(Bloomberg) — Parents are the world’s most important investors, making sure that the millions of children born every year become productive adults. Yet parents get shafted by a tax code that favors freeloaders without children.
People who don’t work depend on those who do: workers who generate profits for companies, rents on real estate and interest payments on bonds. Workers also pay the taxes that support the elderly inretirement. This is why parents tend to make everyone better off when they have children.
But raising children is expensive. People who don’t have kids avoid those costs while reaping many of the benefits. Perhaps the greatest injustice is that the childless can use the money they don’t spend in raising kids to pay for a comfortable retirement.
An example can help illustrate this. Imagine two 30-year-old couples with the same pretax income and otherwise comparable lifestyles. The difference is that one couple has twin children and the other has none.
The following chart shows how the net wealth of these two households changes over time:
The childless couple gets an advantage worth about $91,000 in today’s dollars. (I took the present value of the gap in net wealth at age 65 using a 5 percent discount rate.) And that generously assumes the childless won’t have advantages in the workplace that lead to faster wage growth over time. (To be fair, some childless couples pay property taxes, which go toward public schools they will never benefit from.)