Talking about sacred cows is tricky because they are unquestionably beloved by so many. Take, for example, the Adoption Tax Credit, part of the recently passed “One Big Beautiful Bill.” Lawmakers from both ends of the political spectrum love it because their constituents love it. Congressional sponsors of a previous bill to “make adoption more affordable” range from deep blue to deep red. One might expect the Adoption Tax Credit to moo.
But every now and then, we must reexamine a sacred cow to evaluate whether it still serves the public good—or if it has passed its prime. This three-part series does just that.
(Note as you proceed: It may feel uncomfortable to think about adoption through the lens of economic terms and theories because society tends to think about adoption as something that is altruistic and inherently good. But it is important to consider the economic forces at work behind what is, of course, an industry in which millions (by some accounts, billions) of dollars are exchanged.)
Part 1
Market Forces: Supply, Demand, and Price
A Brief History of the Adoption Tax Credit
The Adoption Tax Credit (ATC) was designed to make adoption more financially accessible. Some see the ATC as a sort of financial equalizer for those who, due to infertility or other circumstances, must pay thousands of dollars just to reach the starting line of parenthood.
Introduced in 1996 as part of the Small Business and Job Protection Act, the credit initially provided $5,000 against taxes owed for qualified adoption expenses. For adoptions finalized in 2025, that figure is now $17,280.
The “One Big Beautiful Bill” restored a notable feature: rather than only offsetting taxes owed, families can now receive up to $5,000 as a refundable credit—even if they owe no taxes at all.
This may sound like a win for families and for adoption, but it’s important to examine how the ATC influences adoption economics and ethics, particularly in the realm of domestic infant adoption. In fact, we find that the tax credit may actually worsen the very issue it’s intended to solve.
Two Types of Adoption, Two Opposite Challenges
Public Adoption | Child Welfare System | Foster-to-Adopt
When people talk about “kids in need of homes,” they’re usually referring to children in the child welfare system—also known as foster-to-adopt. The first goal of this system is family reunification. When that isn’t possible, the aim becomes finding a permanent adoptive family.
Private Adoption | Domestic Infant Adoption
Private adoption refers to situations where an expectant parent places their baby with another family. In the 20th century, this often meant closed adoption—no contact between birth and adoptive families. More recently, open adoption has gained favor, offering the potential for ongoing relationships. Whether that contact is routinely maintained is another question.
Not included in this discussion are international adoption and kinship adoption, which are also covered by the Adoption Tax Credit (step-parent adoption is not).
Key Distinctions
People unfamiliar with adoption may not grasp the fundamental differences between public and private adoption. In public adoption, the state intervenes when a biological family cannot safely care for a child. Private adoption usually involves a voluntary placement (albeit with constrained choices) by an expectant parent.
Public adoption is subsidized by the government; private adoption is funded by adopters.
Conflation & Confusion
These differences in autonomy and in finance can lead to a dangerous conflation of goals. Well-intended policies may inadvertently incentivize separating some families in order to build others—crossing ethical lines and deepening trauma for mothers and babies. All of this is the result of basic, predictable economic forces.
In public adoption, there are too many children and too few families. According to the Congressional Coalition on Adoption Institute, there are currently 115,000 children in foster care legally available for adoption*—a clear mismatch between supply and demand.
In private adoption, the problem is flipped. In Adoption Unfiltered,™ my co-authors and I note that based on available data, there are at least 50 hopeful families for every one available infant. That’s an enormous imbalance—just in the other direction.
Since 1996, Congress—encouraged by the National Council for Adoption and its member agencies and attorneys—has tried to use economic levers like the Adoption Tax Credit to fix these imbalances.
But there’s a catch.
Supply, Demand, and What Happens When You Add a Subsidy
In a free market, price is the mechanism that balances supply and demand.
- If supply exceeds demand, prices fall (think sale rack).
- If demand exceeds supply, prices rise (think concert tickets for a rising hot band).
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So which “supply” is the Adoption Tax Credit designed to increase?
If the answer is families for children, such as within the context of public adoption, then the credit works as intended. By offsetting financial barriers, the ATC makes it easier for more families to adopt from the foster care system when this outcome is deemed necessary.
But in the context of private adoption, the ATC fuels an already oversaturated pool of hopeful adoptive parents. It further increases the number of people trying to adopt babies, where the ratio is already more than 50:1.
We often refer to the children as the “supply”—not the adoptive families. And here’s that ethical catch: We don’t want to increase the number of children needing adoption. It would be deeply unethical to separate families simply to meet demand for adoptive placements, wouldn’t it?
Adoption, particularly private infant adoption, is a supply-constrained domain. And in such a domain, economic theory tells us that subsidies don’t increase availability—they just increase the price.
As political scientist Steven Teles, PhD puts it:
“If you’ve got a supply-constrained domain and you add more subsidy [such as the Adoption Tax Credit], that subsidy can only get processed through the price. It doesn’t actually make it more available; it just pushes the price up.”
—with Yascha Mounk on The Good Fight podcast (which has nothing to do with adoption)
And that’s exactly what the ATC does in private adoption. Instead of making adoption more affordable, it drives prices even higher—creating perverse incentives and exacerbating inequities.
Coming Up
In Part 2: The Adoption Industry, we explore how the Adoption Tax Credit affects the adoption industry itself, including the perspectives of seasoned professionals who’ve witnessed these dynamics unfold.
More Reading
- National Adoption Week was originally meant for adoption through foster care, but infant adoption quickly piggy-backed onto it.
- Safe Haven Baby Boxes, another case of unintended consequences.
2 Responses
And prices just keep going up for hopeful adoptive parents. Adoption is complicated at the most basic level within the family and complicated as an industry. Thanks for this education !
You are spot on with your observations, Linda!