. Its lack of bias is bolstered by the fact that it does not matter which sex the first two are—either way, parents are more likely to go on to have additional kids in search of a complete set.

With the addition of the third child, firstborns don't appear to suffer on the educational front. But middle-borns are severely hurt by the addition of another mouth to feed: His parents are 25 percent less likely to send him to private school, and he is several times more likely to be held back a grade. The third child is also less likely to receive parental financial investment in his or her education and can suffer from elevated risk of academic failure. Evidently, only firstborns get off scot-free.

The reasons that additional siblings hamper the intellectual growth of children (and particularly middle-borns) are fairly obvious—parental resources are a fixed pie, and children do better when they get more attention (and money). The conclusions to be drawn are more controversial. For example, we always talk about the goal of raising test scores and the overall "intellectual" or "human" capital of our population to fit the needs of the new information economy (and to compete with other nations in math and science), yet our tax policy does the exact opposite: It gives tax credits for additional kids. We have to confront the possibility that a more powerful educational (and antipoverty) policy is a tax structure that acts as a disincentive to have more children. Research has long shown that family background is a lot more important than school conditions in predicting academic success or failure. Just about the most controllable aspect of family background is how many kids are in that family. So it stands to reason that a more effective education policy may be to provide economic disincentives to large families.

Perhaps a suitable compromise would be to have a declining tax credit—granting a big subsidy for the first kid, a bit less for the second, then cutting back to nothing (not unlike the current system for the Earned Income Tax Credit). Such an adjusted tax credit (and associated deductions) makes economic sense since the addition of the first kid is the most expensive. It makes educational sense, and last of all, it makes common sense. After all, do we really want to subsidize kid No. 9?

Such a fertility-unfriendly policy would put us at odds with European nations that are desperately trying to stimulate population growth by increasing the tax incentives to have more kids; but then again, if we can't find common ground with the Europeans in foreign policy, what should make domestic policy any different? (Unlike most of Europe, we have a steady influx of immigrants to sustain population growth.) More important, the antibrood tax policies would anger those on both sides of the political aisle here in the United States. Religious conservatives—who see procreation as a divine imperative—may take offense at the notion that the government would not do all it could to facilitate this goal. Similarly, many on the left will protest that such a policy is class-biased, allowing rich people who would be less fazed by the additional expenses to have as many children as they please while leaving poor people to feel the extra pinch. Americans of all political stripes might take offense at the notion of the government getting involved in the sacred sphere of family life. But the truth is that we already are meddling with family fertility through our tax code. We're just not acknowledging it, and, furthermore, we're doing it the wrong way. We need honest discussion about the trade-offs between child quantity and quality.