TAX FAIRNESS FOR STAY-AT-HOME PARENTS
July 8, 2008
Public policies and institutions have not kept pace with the changing role of women in the workforce. As a result, women and their families are penalized when they enter the labor market. The solution to these problems is not policies that favor women, but rather policies that increase the flexibility and fairness of the system — benefitting both men and women, and their families, say Terry Neese, a distinguished fellow, and John Goodman, president of the National Center for Policy Analysis.
In general, federal tax law is far more generous to people at work than people at home -- with respect to retirement savings and health insurance and even day care, say Neese and Goodman. For example:
- Employees can save for retirement through tax-advantaged 401(k) plans; contributions to a pension plan as well as premiums for employer-sponsored health coverage are not counted as taxable income.
- Self-employed workers receive some tax relief for their health insurance costs and have additional options for tax deferred savings.
- The amount of tax-preferred savings a couple can make toward the retirement of a stay-at-home spouse is less than one-third the amount an employee can save in an employer-sponsored plan. Furthermore, health insurance that is purchased individually receives virtually no tax relief.
- Families who receive day care services through an employer or who purchase them pretax through a "cafeteria plan" receive much more tax relief than families who purchase services outside the place of work.
As women move into and out of the labor market (say, to have and raise children), they are particularly disadvantaged by this arbitrary, two-tier tax and regulatory system, explain Neese and Goodman. The solution would be to allow stay-at-home spouses who save for retirement or purchase health insurance or day care services to receive just as much tax relief as people who obtain these benefits at work.
Source: Terry Neese and John Goodman, "Five Family Friendly Policies," National Center for Policy Analysis, Brief Analysis No. 620, July 8, 2008.
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