Tax Code War on Women

April 24, 2014

The real "war on women" is in the U.S. tax code, says Diana Furchtgott-Roth, director of Economics21 at the Manhattan Institute.

Single working women face higher tax rates when they marry, a reality that discourages marriage or encourages women who do marry to quit the workforce. When married women decide whether to enter the labor force, "their tax rate begins at the rate on the last dollar of income earned by their spouse," Congressional Research Service specialist Jane Gravelle explained in a Senate Budget Committee hearing.

Working women are disproportionately in the top fifth of the income distribution:

  • In 2012, 78 percent of households in the top fifth of earners were married couples, and 5 percent were women living alone. In the top 5 percent, 81 percent were married couples, and 4 percent were women living alone.
  • That same year, in the bottom fifth of the income distribution, 17 percent of households were married couples, and 36 percent were women living alone.
  • Looking solely at earners in a household, in the top fifth, 76 percent of households had two earners. In the bottom fifth, only 5 percent of households had two earners.
  • In a study for the Brookings Institution, two economists determined that if a couple, each earning $25,000, gets married, they will take home less than 30 percent of the second earner's paycheck.

What would help working women is a deduction for second earners. This type of deduction existed in the U.S. tax code from 1981 to 1986. Such a deduction could yield significant economic activity by drawing more women into the workforce.

Unfortunately, when the Congressional Budget Office scores tax proposals, it takes into account very little of potential economic growth from the lower rates. This makes it difficult to tout tax reform proposals in the United States.

Currently, the U.S. tax code discourages work, discourages marriage and encourages women not to advance. This is the real problem for women that politicians should focus on.

Source: Diana Furchtgott-Roth, "It's Women Who Suffer Most from the Marriage Penalty," MarketWatch, April 18, 2014.

 

Browse more articles on Tax and Spending Issues