No Taxes After 4 Children?
By Christopher Tidmore
Hungarians have boosted their birthrate by enacting a lifelong ban on income taxes for women who bear four children. Could the US do the same?
One of the main reasons that the unemployment rate is so low in America is that we are running out of people. Not literally, yet the US population has begun to see a massive decrease. For every 900,000 baby boomers who have retired, 400,000 GenZ enter the workforce to replace them. That chasm will widen in the coming decade.
An economy’s ability to grow intrinsically links to the number of young people entering the workforce—and therefore utilizing the disposable capital they earn as consumers. However, after a brief boom of GEN-Alphas two decades ago, the US Birth rate has declined to 1.784 births per woman, a number that has remained nearly statistically constant since 2020. Put another way, In the US, the birth rate has been falling since the Great Recession, dropping almost 23 percent between 2007 and 2022, well below replacement numbers. 2007 stands as the year when the youngest ‘Millennials’, the children of the Baby Boomers, came of age. GenZ are the children of Gen X, the smallest generation begetting another small generation. The US has not boasted of a birth rate above 2.1 (the replacement rate) since 1964. Fewer births begets fewer consumers and workers two decades later.
Moreover, immigrants will not save us long-term. Despite Trumpian fears of being “overwhelmed at the border”, immigration from Mexico has actually gone negative for a decade. More Mexicans return to Mexico than settle in the US. The most of recent surge in border crossings come from Central Americans econmically migrating north, crossing through Mexico, yet that trend looks to peak as early as 2026. Free trade agreements normally take two decades to bolster local market conditions. Enacted in 2004, CAFTA-DR has boosted cross-border trade to over $100 billion, increasingly offering Central Americans better job opportunities in their home countries. As international analyst Peter Zeihan postulates, perhaps two to three more years of large, cross-border immigration waves from the south will come before trends become negative, whether Trump builds a wall or Biden shuts down the border. CAFTA is transforming economies just as NAFTA created the job prospects of millions of Mexicans.
Declining birth rates present a challenge across the industrialized world. For the first time in Earth history, more humans age over 65 than under 15. This has not only strained social welfare systems, such as the US’ Social Security, but the future economic vibrancy of countless nations.
Across the world, few successful programs have qualitatively reversed the depopulation trend, except in the most unlikely places – Hungary - which has seen a marketed increase in births and a 50% reduction in abortions, even as the procedure remains legal.
It all comes down to taxes. Any Hungarian woman who has four children or more, becomes exempt from income taxes for the rest of her life. That is not to say that other incentives, including free pre-K, financial incentives for home purchases by large families, and subsidies for larger automobiles have not seen some positive impacts as well. Nevertheless, every other scheme resulted in an uneven impact until the Hungarian government abolished taxes after four kids. Families now possess a long-term financial incentive to have more children, and it seemingly works.
That is not to say it was the only benefit. Cash incentives were boosted for the first three children as well (as long as a member of that Hungarian family had paid two years of Social Security taxes prior to bearing children.) The children - who could be of blood or adoptee - have to live with the parents to fulfill the criteria.
Hungary experienced some the lowest birth rates in the industrialized world at 1.32 as recently as 2000. Other social programs helped a little, yet after the announcement was made to abolish permanently income taxes after the birth or adoption of one’s fourth child, the birth rate increased to 1.35 to 1.55 in a three-year interval. Perhaps more stunning, abortions decreased by 50%. (Abortion in the first 12 weeks has been legal in Hungary since 1953.)
Birth rates in Hungary continue to trend up where elsewhere in Europe, they decline. That’s not to say the tax incentive is the only one. Viktor Orban’s government has earned considerable criticism from civil libertarians, often justifiably, yet American progressives, could only dream of spending 4% of GDP on pro-family policies, including free child care and affordable home/automobile incentives—as his government has.
None of these programs reversed the declining Hungarian birth rate by themselves, though, until the major tax life-long incentive was implemented. Children are expensive, yet having large families affects the careers of women and couples in ways that small families do not. Four children cost far more than double the cost of two. It’s a lifestyle choice which never ends. Incentivizing large families over a parent’s lifetime with unending tax benefits may prove the only way to counter a declining birth rate in the modern industrialized democracy.
Could the United States abolish personal income taxes for families of four children or more? Many on the US political Left would object to millionaires receiving unlimited tax forgiveness, but the Hungarians have tempered this benefit by keeping most wealth taxes—like capital gains and dividends—in place. That decision alone skewed the benefit of abolishing the taxes to mostly middle class couples.
On December 31, 2025, the Trump tax cuts will expire, forcing the US Congress to engage in a major debate next year on the future of the US tax system next year. Calls will be made to expand the child tax credit, which enjoys relative bipartisan support. As part of that debate, could the discussion on family size be extended to major tax benefits to bearing four or more children—which lasts a lifetime?
As the Louisiana legislature confronts the desire to abolish the state income tax in the 2025 Fiscal Session, yet lacks the financial wherewithal to cut income taxes across the board, could a discussion of family size provide a reasonable compromise to abolish income taxes for some without breaking the budget?
To hear more discussion about this proposal, listen to the author’s Feb. 23 WRNO radio show, available online at www.thefoundersshow.com