Taking care of careworkers, free education, and the 529
When it comes to tax hacks, we usually hear about how the ruling class is constantly exploiting loopholes in the tax code to keep their money from the government. The typical story with these hacks is that they prevent redistribution: rich people find ways to keep their money instead of giving it to the government, who can use it for programs that would benefit the public rather than just private individuals.
If you're a modern monetary theorist, you take issue with this picture of taxes-funding-programs since the government creates its own currency and can fund as much of anything as it wants (like we see for military spending), but the outcome is more or less the same: the government continues to permit rich people to hold onto their resources rather than provide resources and programs for everyone else.
This is all a way of saying that we don't usually hear about redistributive tax hacks. Like, you wouldn't expect people who have a lot of money to be looking for ways to use the tax code to make sure people who don't have money get more benefits. But I actually heard about one such hack recently that I thought I'd pass along, and it has to do with care work and education.
I heard about some young parents recently who feel like crap about how nannies get a raw deal in terms of pay and benefits. Carework is a highly unregulated industry, which leads to bad labor practices. Domestic workers have been fighting against this for a long time, and one of the crucial constituencies in the fight are employers: parents hiring nannies, for instance. These parents I heard about showed some creative solidarity in how they were treating their nanny. Though they weren't part of a movement to create policy that would transform the situation, which is ultimately what we need, they'd found a tax hack I found notable.
In addition to paying their kids' nanny an above-market wage, the new parents offered to open a 529 account, using their own bank account, in the nanny's kids' name. A 529 account, if you don't know, is a college savings account that has a tax exempt status for withdrawals and holdings. You can put money in there and you won't be taxed on holding the money. Also, when you take it out, you won't get taxed either. Typically, when you put money away, it gathers interest and you get taxed on having it and taking out when you want it. But the 529 exempts you. The policy encourages saving for kids' college since the government won't tax you for saving it.
So what these parents do is create and contribute to the 529 for their nanny's kids. The nanny benefits from the interest that accrues, doesn't have to pay taxes on the money when they use it to pay for college, and doesn't have to do the work of setting it aside themselves. The parents do all that, keeping their contributions below the legal threshold for gifts in a year.
Of course, this takes a lot of trust. The nanny has to trust the parents--they could just keep the money since it's in their account, and thus in their control--and the parents have to trust that the nanny will stick around, that the arrangement between them will work, for long enough for the nanny to take advantage of the arrangement. Nonetheless I was impressed because it contains the seeds of a policy proposal that might be nested within a larger series of regulations for protecting careworkers and providing something like free college.
Ultimately, this 529 tactic combats the problem of the unprotected and exploited careworkers doing childcare, providing a benefit to them. But it also combats expensive higher education, which prevents working class kids from getting its benefits. When working class people can't save money for their kids to go to college, the kids and the parents have to go into punitive and miseducative student debt.
The way to solve this problem is making college free. But what should it look like to have a policy in the US that makes college free? Obviously a ready to hand notion is to have the federal government fund tuition, and calls for free college follow that framework.
But like I've written about before, such calls that rely on a centralized federal government go against the grain of how the US actually governs. Typically, in the mish-mash federalism of local and state governments, the federal government's role is to provide credit carrots or tax incentives for those other governments to put certain kinds of policies in place.
For instance, I could imagine a federal childcare program that has a clause providing tax incentives for employers (read: parents) that do the 529 hack I described above. If you open a 529 in your childcare worker's kids' name then you don't have to pay tax on the income you put in that account. You could declare it tax exempt. Alternatively, the state or local government could open these accounts for the childcare workers, making contributions, thus becoming a co-employer, taking the labor process out of the dark and into the light of some regulation.