Basic Child Support Obligation “The Economic Table”

1. Basic Child Support Obligation“The Economic Table” Presentation to the Washington State Child Support Working Group November 2007

2. Overview of Presentation • Morning Session: • The Mathematics of the Income Share Model • The Basic Child Support Obligation (BCSO) or Economic Table • What is it? • How is it constructed? • Comparison of Washington’s BCSO to Alternative Tables • Afternoon Session: • Estimating Spending on Children (Engel, Rothbarth, USDA) • Data Used in the Estimates (Consumer Expenditure Survey) • How can we use the alternative estimates to inform our decision?

3. Preliminary Comments I don’t know how Washington’s current economic table was constructed. Examining what parents spend on their children is an empirical question even though fundamentally it is thought to be a moral question of how parents share their resources with their dependents. Divorce in economic terms reflects the loss of the economies of scale in consumption gained from having only one household. At least one of the newly formed families will have to be worse off unless additional resources are acquired by the two households. The Income Shares Model is a normative standard for support. It is a statement of what should be done for the children.

4. Income Share Model • Statement One: • The combined obligation of both parents to their children is to provide financial support equal to what they would have spent on the children had the family remained intact. • The parents shall share this combined obligation in proportion to their income. • Statement Two: • The children are entitled to a level of support equal to the percentage of each parent’s income that they would have received if the family remained together.

5. The Algebra of Income Shares NCP’s Share of Income Entry from Economic Table CP’s Share of Income Entry from Economic Table

6. Alternative View Share of Parents’ Income Spent on Children NCP’s Income

7. Share of Parent’s Income Spent on Children S Percentage of Income Model Income Shares Model INCP + ICP

8. IllinoisPercentage of Income Number of Children % of Net Income 1 20% 2 28% 3 32% 4 40% 5 45% 6 or More 50%

9. Central Question • What would have been spent on the children if the family remained intact? • Spending on Children: • Child Care • Medical Spending: Insurance Premium and ‘Extraordinary Expenses’ • All other spending • Basic Child Support Obligation or ‘Economic Table’ • Table varies by income and number and age of children.

10. Spending on Children Spending on Adults Net Income Family Spending As income rises, the family will save a higher percentage of their income Savings Why does the percent of income spent on children decline? As total spending of the family rises, they will devote a smaller share to the children

11. Removing Differences by Age of Child • Currently, the Washington Economic Table provides estimates of the spending on children by • Combined Net Income • Number of Children • Age of Child • To find the average spending across the 18 years, I multiplied the entry for the young child (0 to 11 years) by 2 and added the entry for the older child (12 to 17) then divided the sum by 3.

12. Washington State - BCSO

13. Additional Children • As the number of children increases in the family, parents tend to spend more in total on the children but the spending does not increase proportionally. • For example let us assume that I have one child and I am spending $1,000 per month on the child. Now I have a second child, my total spending on the children will rise but not to $2,000. The average spending per child should fall with the number of the children. • Washington’s Economic Table is presented in a such a way that this property is easily seen. Reading across a row in the table, the entries (average spending per child) fall with the number of children.

14. Percent Increase in Spending by Child • In the next slide, I computed the percent increase in spending on children implied by the Washington State Economic Table: where CNI is the parent’s combined net income.

15. Percentage Increase in Spending by Additional Child (WA Economic Table) 55.3% 25.2% 12.7% 9%

16. Alternative Tables • Prepared by Policy Studies, Inc. for the last working group and appear in the Working Group’s final report • The difference in the two alternatives reflects different assumptions about the allocation of total family spending to the children: • Rothbarth • Engel

17. Comparison -- One Child

18. Comparison -- Two Children

19. Comparison -- Three Children

20. Comparison -- Four Children

21. Comparison -- Five Children

22. My Concerns • I am not sure why the current economic table shows such rapid decline in the range of roughly $2,500 to $3,800 of net monthly income. • The table for one child appears low in comparison to the alternative tables otherwise, the table doesn’t appear to be grossly out of line with the alternative tables.

23. Wickham Proposal • Split the difference between the values of the Economic Tables created from the Rothbarth and Engel Approaches • Let us assume that there is true value for spending on the children. If we select a value for the Economic Table that deviates from the true value then a cost will be imposed on either the custodial parent or the non custodial parent. • We should seek to the minimize the expected cost on the parents. This will be done if we select the expected (average) spending on the children. • If we believe that any value between the Rothbarth and Engel estimates are equally likely then the Wickham proposal will minimize the expected cost on the parents.

24. Next Session How are the Engel and Rothbarth estimates derived? Are there other strategies to estimate spending on the children? How do you take these estimates and construct the Economic Table?