Paper presented at the ISSA Expert Group Meeting on "The Relationship Between Social Security and Fiscal Systems", Jerusalem (Israel), 12-14 December 1978.
2.
The views expressed are those of the authors and in no way' commit OECD member countries
3.
Much of what is said may apply also to unmarried couples, persons whose children are no longer dependent and couples with dependants other than children. but so that we can refer more briefly to "parents" and "childless couples", it is assumed that the dependants are children, the parents are always parents of dependent children. the couples are married and the couples without dependent children are childless. These assumptions enable us also to ignore tax reliefs, and the occasional cash transfers, given to all married couples.
4.
There are, of course, other instruments which affect disposible income: for example, indirect taxes and indirect subsidies (e.g. housing, school meals, nursery facilities).
5.
The descriptive and statistical- material in this paper are taken from two OECD publications: The trcatment of family units in OECD member countries under tax and transfer systems (Parts, OECD, 1977) and The tax benefit position of selected income groups in OECD member countries 1972-1976 (Parts, OECD, 1978). Some of the statistical material in the latter publication has now been updated to cover 1977.
6.
Sometimes referred to as "tax deductions" or "tax exemptions".
7.
Another view not discussed here is that children are a form of "consumption good" which couples choose to indulge in and derive a pleasure from, especially in a modern society where the social pressures to reproduce are- less and the means to avoid reproduction more widespread than ever before. Under such an approach there would be no reason for preferential teatment for parents unless governments wished to encourage this form.
8.
Brannon G., and Morse E.: "Tax Allowances for Dependants: Deductions versus Credits", in National Tax Journal, Dec 1973.
9.
"Rapport du Comite des Revenus et des Transferts", La Documentation francaise (Paris, 1976), p. 72.
10.
Yet another view not discussed here, which used to be more fashionable than it is at present, is what might be dubbed the "elitist approach" under which it would be held that governments should encourage the rich but not the poor to have children. Proponents of such a view might support "tax allowances" or the family quotient sysrem" but this would be on grounds quite different from the "taxable capacity" argument discussed in the last paragraph, for such an approach could equally be implemented under cash transfer systems by relating their value positively to income.
11.
In principle, it would be possible to pay the family any excess of the tax credit over its tax bill: in practice, this is not usually done in those countries which give tax credits to dependent children, so that any such excess is wasted, while for those whose income is too low to pay tax, the whole of the tax credit is wasted. Tax allowances are also wastable in this sense, but their value is dependent on income even where it does not exceed tax liability. (It may be mentioned that usually the terms "refundable" and "non-refundable" tax credits are used rather than "non-wastable" and "wastable" but it seems illogical to talk of mfundable when nothing has been paid.)
12.
In principle, tax and welfare systems could be integrated by replacing both tax allowances and cash payments by non-wastable tax credits, or, in other words, by a negative income tax system: in practice, this is not done. Parents are never subsidised solely by tax credits and negative income tax regimes have been confined to temporary experiments at state or provincial government level in North America. (For reasons why, see, inter alia. Nagative income tax, (Paris. OECD, 1974).
13.
It is understood that administrative considerations were responsible for the move of Germany from tax allowances to cash transfers rather than to tax credits, which had originally been planned. '
14.
"Family quotient system". This is a particular type of "income splitting system" under which the total taxable income is divided into a number of parts, the number being determined by the composition of the family and the rate of tax appropriate to this income as divided by the appropriate number of parts is applied. This system is practised as regards relief for children only in France, and is most advantageous to higher income taxpayers as the benefit of income-splitting increases as income increases.
15.
"Separate tax schedule". Lower marginal rates of tax can be prescribed for couples with dependent children than for childless couples.
16.
In other words, the percentages in column 5 amount to over half of those in column 2.
