indexing the adoption tax credit: good news, bad news

Indexing refers to the practice of government adjusting something for the effects of inflation.

We see this with Grandma's Social Security payment. Her check increases by a few percent each other-- by whatever the government determines inflation to be.

Likewise, the income tax system is indexed for inflation. If you look at your 1040s from year to year, you'll notice that exemptions, deductions, and tax brackets adjust upward every year.

Other things are not indexed for inflation-- most notably, "capital gains" on investments and the minimum wage.

The adoption tax credit adjusts upward as well. This is appropriate-- in terms of both equity and efficiency. But one unfortunate by-product is that adoption continues to get more expensive-- as agencies adjust for what adopters are likely to receive back from the government. This is not too surprising, but it continues to make it more difficult for the working poor and middle class to engage in adoption (since they pay little or no income taxes).

One way around this: extend the tax credit to payroll taxes on income instead of limiting to only "income taxes". This is another occasion when the much more dramatic impact of payroll taxes comes home to roost. If only the Democrats or Republicans would talk about this!