Pro-family tax reform is not popular among many economic conservatives for two reasons: First, some imagine this is the equivalent of government paying people to have babies, an idea few of us would support. These critics have forgotten the origins of our pro-child tax policies. The dependent exemption and the child tax credit are best understood as ways to adjust the tax code for family size. It is not fair to tax a family of five with an income of $80,000 the same tax as an individual making $80,000.
Second, pro-family tax cuts are uniquely expensive in terms of government revenue. Unlike cuts in capital gains or income taxes or dividend taxes, family tax cuts do not generate any increase in government revenue over the short run. Instead they tend to increase the proportion of the next generation that is being raised by married couples. Which makes pro-family tax cuts a supply-side issue, but only in the long run.
The great supply-side insight is that the most important form of capital is human capital: the ability of motivated, disciplined workers to produce goods and services, and to create innovative new ways to produce goods and services.
More well-raised babies in married homes become, on average, more effective students, family members, neighbors, citizens, and yes, workers, inventors and entrepreneurs down the road. That is the great long-run dividend we can expect from President Bush's pro-family tax reform.