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@ hamiltonproj Tweet your questions to # helpworkingfams

@ hamiltonproj Tweet your questions to # helpworkingfams. Giving Secondary Earners a Tax Break: A Proposal to Help Low- and Middle- Income Families . Melissa S. Kearney University of Maryland and NBER Lesley J. Turner University of Maryland. Challenge.

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@ hamiltonproj Tweet your questions to # helpworkingfams

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  1. @hamiltonproj Tweet your questions to #helpworkingfams

  2. Giving Secondary Earners a Tax Break:A Proposal to Help Low- and Middle- Income Families Melissa S. Kearney University of Maryland and NBER Lesley J. Turner University of Maryland

  3. Challenge • Lower middle class families with two earners see little gain from spousal work • Low rate of take-home pay for secondary worker • Added strain, without much additional income • Poor work incentives • Federal income tax code based on family income • Joint taxation implemented in 1948, when few wives worked • Most married-couple families now have two earners • Unusual among developed countries • Secondary earner penalty • Families with income between 100-200 percent FPL in phase-out region of most benefit programs • Ex – EITC for family with two children: eligibility $43,038 for single filer; $48,378 for married filer.

  4. Ex: Couple making $25,000 each Under current federal tax and transfer system (SNAP), and assuming standard child care costs, a family headed by a primary earning making $25,000 a year will “take home” less than 30 percent of a secondary worker’s earnings. If just one earner: $25,000 in earnings • $3,800 in payroll taxes • $4,900 EITC payment • $2,000 Child Tax Credit • $2,600 SNAP Spouse goes to work full-time (under current law) • $7,600 in payroll taxes • $0 EITC • $5,000 in ccare - $1,000 CDCC = $4,000 • $0 SNAP • Percent of wife’s earnings kept by household: 29%

  5. Secondary Earners in Low- and Middle-Income Families:Low Rates of “Take Home” Pay

  6. Secondary earners should get a tax break • Helps working families • Family with same amount of income from two earners does not have same resources as one-earner family with same income level • Second earner taxed higher than first earner • Improves work incentives • Secondary earners have lower labor force attachment • Married women particularly responsive to take-home pay

  7. PROPOSAL: Secondary Earner Tax Deduction Baseline: 20 percent of the first $60,000, phase-out beginning at $110,000. (Almost) Revenue Neutral: Coupled with 75% reduction in spousal personal exemption Notes: • For families $20-$50K, primary effect is to increase family’s EITC • Families $50-$130K, will benefit via a reduction in federal income taxes.

  8. Costs and Benefits • Baseline: • $8.2B in lost tax revenue • $13.4B in increase disposable income to families <$130,000 • Ratio: 1.6 • (Almost) Revenue Neutral: • $0.8B in lost tax revenue • $5.4B in increased disposable income to families <$130,000 • Ratio: 6.8

  9. Summary • Secondary earner tax deduction would allow lower and middle class families to keep more of their combined earnings. • Would encourage more spouses to go to work, by making work pay

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