Women and Taxes
Thursday, February 28, 2002
by Edward J. McCaffery
Table of Contents
The Zoe Baird Blues
So the average Sally, a middle-income working mother, sees 67 cents on the dollar lost to taxes and work-related expenses, piling the stresses on her life. Poorer Sallys have it even worse, for they are apt to lose all of their benefits - cash, to them - by marrying, making marriage a luxury they cannot afford. What about the wealthier Sallys of this world?
It turns out that they have it pretty tough, too.
First off, the simple math of progressive marginal rates hits the upper-income secondary earner hard. Whereas Bill's work in our extended example had placed Sally in a 28 percent federal income tax bracket on her first dollar of labor market earnings, the wife in America's wealthiest households enters or stays in the workforce at a nearly 40 percent federal income tax rate. Add to this 10 percent state and local taxes and the customary 7.65 percent payroll tax, and the wealthy Sally's marginal tax rate is well above 50 percent, approaching 60 percent. Her wages are cut by more than half, right off the bat.
It gets worse. Child care costs, like a good many expenses, are apt to rise with income. Ask Zoe Baird, President Bill Clinton's ill-fated former nominee for attorney general. If our upper-income Sally must pay $200 a week, or $10,000 a year, to have someone watch the kids while she works, she still won't get any more back in tax relief than the $960 that the middle-income Sally got. If additional work-related expenses are $100 a week, or $5,000 a year, then the upper income Sally's $30,000 simply loses money for the household. Specifically, she loses some $18,000 in taxes, $9,000 in child care costs net of the tax credit and $5,000 in additional work-related expenses. Her $30,000 job is costing the family $2,000 in cash - not to mention lost time and stress!
"Wealthy married women often lose money for the household by being in the workforce."
A Look at Bill. It is perhaps easiest to see one particularly pernicious effect of the tax system on women among the upper-income classes. To see the problem, consider first a basic puzzle of life in America today. As Figure I (and abundant other real-world evidence) shows, women now work outside the home, persistently and well. Among two-parent households, two working parents are now by far the norm. At the same time, modern families often lament their loss of time available to spend with their children. Why, then, don't we see a model where both parents work part-time, or something less than full-time at least, while both also spend time parenting on their own? This model of family life remains extremely rare. While some working mothers - though fewer than a quarter of them, it seems - work part-time, almost no married men do.25
The case of the rich Sally supplies part of the answer to this puzzle. We just saw how a $30,000 job for Sally might lose money for the Sally and Bill household. But this is not true of any additional work that Bill might put in. For one thing, by this point, Bill is actually in a lower tax bracket than his wife is; once the Social Security ceiling of $84,900 has been passed, Bill only pays his 1.45 percent Medicare portion of the payroll taxes. Further, as Bill's employer no longer has to pay a matching 6.2 percent Social Security tax on account of Bill's work, it is easier to give Bill a raise in the first place. So, whereas Sally's salary at the start falls in a 60 percent marginal tax rate, all things considered, Bill is closer to a 50 percent tax rate on any more money he earns.
More importantly, Bill's extra work doesn't open up the need for paid child care or most of the other work-related expenses that Sally's marginal work does. While Bill works overtime, or simply puts in extra hours hoping to succeed, Sally can watch the kids tax-free. While a $30,000 job for Sally might cost the family $2,000, a $30,000 promotion for Bill - while it might take Daddy away from home a bit more - is apt to net $15,000 cash.
The economic choice for families is thus clear: they ought to have a specialized division of labor, having one spouse succeed at paid work, the other at home work. Needless to say, it's almost always the husband doing the paid work. Studies and anecdotes continue to confirm the commonsense notion that a man with a stay-at-home wife has an easier time succeeding in the workforce. What this common sense doesn't always show, however, is just how much our more or less conscious choices of tax policy have shaped the status quo.
No Pity? It's easy enough to feel little or no pity for the rich Sallys of this world. We certainly cannot say that life is bad on top of the income scale. But it's still hard to be a working wife among the upper classes - not only do the dollars not make sense, but again the role models are limited. In many wealthy communities across America, stay-at-home wives are the norm, and working wives feel guilty on account of their paid work. There are good reasons why all Americans should care about this bias against upper-income working wives.
For one thing, it is a bias against women: wealthy women, to be sure, but women nonetheless. The tax structure pushes the upper-income Bills to work more and the upper-income Sallys to stay home. That's not fair, and it should change.
Two, the bias against working wives among the wealthiest households contributes to an overall "glass ceiling" effect in society. Women are pushed away from high-paying positions of power and influence. That deprives the entire economy of a valuable asset and perpetuates sexist stereotypes established in prior eras.
"Noncash compensation makes up nearly 40 percent of total compensation."
Finally, the biases of tax set up a disappointing discontinuity across the income ranges. Put together the stories we have just considered. Among the low-income Sallys of this world, the bias is against marriage. So poor mothers struggle alone, unmarried, in single-parent households. In the middle-income ranges, where two-parent households become more prevalent, married mothers do indeed work outside the home in large numbers. But the system is set against them, and their work - and lives - are stressful, torn between the two worlds of work and family, often for scant real take-home pay. On the other side of this stress, in the upper income ranges, women return to the home.
What's up with all this? What message are we sending to our daughters? That if a family really needs more money, it is acceptable for a woman to work double-time to get it; once a family has the wealth, the wife should go back into the home? In a new millennium, a social policy that pushes in that direction seems - or ought to seem - backward.