TFSAs for Children would change the current perception of children as luxuries that can only be afforded in small numbers.
With contributions to Tax Free Savings Accounts raised to $10,000 a year, people in or aspiring to the middle class who are able to take full advantage of this innovation can now easily become millionaires by their 50s. The TFSA is an innovation that promises to transform society by undermining the nanny state, rewarding the work ethic and creating a self-reliant citizenry.
This return to traditional Canadian values in the economic sphere can be augmented by another TFSA-type return — to the traditionally larger families that were the norm in Canada and other successful societies before government became super-sized. Larger families would reverse the long-term decline seen in the Canadian-born population, reduce the intergenerational inequities that will otherwise be burdening today’s youth, roll back perverse immigration policies and massively spur the economy.
Before the state intervened to change the institution of the family by providing pensions, day care, elder care, housing, financing and other services that negated the need for family members to rely upon each other, the young as well as the old were generally seen as assets: Children provided financial security for parents unable to work; grandparents helped out as baby-sitters and cooks. Families are no longer as large or as close-knit, with both children and the elderly often seen as costs rather than benefits.
The state has also suffered from the decline of the family — most Western countries face population decline and lowered economic growth accompanied by the reduced political heft that comes of diminished size. Peoples also face doubts about their very viability, particularly when the fertility rate drops well below replacement levels. As a Quebec Finance Minister once put it in introducing Quebec’s ill-fated Allowance for Newborn Children scheme, “The fall in birth rates is a sign of a people in decline.”
To stem or slow the decline, most political jurisdictions offer baby bonuses or other tax incentives designed to encourage procreation, often structuring the schemes — as Canada’s Child Tax Benefit does — to reward subsequent children with stepped-up per-baby payments. But although parents respond to the economic incentives, they don’t respond well enough to justify the often-immense expense. Quebec’s scheme was cancelled after a decade because the government found most parents were pocketing the baby bonus without upping the number of children they would have had anyway. Other tax schemes — like California’s — were cancelled because they encouraged single women on welfare to have additional children they couldn’t afford, raising the state’s social services costs.
More fundamentally, the many ways governments try to encourage procreation fail because they only add to the burden on taxpayers — the extra children don’t reduce the citizenry’s dependence on the state; the children become additional, unaffordable dependents by virtue of needing state support.
The solution is to phase out many of the current child subsidies paid by all into the tax system in favour of Tax Free Savings Accounts for Children, available from the year of birth. Instead of the government rewarding parents with an immediate cash incentive of some kind, the government would keep the cash but allow parents to invest, say, up to $5,000 per year in an account for each child, or a cumulative $90,000 per child over the 18 years to adulthood. Couples cash-strapped in their early parenting years would be able to catch up in later years with contributions larger than $5,000, until they reached their $5,000 per child per year limit. A $5,000 per year contribution in each of the 18 years, if not needed for other purposes, would grow with compounded earnings of 5 per cent to $140,000, more than enough to pay for a university education.
If needed before then — as would ordinarily be the case, whether to pay for extraordinary expenses such as braces or recurring expenses such as for sporting activities — the funds could be tapped for government-approved child-related purposes. Other expenditures that the government currently encourages through tax credits include day care, private schools, and medical care. Until age 18, the parents would be acting as trustees, after which the remaining funds would be the child’s.
Apart from foregoing the expense of traditional baby bonuses, the government wouldn’t need to provide Registered Educational Savings Programs, wouldn’t need to so heavily subsidize universities, wouldn’t need to have overly rich pension plans, and also wouldn’t need to tax people as much — the size of government could shrink as the TFSAs for Children grew. In effect, taxpayers would be investing their own money rather than being taxed by a government that then did the investing on their behalf.
TFSAs for Children would be an antidote to government growth, and a spur to fertile family-based societies
TFSAs have proven to be enormously popular as a savings vehicle for adults. TFSAs for Children would likely also be popular, changing the current perception of children as luxuries that can only be afforded in small numbers, spurring baby-making as no previous program had, and without the high costs and pitfalls of baby bonuses. Because governments wouldn’t reward parents with cash gifts for their babies, those unable to support children wouldn’t be incented to have them. The incentives for baby making would entirely focus on those taxpayers inclined to saving and with a long view — an appropriate match for those assuming the responsibility of raising children. As TFSAs for Children become popular, society will tilt more toward the work ethic needed for saving and investing, providing benefits for all.
Those benefits for all will come in many forms, not least in a reduction in cross-subsidies — taxpayers without children wouldn’t be contributing to baby bonuses, day cares and other services they don’t use, as they must now. With more parents able to afford three or four children, as they commonly could a half century ago when society was less affluent and government was smaller, there would be many more future contributors to our health and pension systems, diminishing the hidden per capita debt that the next generation faces. With the labour force flush with home-grown workers, immigration policy can also return to tradition, eliminating the present bias to luring investors and temporary workers at the expense of a more open immigration that allows family members in foreign lands to be reunited with those already here.
The growth of government came at the expense of the family, necessarily if inadvertently so. TFSAs for Children would be an antidote to government growth, and a spur to fertile family-based societies.
This is the second column in a series. For the first in the series, click here.