Basic Child Support Obligation

1
Basic Child Support ObligationThe 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 Washingtons 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 dont know how Washingtons 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 parents income
  that they would have received if the family
  remained together.

5
The Algebra of Income Shares
NCPs Share of Income
Entry from Economic Table
CPs Share of Income
Entry from Economic Table
6
Alternative View
Share of Parents Income Spent on Children
NCPs Income
7
Share of Parents 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
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.
• Washingtons 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.

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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 parents 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 Groups
  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
  doesnt 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?