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Washington's regulations and taxes keep working women down.
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In April, the “equal pay debate” was the opening salvo for politicians seeking women voters in the midterms. It set off a firestorm. The claim that women make 77 cents on the dollar compared to men was quickly countered with evidence that the wage gap is primarily driven by choices, not discrimination. Women earn 97 percent of what men earn when they hold the same jobs, work the same hours and have the same qualifications and experience, according to a study by June O’Neill.
But, of course, most women don’t. In this way, both sides missed the bigger issue facing women – why women continue to choose worse jobs with worse pay. Despite women’s astounding progress in the labor force, women are twice as likely as men to work part time. Women represent nearly two-thirds of workers (64 percent) earning the minimum wage or less. In 21st century America, women are disproportionately secretaries, maids, nurses and teachers, while the head honchos in business, finance, law, medicine, academia and government are still mostly men. (Consider that women represent only 4.8 percent of Fortune 1000 CEOs, even though they comprise half of all managerial positions).
There are many reasons for these differences. Many may be voluntary. But Washington is partly to blame. Policies put into place by liberals and conservatives alike have discouraged women’s labor force participation, and no one is talking about it.
Take the Affordable Care Act. The Congressional Budget Office reported that there will be 2.5 million fewer full-time job equivalents by 2024 as a result of new taxes and incentives in the health care law. Most of those who leave their jobs are likely to be women, because women are more responsive to tax rates than men. In economist-speak, they have a higher labor supply elasticity, which is the consistent result of numerous economic models. According to economist Glenn Hubbard, the marginal tax rates from subsidy phase-outs in the health care law could reach 50 percent for some earners, before income and payroll taxes are accounted for. As a result, many women are likely to scale back their work hours or stop working all together.
The health care law has only exacerbated the already problematic tax code for women. Married women arguably face higher marginal tax rates than any demographic. Tax credits, such as the Earned Income Tax Credit and the child care tax credit, are based on family income, not individual income. As a result, the return to work by a woman, usually the secondary earner, is less if she is married. A recent study by Melissa Kearney and Lesly Turner shows how a family headed by a primary earner making $25,000 a year will take home less than 30 percent of a spouse’s earnings because of taxes and the phase-out of benefits. This is hardly an incentive to work.
Women are also more likely to leave the labor force to raise children, which has a serious impact on their future earnings and promotion potential. This may be some women’s preference. However, the cost of child care suggests that for many women, there may not be a good alternative. The average family with a working mother spends $7,150 a year on child care. For low-income families, child care can consume up to 40 percent of income. As a result, many women may drop out of the labor force entirely to care for children or choose jobs with more flexibility in the short run but less advancement in the long run.
While Washington is not directly to blame for increasing child care costs, today’s complex maze of programs simply do not give most women the child care support that they qualify for or need. The Child Care and Development Fund provides block grants to states for child care, with priority given to mothers on welfare. Only 16 percent of income eligible families receive subsidies, according to a Department of Health and Human Services survey. The child care tax credit provides a small, nonrefundable tax credit, with the max credit of $2,100. But from 2005 to 2008, fewer than 5 percent of income returns claimed the credit at all.
Making matters worse for everyone, including women, is the worst economic recovery in U.S. history. Record levels of regulation and political uncertainty have slowed down job growth and held down wages. With fewer jobs available, employers can afford to be pickier, and some may choose to not hire women, who are statistically more prone to take time out of the labor force.
Taken together, these work disincentives create a big and unfortunate feedback loop. Women’s shorter time in the labor force – because of children, tax treatment, benefit phase-outs and a bad economy – decreases their investment in jobs-skills and experience. As a result, many women find themselves stuck in low-paying, low-promotion jobs.
What can policymakers do to counteract these effects? A first priority should be to make work pay. The marriage and work penalties in the tax code and benefit programs, such as the health care law, should be reduced, perhaps through a secondary earner deduction. Additionally, the Earned Income Tax Credit should be expanded to increase take-home wages for women in low-wage jobs and encourage more women to enter the labor force. This is a far better approach than raising the minimum wage, which the Congressional Budget Office projects will result in hundreds of thousands of women losing their jobs.
Another priority should be to streamline the current system of child care and make it more comprehensive. One way to do this would be to substantially increase the size of the child care tax credit and make it refundable, eliminating the need for the Child Care and Development Fund and the employer-sponsored credit. A large literature shows that child care support increases women’s labor force participation and earnings potential. The additional costs of child care support could be offset, in part, by higher income and payroll taxes and reduced welfare dependency.
Finally, we must invest in the economic future of our young girls. Recent declines included, teen motherhood rates in the U.S. are higher than anywhere else in the industrialized world. Single motherhood, especially at a young age, is correlated with less educational attainment and earnings. In a shocking study, Melissa Kearney and Phillip Levine find that the actual and perceived lack of economic opportunity may be the reason so many young girls choose single motherhood in the first place.
We must present our girls with an alternative, more vibrant economic future. We must cut the ties that bind them to poor performing schools and provide them with greater school choice, which has been shown to increase test scores and reduce truancy rates. We also need pro-growth policies that help ensure that once they graduate, their skills are matched with well-paying jobs.
By focusing on women, we do not mean to minimize the real economic challenges facing other demographics, such as men or minority groups. Many of these reforms would help them too, and additional policy proposals should be considered that assist these groups.
But there is a real “war on women” when it comes to economic opportunity from an unfair tax code and a maze of regulations and programs. These issues demand more than midterm political banter, they demand results.
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