(WOMENSENEWS)–As my husband and I prepared for the birth of our daughter several years ago, we sought help from lots of people: an obstetrician, a childbirth instructor, our parents.
We should have called a tax adviser.
Like most, we thought of the tax code as “neutral.” Yet, we sensed that after taxes and child care expenses it didn’t pay for me to continue working.
We discovered that the 1948 introduction of “joint income tax filing” for married couples introduced a “secondary earner” bias.
Before joint filing, the United States used a system of “separate filing” for married couples in which tax rates applied to each spouse’s income separately. (This is not to be confused with today’s “married, filing separately” category that is used in rare circumstances like when one spouse wants to avoid the tax problems of the other.)
When the war ended and the costs of war went away, Congress saw an opportunity to reduce taxes, and they wanted to encourage mothers who had entered the work force during the war to go back home.
One move–making joint filing mandatory–addressed both goals by lowering taxes on families with only one earner thus discouraging women from working. The Legislative Counsel of the Treasury at the time remarked that, “Wives need not continue to master the details of . . . business, but may turn . . . to the pursuit of homemaking.”
The joint filing policy hasn’t changed since.
Because of joint filing, secondary earners in a marriage–still predominantly women–are taxed at significantly higher tax rates than their spouses.
How It Works
Here’s how it works. Married couples filing jointly are required to pool their income, no matter who earns what. Then the pooled income is subject to progressive federal tax rates. In 2005 that meant earnings on the first $14,600 were taxed 10 percent; earnings from $14,601 to $59,400 were taxed 15 percent; and earnings up to $119,950 were taxed 25 percent.
This means if my husband earns $59,400, we pay 10 percent on the first $14,600 and then 15 percent on the rest. But on the first dollar I earn on top of that, the tax rate jumps to 25 percent.
His effective tax rate would be 14 percent, but mine would be 25 percent. Plus, we would have to pay for child care and work-related expenses for me to stay in the work force.
Under the current system, we would pay $8,180 on my husband’s first $59,400, but if I earned another $20,000 we would pay $5,000 more on mine alone.
If I were filing separately, by contrast, my $20,000 would be taxed at 10 and then 15 percent, or $2,270.
The secondary-earner bias that results from joint filing creates disincentives for women and mothers and other married caretakers to work outside the home, restricts their options and leaves them constantly asking, “Does it pay for me to work?”
While nothing in the tax code requires couples to think in terms of a primary and secondary earner, joint filing pushes them to do so by pooling the income under one tax schedule and introducing the question of whose salary comes first.
We Saw His Income as ‘Primary’
Men’s salaries are often higher and since that was so in our case, we thought of my husband’s income as primary. He earned more so there was no question he would keep working. Mine was secondary, we could think about changing it. We asked ourselves, “Would we be better off if I add income on top of his and pay for child care and other work expenses, or if I don’t work and care for our baby myself?”
The numbers speak for themselves. Adding to the example an estimated 8 percent Social Security contribution and a 10 percent state tax, my husband would make 68 cents for every dollar earned. For me, adding those taxes plus an average annual cost of child care of $6,000, I would make only 27 cents on the dollar, not counting other work expenses such as clothes and meals.
Since we could survive without it, we decided I should stay at home and contribute to our bottom line and our family by caring for our daughter myself.
Guess what? With child care taken care of and his work expenses already paid for, my husband spent longer hours away from his family at work to earn more.
Lower Earners Lose Tax Break
At lower incomes, the extra wages of a second earner can mean the loss of a tax break called the earned-income tax credit. At these income levels–typically a household income of less than $40,000 a year–the bias is even greater. Adam Carasso and Eugene Steuerle at the Urban Institute in Washington, D.C., have shown that if these parents opt to work more or marry they see little gain and may even lose money.
Given these circumstances, a woman might choose not to get married at all, since then both she and her partner would keep the tax break and end up with a little more money in their pockets. If I stay single with my two children and earn $8,000 and live with my partner earning $29,700, I’m eligible for a $3,210 earned-income tax credit that goes away if we marry.
Most industrialized countries today mandate separate filing as the United States did prior to 1948. We could consider allowing families to choose either joint or separate filing, whichever makes the most sense, instead of forcing all families to use one system.
There are other well-known ways to reduce the work disincentives for women created by the system of joint filing.
We could look at a proposal George W. Bush made in his 2000 campaign to allow a secondary earner tax deduction. We could also expand tax credits or deductions for child care expenses to come close to the real costs and allocate them to the secondary earner. We could fix the earned-income tax credit so that the poorest families don’t lose a tax break for staying married and working hard.
Over 50 years ago, the tax system was set up to push women out of the paid workplace. In today’s world of less job security, more economic instability and more women in the workplace, why would we hang on to a system that pushes people into one mold that is increasingly untenable, and then judge them when they can’t make it work?
At least now I can see why it didn’t pay for me to work. I think I was valuable at home too, though you’ll have to ask my daughter in 20 years. But I hate feeling that I was pressed into a decision by something out of sight and out of my control.
I want more options for my daughter, for my younger sister, for all women.
Instead of having to ask themselves, “Does it pay for me to work?” I want them to simply be able to ask, “What’s best for me, my children and my family?” and act on that.
Without the help of a tax adviser.
Kristin Maschka resides in Pasadena, Calif., and is president of Mothers and More, a national organization for mothers based in Elmhurst, Ill.
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For more information:
Mothers and More:
National Center for Policy Analysis
Women and Taxes:
The Hefty Penalty on Marriage Facing Many Households with Children