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My Worth-Less Wife

What, you thought I was going to write a post trashing my wife? I’m not even that dumb folks.

My wife will be graduating in August and presumably beginning a full-time career come September. She’s hoping to be a full-time nurse in the ED or similar location. Those positions typically pay around $50,000 per year. Suppose we ignore all deductions and credits and other taxes like social security and state income taxes, what would her federal tax liability be on those $50,000 of earnings? She’d pay 10% on the first $17,400 of earnings and 15% on the next $32,600. Therefore she’d pay $6,630 of taxes and will end up with a take-home pay of $43,370, paying an effective income tax of 13.2%.

But she was dumb enough to marry me. Our family is in the 25% marginal federal income tax bracket. Therefore every single dollar she will earn will be taxed at 25%. For doing the very same work, working the very same hours, with the very same training, she will be keeping not $43,370 of her income but instead she’ll be paying $12,500 in taxes and taking home $37,500. That’s right. Just by virtue of being married to me the remuneration from her job is $5,870 less. I can complicate this with more realistic assumptions and make this number look slightly smaller or a heck of a lot larger, but you get the point. Her single classmates will be working the same jobs and will be taking home more for the same work. What was that mantra again?

Here is an old but good piece from Virginia Postrel. Read the whole thing. Here is a long excerpt:

‘There is a relationship between taxes and labor-force participation,” said Nada Eissa, an economist at the University of California at Berkeley and the National Bureau for Economic Research. ”We think it’s fairly strong. In fact, we think it’s strongest for married women,” who are usually the family’s secondary earners and are more likely to consider not working outside the home.

Far more than men or single women, married women act like supply siders. Cut their marginal tax rates, and they get jobs. Raise their taxes, and they stay home.

By disproportionately punishing married women’s work, the tax system distorts women’s personal choices. And by discouraging valuable work, it lowers our overall standard of living.

This is a tax story you won’t hear from politicians. The ”marriage penalty” debate tends to frame the issue as one of family formation: how does the tax code affect a couple’s decision to marry? But marriage isn’t primarily an economic decision.

The more pertinent question is how does the tax code affect a married woman’s decision to work? There are obvious political reasons not to ask that. Democrats don’t want to admit that soak-the-rich taxation wallops working wives, lest they split feminists and redistributionists. And Republicans don’t want to admit that cutting taxes will lead more married women to get jobs, lest they split economic libertarians and social conservatives. So everyone stays mum.

But the empirical evidence is pretty clear. Tax rates are a feminist issue.

Professor Eissa has studied how the tax bite affects behavior at both ends of the income distribution. In a 1995 paper for the National Bureau of Economic Research, she looked at how married women responded to the Tax Reform Act of 1986. That law created a natural experiment. It chopped the top marginal tax rate to 28 percent, from 50 percent, but had only a minor impact on middle-income taxpayers. That gave her an opportunity to compare the responses of different groups of wives before and after the change.

Before it, the women in the 99th percentile of family income (the top 1 percent) on average paid about 52 cents in taxes on the first dollar they earned. In some states, a wife who earned less than $30,000 a year could have paid in taxes as much as 70 cents of the first dollar she earned.

The 1986 law flattened federal rates and, as a result, slashed the average marginal rate faced by such wives to 38 percent. The percentage of these married women who worked jumped from 46 percent to 55 percent — a 19 percent increase — and those who had jobs increased their hours 13 percent.

To make sure this increase was caused by the tax change rather than other trends, Professor Eissa compared it with the behavior of women in the 75th percentile, who got a much smaller tax cut. Their labor force participation and hours worked also rose, but by significantly less — a 7 percent jump in those working and a 9 percent increase in hours worked.

Since 1986, rates have become steeper, as Washington pursued increased revenue and lost interest in supply-side incentives. ”There’s been less discussion of the behavioral effects of taxation,” Professor Eissa said.

9 Responses to “My Worth-Less Wife”

  1. Speedmaster says:

    Great post. Well-stated.

  2. Harry says:

    Maybe that is the reason Obama’s Julia decides to have a child, presumably single.

    I know you did not want to complicate this, but throw in state and local income taxes (which in some states piggyback off the federal return) and payroll taxes, the marginal rate is much higher.

  3. chuck martel says:

    ” the tax system distorts women’s personal choices.”

    This is true of everything the federal government does, and it isn’t just women.

    I n some ways is seems that the MMT boys are barking up the right tree on this, since they claim that tax policy is meant to take currency out of circulation, not pay the bills. Any tax policy creates incentives that are unrelated to fiscal requirements.

  4. Brent says:

    I have, for a long time now, believed the tax code to be about control, rather than revenue. If was about the latter, it would 8 pages and void of loop holes.

  5. cke says:

    Often thought divorce might be a good tax strategy.

    In hindsight, wish we’d had the same ceremony, same minister, same everything, but no license.

  6. Rod says:

    Brent has it right. All of the loopholes are aimed at particular aspects of behavior: home ownership, child tax credit children, earned income credit poverty, alternative minimum taxes for behaving too much in the direction of tax preference choices, and now the sin of paying a lower rate on capital gains than one’s secretary’s marginal income tax rate. Here, doggy! Here’s a bone for you, and if you run after it, you will avoid the electric shock collar’s zappareno to your nervous system.

    In the future, the government will keep track of what you’re doing, day and night, to make sure you spend what income you’re allowed to keep in the proper way. No salt, sugar, butter, or chocolate. Just tofu and soylent green. Look for the union label. Have a nice day!

  7. Harry says:

    Memo to all feminists employed at a salary or wage higher than a 1960’s Mohawk Airways flight attendant: you are about to land in Taxmageddon after December 31. Capital gains taxes will go up, which will depress stock prices in your 401-K, and everybody’s tax rates on income will increase to levels before the obscene debilitating Bush tax cuts.

    Feminists in New York and California will have no say in this matter, since your political fate has already been cooked. Too late to get rid of Chuck Schumer or Barbara Boxer, both of whom have calculated that government-funded abortion and mandated paid maternal leave will get every woman to love them.

  8. Rod says:

    I was wrong to characterize home ownership (and the tax deduction for mortgage interest) as an objective of a tax loophole. All interest paid should be deductible if interest received is taxable.

  9. […] Earlier this Spring we examined how one aspect of our tax code (our current debates are like two people fighting over the last egg salad sandwich on the titanic) is anti-family and anti-women. For all of the rhetoric we hear out there about “equal pay for equal work” the idea that you can ever achieve this and also have a progressive income tax in place is a joke and a myth. The fact that my wife is married to me, a wage earner, means that for her job that pays her somewhere in the range of $50,000 per year, she gets to keep about $5,000 less of her earnings than unmarried people who are working right alongside her doing the same things and for the same wages. […]

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