Women and Taxes

Policy Reports | Taxes | Work & Wages

No. 250
Thursday, February 28, 2002
by Edward J. McCaffery

Setting the Stage

Figure I - Percent of Mothers with Children under Age 6 in Paid Workforce

Look through the massive bulk of the Internal Revenue Code and you won't see it. But it's there, nonetheless, buried in the arcane language, conveyed in ways that this uniquely obscure text interacts with the details of daily life.

The "it" is the tax system's bias against women. Just as the tax system itself is large, coercive and far-reaching in its effects, so too is its bias against women. You won't ever see it in the written text, but it's there. It's there for the largely historic reason that major elements of the United States tax system were set up in the 1930s, '40s, and '50s, at a time when most married women stayed home to care for the children.1 By the dawn of the 21st century the real world had changed dramatically. Today, some 70 percent of all married mothers work outside the home for paid wages, and more than 60 percent of mothers with children under the age of 6 do so, too. (See Figure I.) Yet the Tax Code hasn't caught up with this bit of demographic reality. Not by a long shot.

"The tax system has a bias against women."

In this paper, I'll illustrate how central tax is to just about all aspects of women's economic lives in contemporary America. I shall use a consistent example of a fictional taxpayer, Sally, who is offered a job that pays $30,000 a year while Bill, her husband or fiancé (depending on the example), makes $60,000 at his job. Sally and Bill are solidly middle-, even upper-middle-income Americans. By starting with Sally, we shall come to see how the effects of tax can be even worse on women in both richer and poorer households.

"Although the tax system was designed at a time when most married mothers stayed at home, today most of them are in the labor market."

Throughout my discussion, I'll keep the math simple. The main point - that women are being badly hurt by the present tax system - can be understood quite easily without advanced mathematical details. The basic truths of tax's bias are clear enough.

I conclude by listing some surprisingly simple solutions to the problems posed by taxes for women: a women's agenda for tax reform. We have ways to fix the woes we face. What we await is the will to do so, to bring tax into sync with modern times.

First let's set a few things straight.

"The tax system encourages high-income wives not to work."

The main bias of tax falls - in the first instance - on married working mothers. The bias is captured in the striking fact that, on the average, a married working mother sacrifices two-thirds of her paid salary to work-related expenses and taxes.2 Some women, of course, can cut corners on expenses and do better; other women, however, do worse. Many women even lose money, in a cash-flow sense, in working for pay outside the home. That's the reality I'll be explaining.

Table I - Income Tax Rates for Unmarried Individual%2C 2000

Now, two questions that are sure to arise at some point: why just married working mothers, and why does the wife come second?

Why Focus on Married Working Mothers? There are two major reasons. One, while not all women get married, and not all have children, most do. Statistics suggest that well over 90 percent of women will be married for some time in their lives, and well over 80 percent of women who marry will have at least one child.3 At any point in time, some 70 percent of married mothers are in the paid workforce. Married working mothers are thus a very large and very important category of people.

Two, this large category of married working mothers is so central to life in America today that we can see effects on all women radiating out from the tax law's treatment of this one subset. The main bias of tax falls on two-worker, two-parent households, but the effects are different at different income levels.

"It encourages low-income women not to marry."

Among the upper classes, a bias against two-earner marriages is a bias against wives' work. Indeed, at the very top of America's income ladder, families with stay-at-home wives are disproportionately common. Non-working mothers eschew employment under the influence of a tax system set against working mothers.

The same bias against two-earner marriages becomes a bias against marriage at the lower-income levels. The highest marginal tax rates in America today fall on the working poor as they attempt to rise from the lower- to the middle-income classes. The marriage tax here is particularly severe. Unmarried mothers today face a tax and transfer system that makes low-income two-earner, two-parent households a virtual impossibility. Some 23 percent of America's children live today in single parent, female-headed households, the majority of them poor.4

In the vast middle class, the bias of the Tax Code against two-earner, two-parent households is a bias against what is in fact the norm - the most common form of household in America. A tax policy set against daily life results in stress. Most mothers in America today try to juggle two domains, the home and the paid job, with little help - least of all from their increasingly distant Uncle Sam.

"Even if she earns only the minimum wage, a working wife is taxed at her husband's tax rate."

Meantime, young women who want to work outside the home - and who want to build a career of their own - see that the stresses on working mothers abound. These women wait to get married, wait to have children - wait, that is, to enter the penalized zone of the married working mom. Once again, these decisions are made in the shadows of tax laws tilted against married working mothers.

So even though not all women are married working mothers, all plausibly could be, and the economic system reacts to them as such, pushing and distorting their choices of lifestyles. In short, all women are affected by tax.

Why Treat the Wife's Income as the Second Income? The Tax Code does not speak of "men" and "women" directly. The bias of the Code is against two-earner families, more specifically the "second earner" within them. So the bias against women is not in the language. It's in the reality.

In most two-parent families where one spouse works and the other stays at home, it's the man who works.5 Most times, a working husband earns more than his working wife. But coming in second doesn't just mean that one earns less. It's more the case that it's the wife who juggles work and family demands, the wife who debates staying home and quitting her job, the wife whose participation in the paid workforce is "optional." Given these psychological facts, it makes sense for Sally and Bill to think what would happen if Sally stayed home. This is, after all, how economists and accountants think - on the margin. Holding the husband's work constant, what does it mean to the household to have the wife work?

No one has to think this way. If you don't, you can avoid sexist language - but only at the expense of not perceiving a sexist reality. It's an economic fact that working wives don't bring many additional dollars to the table in most American households. Of course, those dollars she does earn may, in certain circumstances, be critically important. There are other, long-term reasons to work, such as maintaining valuable job market skills and contacts. These factors help to explain why there are so many married working mothers, notwithstanding the biases of tax against them. Yet, at the end of the day, there will still be little additional money in the family's bank account because of most married moms' paid work.

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