The “not-so-nice” Adoption Tax Credit

Posted by Patrick Corkum on April 14, 2009

I can’t help but look for those things that could be better in pretty much any situation. It’s a bit of a curse as I never seem to be content. However, on the other side, it’s a blessing as I usually have an idea as to how to make it better. The adoption process that we’ve been going through over the past year is no exception to the rule. There are very few aspects to it that I don’t think could be better.

For the sake of this post, I am going to limit my “complaining” to a couple aspects of the governmental process. To be even more specific, as that topic could take up an entire book, I am going to limit it to the financial perspective.

Problem:

The government tries to be nice by offering a $12,000 tax credit to help offset the cost of adopting a child. A tax credit for $12,000 is wonderful, but it’s not the right solution.

First, it’s not quite enough. Simply by having a tax credit of this size indicates that the government believes that adoption helps the common good. Yet, the least expensive foreign adoption (I will address foreign vs. domestic in a later post) is around $20,000. This leaves a minimum of $8,000 to come from somewhere. Where does this come from? It often comes from credit cards, home equity loans, friends and family. For some people, it’s not an issue as they are rolling in dough, but then they don’t need the tax credit to begin with. The amount should be larger.

Second, it should not be a tax credit. I’ve already stated that the people with money are not the issue; it’s the people who need the money in order to adopt. Let’s just use the phrase “lower income.” First, they need to front the $12,000 that they don’t have and wait for the adoption to be finalized. So, let us pretend for a second that a “lower income” family wants to adopt a child and give him a loving home. They begin the adoption process in 2007 and it takes two years before they get the child. The child arrives in July 2009. They then wait for 6 months to finalize the adoption in January of 2010. They then have to wait until February 2011 at the earliest to claim the tax credit. That’s a four year waiting process in which a low income family must float $20,000. To make it worse a low income family may not owe that much in taxes. Let’s pretend that the family only owes $2,000 per year. They have five years in which they can roll over the tax credit. This family will never receive the full benefits and it will take them longer. Lower income families have fewer resources to begin with and get less back in a longer time because it is a tax credit.

I’m not going to even mention the funny money involved as you have to pay thousands to the government to process the immigration paperwork. (Oops…. did I just mention that)

To summarize the problem: The amount is not enough and the people who need it don’t get it all and what they do get they don’t get when they need it.

Solution:

There’s a solution to these problems. There are several possible solutions in fact. I will give one simple one: $20,000 Grants. If a couple uses a licensed agency for the adoption, let the money be available to the agency and let them administer the funds. Of course you need some rules behind it all. For instance, it will only cover incurred expenses. In addition, couples are not allowed to be seeking fertility treatments while in the adoption process. Perhaps a few others to ensure that the money actually gets kids adopted.

Please feel free to comment. I would love to hear other peoples opinions and ideas!