Subsidizing Spouses

Nancy Folbre is professor emerita of economics at the University of Massachusetts, Amherst.

The federal tax code and Social Security both contain provisions that subsidize marriage if one spouse refrains from paid employment. Critics of such provisions have long noted that they discourage married women’s participation in the labor force. They may have a similar effect on married men, especially given recent increases in the percentage of married mothers who earn more than their husbands (more than 23 percent in 2011).

At first glance, the debate over such subsidies looks like a clash between those who want to support families and those who want to tax people as individuals. A closer look, however, shows that pro-marriage policies are not necessarily pro-family policies, because they don’t consistently reward effort devoted to caring for dependents such as children and the elderly.

A stay-at-home spouse who redecorates the living room, prepares gourmet meals and greets his or her partner at the door with a martini receives the same federal income tax treatment as one who raises several children and cares for sick, disabled or elderly family members.

Neither person really fits the description of a “dependent,” since they are both providing valuable services in return for a share of their spouse’s market income. Yet both qualify for a dependent tax exemption for a spouse who is their primary source of monetary support, allowing a deduction of $3,900 from the family’s taxable income in 2013. The higher the tax bracket, the higher the value of this exemption.

Relatively few families in the bottom 45 percent in income pay federal income taxes, so they receive no benefit from the exemption. But most workers pay Social Security taxes that subsidize marriage even more generously. Those taxes that wage earners pay are not affected by their marital status, but married earners can receive an additional 50 percent of their individual retirement benefit to support a spouse who either lacks eligibility for earnings based on his or her own employment or opts for a spousal rather than an individual benefit.

Social Security also provides survivor’s benefits at no additional cost, a form of life insurance that provides cash benefits to the spouses as well as children of covered workers if that worker dies. Combined with private benefits such as employer-based health insurance coverage, which can often be extended to cover family members at a relatively low price, such policies encourage either a traditional division of labor in which married women become housewives, or a “flipped” division of labor in which married men take on primary responsibilities for child care and household maintenance.

Housewives far outnumber house husbands: In about 31 percent of married-couple families with children under 18 in 2012, fathers but not mothers were employed; mothers but not fathers were employed in almost 7 percent of these households.

These numbers partly reflect persistently high unemployment rates among men. But house husbands who engage in tax preparation and financial planning may figure out that they are reaping some significant benefits.

Our public policies contradict one another, stigmatizing unmarried parents who lack paid employment as lazy bums (and enforcing stiff paid work requirements) but subsidizing married persons who specialize in family care, especially if they are married to high earners.

This contradiction largely reflects inconsistencies in the way we define “work,” as well as deep social rifts concerning appropriate gender roles. It also reflects unwillingness to confront the reality that much valuable and important family care is provided outside of marriage, with nonmarital births now representing more than 40 percent of the total.

How should tax policy meet this challenge? Some experts, notably Edward McCaffery, the author of a pioneering analysis of gender bias,“Taxing Women,” advocate a shift to individual rather than family-based taxation, a shift that many European countries have already made.

Under this system, two married individuals would pay taxes and receive Social Security benefits based only on their individual earnings.

But while such a shift would improve gender equity, it ignores the reality that people often pool income, particularly when they share responsibility for the care of dependents. Currently, eligibility for programs such as the earned income tax credit is based on family income, not individual earnings.

A married woman earning $10,000 a year wouldn’t pay federal income taxes on that amount, even if she were married to a man earning $150,000 a year. This would encourage her to work more hours for pay. On the other hand, she would be treated the same as a mother who is supporting herself and her children on the same wages.

A shift to individual taxation raises questions about how tax subsidies for the care and support of dependents should be allocated among individual household members. However, policies could be designed to encourage mothers, fathers and other household members to share responsibility for support and care.

Whether or not we shift toward individual taxation, we should consider adding new pro-family features to our tax policies, including an expanded child tax credit, a similar tax credit for care of an ill, disabled, or elderly family member (recently proposed in New Jersey), an increase in the deductibility of child and dependent care expenses (currently capped at far below actual expenditures) and caregiver credits that would minimize the loss of Social Security retirement benefits for individuals taking time out of paid employment to care for family members.

How to defray the costs? Eliminate the tax subsidies for spouses, which now primarily benefit high earners and do little or nothing to encourage marriage in low-income families.