Women, Taxes and Social Security

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Women, Taxes and Social Security

• Income Taxes
• Social Security

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The Marriage Tax/Subsidy

• The income tax system in the U.S. is arranged in
  a such a manner as to reward some people for
  being married with lower taxes and to punish
  other people with higher taxes for being married.

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• Under the system in place from 1949-1969, married
  couples paid a lower marginal tax rate than the
  single person making the same amount of money .
• There was, that is, a marriage subsidy.

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• In 1969, the system was changed to address this
  disparity.
• This has led to a system today in which there may
  be a tax or a subsidy for being married.

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• Married couples with two earners who earn roughly
  equal incomes are much more likely to pay a
  marriage penalty, while married couples with only
  one earner or with one high earner and one who
  earns relatively little are likely to receive a
  marriage subsidy.
• Supports traditional family structure

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• Black couples more likely to pay penalty because
  its more likely both will work and that incomes
  will be similar.

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• This means households that specialize will have
  additional gains to marriage.
• Households that do not specialize will have even
  smaller gains to marriage.
• Empirical research suggests that the effects on
  decisions to get married are small but
  statistically significant.

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Taxes and Labor Supply

• Progressive tax system based on taxing families
  instead of individuals means that the earnings of
  a sequentially secondary earner are taxed at a
  higher marginal rate.

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• Higher marginal tax rate means that household
  production has lower opportunity cost.
• Lower wage should mean less leisure, if leisure
  is a normal good.
• Therefore, theoretically, the overall impact on
  labor supply is ambiguous.

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• Empirical research suggests that reductions in
  tax rates do increase both the hours worked and
  labor force participation

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Tax reform and the marriage tax

• Marriage tax/subsidy could be eliminated by
• Taxing individuals rather than families
• Get rid of progressivity (flat tax)
• Tax household production

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Taxes and fertility

• Virtually all developed countries provide child
  allowances (except U.S.)
• U.S. allows personal exemptions, which function
  in much the same way.
• It is estimated that personal exemptions cover
  4-9 of the 136,320 out-of-pocket expenses of
  raising a child to age 18.

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• Empirical research suggests that changes in the
  value of the personal exemption do exert a small
  but non-negligible effect on fertility decisions.

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EITC and the Marriage Penalty/Bonus

• Under certain circumstances, there may be a
  substantial penalty or bonus for being married
  from the EITC.
• If an earner without children marries a
  non-earner with children, benefits from EITC
  increase sharply.
• If two earners marry, they may be pushed into the
  phaseout range of EITC, producing a significant
  penalty.

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• If a low earner marries a high earner, EITC
  benefits that would be received by the low earner
  are lost.
• Empirical research suggests that EITC penalizes
  marriage much more often than it reward marriage.

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Social Security

• Created in 1935
• Pay as you go system
• Financed by regressive payroll tax
• People can collect partial benefits at 62, full
  benefits at 65
• Benefit level depends on earnings, length of
  employment

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• If a woman works and pays SS payroll taxes for 10
  years, she can collect benefits based on her own
  earnings.
• Or she can collect 50 of her husbands benefits,
  but not both.
• This supports traditional family structure if
  wifes earnings are low.

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Women, Retirement and Social Security

• Women have longer life-expectancy
• Women earn less than men
• Women are less likely to have pensions
• Elderly women are much more likely to be poor
  than elderly men
• Women who are divorced before 10 years of
  marriage receive no benefits from husband

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• 60 of SS recipients are women
• SS is only source of income for 26 of elderly
  unmarried women
• SS has greatly reduced poverty among the elderly
  in general, and among elderly women

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• Divorced elderly women have 20.4 poverty rate
• Elderly widows 15.9 poverty rate
• Never married elderly women 18.9
• Elderly married women 4.3
• 29 of poor women are over 65

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• If a couple is on SS, receiving 150 of the
  husbands benefit, and the husband dies, the wife
  loses 1/3 of the SS benefit.
• She loses economies of scale.
• As LF participation of women increases, more
  women are receiving benefits based on their own
  earnings.

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Behavioral Incentives of SS

• Women lose ability to collect on the basis of
  husbands earnings if they remarry before age 60.
• Provides incentive not to remarry

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Behavioral Incentives of SS

• If SS recipients earn money above a threshold,
  their benefits are taxed away.
• Provides an incentive not to work
• Little empirical evidence that this incentive
  actually kept people from working

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Women and Pensions

• 2 types of pensions
• Defined benefits plans
• Defined contribution plans

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• Defined Contribution Plans
• Becoming more important
• Shorter vesting period
• Greater portability

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• Women are less likely to have any pension than
  men
• Womens pensions are likely to be smaller
• Pension gap has been narrowing since the 1970s
• Pension coverage for current full-time workers is
  about equal

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• Nearly all the differences in retirement income
  that exist between men and women are due to
• Women earn less
• Women have intermittent LF participation
• Women work in lower paying occupations
• As these differences erode, the retirement gap
  should shrink

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Possible Changes to SS

• Exempt secondary earners from taxes until they
  qualify for their own benefits
• Increasing spouse benefit available to divorced
  women from 50 to 75
• Earnings sharing