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@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 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.
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 workers 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 wifes earnings kept by household: 29%
Secondary Earners in Low- and Middle-Income Families: Low Rates of Take Home Pay
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
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 familys EITC Families $50-$130K, will benefit via a reduction in federal income taxes.
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
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