There has been a flurry of articles recently regarding the first-borns of 2008. Every article cites the fact that the baby being born on January 1st means the family will not be able to claim the child as a tax deduction and will also not receive the child tax credit for tax year 2007. For simplicity, there is no pro-rated system for exemptions or filing status under the federal income tax. For a family earning less than $100,000 who is in the 15% marginal tax bracket, a baby in 2007 would have saved the family about $1,500. While this may seem a lot, it may be disturbing for some to see the extent to which parents concern themselves with this issue in the delivery room. It has been the case for some doctors to induce birth prior to midnight on January 1 just so the family can get a bigger refund check in three months. (Most likely, there is also the issue of fraud where the doctor could merely backdate the birth.) Is this behavior optimal?
Assuming the parents care about their offspring to the same extent that they care about themselves, then one would expect them to act with more caution in disrupting a pregnancy for the mere purposes of a one-time income gain. On the cynical side, however, if they care about their offspring less than themselves, then some parents would be willing to engage in a relatively high degree of risk to the health of the child in order to obtain a bigger tax refund check.
For more on this phenomenon, check out a New York Times article on the topic last year. There is also some empirical economic evidence on this as well.
A similar issue is scheduled to take place 23 months from now with the estate tax. Under current law, it will be nonexistent in 2010, but will come back in full force in 2011. This could possibly lead to some difficult decisions having to be made in December 2010 regarding the value of one's living a few extra months or years relative to the financial gain to heirs of a zero estate tax bill.
The U.S. has seen many debates over what constitutes art, especially with regard to taxpayer-funded projects. This issue has come up in other countries, as well. Any government that treats art differently from other goods or professions with regard to taxing and spending policies will face the unanswerable question, What is art?
From Vertex, Inc.'s Sales Tax State Activity Update:
Thespian Turmoil - Film Acting is Not Art According to HMRC
At issue was where to tax acting services performed in New Zealand by a UK actor and supplied to a New Zealand production company.
The actor contended that the acting services she supplied should be taxed where performed as cultural, artistic or entertainment activities under Art 9(2)(c) EC Sixth VAT Directive (now Art 52(a) Directive 2006/112/EC). ...
The position of HMRC was that the services in question were not cultural, artistic or entertainment activities because they were supplied in connection with a film. Their contention was that the services had to be interpreted in the context in which they were delivered.
Acting services supplied for a film are fundamentally different from acting services supplied for a theatre production. Since an actor providing services for a film is not performing to an audience, unlike a theatre performance, it is not a cultural, artistic or entertainment activity.
The filming of an actor's role is, instead, part of a process that may lead to a cultural, artistic or entertainment experience in the form of a finished film. As a result, the acting service should fall under Art 9(1) EC Sixth VAT Directive (now Art 43 Directive 2006/113/EC) as a basic supply of a service. ...
The VAT Tribunal ruled that there were no fundamental differences between acting for a film and acting for a theatre production. Therefore, the supply is related to a cultural, artistic or entertainment activity under Art 9(2)9C) and taxed where performed which in this case is New Zealand.
Most people would argue that a government official is not qualified to decide what should be considered art. The only way to avoid having policymakers decide what counts as art, entertainment, or culture is to remove from the tax code all special provisions relating to these activities.
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