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The public policy blog of the American Enterprise Institute
How to encourage stable, two-parent families is one of the knottiest public policy problems, but also one of the important. As a recent blockbuster study on economic mobility concluded: “The fraction of children living in single parent households is the strongest correlate of upward income mobility among all the variables we explored.”
As government figures out how to help, it can at least stop harming. For starters, mitigate the marriage penalties embedded in the tax code. AEI’s Robert Doar:
Recognizing that married, two-parent families help poor children succeed, we must address policies that make marriage hard — especially among low-and middle- income Americans.
Marriage penalties can be especially discouraging for those individuals who have the least freedom to forego income. As Eugene Steuerle of the Tax Policy Center and colleagues have explored in det ail, policies aimed at assisting low – and moderate – income households with children often penalize marriage.
Take this example: “A single parent with two children who earns $15,000 enjoys an EITC benefit of about $4100. The credit decreases by 21.06 cents for every dollar a married couple earns above $15040….[I]f the single parent marries someone earning $10,000, for a combined income of $25,000, the EITC benefit will drop to about $2,200. The couple faces a marriage tax penalty of…$1,900.”
Similar penalties are embedded in Medicaid, Temporary Assistance for Needy Families (TANF), food stamps, housing assistance, and child care — all of which apply to low-and moderate-income Americans. Efforts to mitigate marriage penalties have largely taken the form of tax cuts directed toward married couples. But according to Carasso and Steuerle’s analysis, 81 percent of that relief flowed to couples earning above $75,000. A host of reforms could alleviate this burden.
As Carasso and Steuerle describe, implementing a maximum marginal tax rate for low-income families would tamp marriage-induced hikes in rates. Providing a subsidy on individual earnings — not combined earnings (like the EITC) — would enable a low-wage American to marry someone with a child, but do so without sacrificing significant income or transfer payments. And mandatory individual filing, as done in Canada, Australia, Italy and Japan, would either require or allow low-income individuals to avoid income tax penalties.
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