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The New York Sun


More Marriage Penalties

November 16, 2007

By Howard Husock

The urgency surrounding Rep. Charles Rangel's sweeping tax reform proposal has faded in the wake of congressional movement toward yet another one-year fix of the Alternative Minimum Tax. The AMT is poised to take thousands of dollars out the pockets of more than 20 million middle-class taxpayers. But it remains likely that Mr. Rangel's "mother of all tax reform" proposals will continue to serve as a blueprint for Democrats—indeed, the Washington Post editorial page has urged exactly that. If so, among the many flaws in it that merit correction is its treatment of the most important form of cash assistance for the poor—the Earned Income Tax Credit.

Simply put, Mr. Rangel has missed a golden opportunity to use the tax code to do something for low-income families, especially children, by eliminating the existing tax credit program's bias against marriage.

The context is this. The EITC—essentially a cash supplement to wages for the working poor—has become the most important anti-poverty program administered by the federal government. Its more than $40 billion in annual payments to low-income households already surpasses the costs of food stamps ($35 billion), housing vouchers ($16 billion), and Temporary Assistance to Needy Families, or cash welfare (just over $17 billion). In effect, the EITC has made the Internal Revenue Service the country's most important antipoverty agency.

Here's how it works. The EITC matches each dollar in earnings with up to 30 cents. A single parent with two children earning up to $14,800 qualifies for the maximum payment of $4,536, for example. But the program has been not nearly as generous to single wage-earners without children living with them—meaning, for the most part, very low-income men, such as those Mr. Rangel might see on the streets of Harlem.

As the Center on Budget and Policy Priorities has noted, the maximum EITC for a childless worker is slated to be $438 next year—less than a sixth of the tax credit for a family with just one child. Only 2% of all EITC payments—and these are, indeed, cash payments delivered to those eligible—have gone to childless adults.

The Rangel plan, proposed in late October, promises a big increase—in effect, a redistribution from the highest-wage workers, above $150,000, or above $200,000 for couples, to the lowest. Mr. Rangel would double the maximum credit for the lowest-wage workers—increasing it to $875 a year. That's enough, opines the liberal Center on Budget and Policy Priorities to "constitute a meaningful work subsidy." Or, put another way, it may be a significant incentive to join or remain in the workforce—affecting up to 7.5 million people.

But one of the most significant problems for low-income households—and particularly children in such households—is their low rates of marriage. More than half of men between the ages of 22 and 30 who earn more than $60,000 are married—compared to just 12% of those earning less than $10,000.

Many of those unmarried men are fathers. Many do not visit their children nor make required child support payments. Worse still, as it stands now—and would stand even if the Rangel proposal were enacted—they are penalized by the tax code if they marry someone also earning a low wage who also qualifies for the EITC.

Here's why. As a household's earnings grow, the government reduces the EITC rapidly, cutting it in half by the time a household earns $25,000 and eliminating it altogether once earnings reach just $36,000.

Hidden in those figures is what Harvard economist Jeffrey Liebman, who has studied the EITC extensively, calls "one of the largest marriage penalties" in the tax code. "If a custodial parent of two children with zero earnings—that is, relying on welfare—marries a single man with $12,000 in earnings, the couple will gain nearly $4,000 in child tax benefits, all from the Earned Income Tax Credit," Mr. Liebman and his colleague David Ellwood wrote in 2001. "But if the mother were already earning $12,000 and she married the same man earning $12,000, child benefits would fall by roughly $1,200 and serve as a marriage penalty. At $24,000, the child benefits are smaller than at $12,000."

And the EITC's marriage penalty has grown even larger since 2001. This system is counterproductive, to say the least, since it discourages both marriage—the key engine of uplift for the poor and their children—and work.

The fix here is simple—let low-wage workers file individually even if married and thus keep their tax credit. Mr. Rangel's reason increasing the EITC for single men may be the hopes that they will become more likely to pay child support and visit their children. But, why not allow them to keep their additional wage supplement if they marry, which is a far better alternative than simply making child support payments. Low-income children don't need just cash—they need a father in the home. If that father is working, that's all the better. The Bloomberg administration understands this well, and its human resources administration has pressured Mr. Rangel unsuccessfully to date to eliminate the EITC marriage penalty.

Those who talked to Mr. Rangel while his tax plan was being planned recall him saying that wanted to "do something for the guys on 125th Street." What better a good deed than removing a barrier between them and healthy family life?

Original Source:



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