Few issues in American politics are more hotly debated than the role of marriage in explaining poverty. Some argue that the decline in marriage is one of the main contributors to poverty and low-income in America. Others argue that economic and structural factors are more important. But whatever side you come down on, it is hard to justify financially penalizing couples with children who choose to marry.
Yet, in a new study, I find that the earned income tax credit does just that. And expansions being discussed in Washington could make things worse.
I analyzed survey data from actual low-income couples in urban areas and found that marriage penalties in the EITC were much more common than marriage bonuses, with between 42 and 48 percent of couples facing a penalty compared to between 10 and 27 percent receiving a bonus, depending on the number and age of children (the remaining couples experienced no change). And the average penalties were quite large: between $1600 and $2600 in today’s dollars. The bonuses were about half as much.
Several proposals, including one by President Barack Obama and newly elected Speaker of the House Paul Ryan, call for increasing the EITC for workers without dependent children. My analysis, which roughly doubled the childless worker EITC and expanded it to higher income levels, confirmed that an expansion would make the marriage penalty somewhat worse. On average, parents who chose marriage would have been worse off by up to an additional $100 in today’s dollars if a childless worker expansion were in place.
Unmarried parents, even those who cohabitate, file income taxes separately. Their individual income is used to calculate the EITC, often resulting in a higher EITC than if their income was considered together. However, this depends on the distribution of income between the parents. Because the EITC has phased out more gradually at higher income levels for married couples since 2002, marriage can also generate a larger EITC payment if one parent has little to no income.
Existing research highlights these potential marriage penalties and bonuses in the EITC, but primarily relies on hypothetical situations. Few studies look at actual couples, their income and how the EITC would change if they decided to marry, mainly because survey data that links unmarried mothers and fathers is rare.
I used survey data from the Fragile Families and Child Wellbeing study, which is a survey of births in 1998 and 2000 in urban areas. The survey is unique because it oversampled unmarried parents and includes data from both the mother and the father even if they did not live together. Based on reported earnings for both parents, I estimated the EITC when the child included on the survey was 1 and 3 assuming the parents were married and unmarried.
The results confirmed the hypothetical situations: For these parents, marriage penalties in the EITC were real – on average they were quite large – and an expansion to the childless worker EITC would have made things somewhat worse.
Even if the EITC factors little into actual decisions about marriage, these results show real financial penalties for parents with young children who choose marriage. This certainly sends the wrong message from government and may contribute to a culture that minimizes the importance of marriage. Fixing the current situation by completely eliminating the marriage penalty in the EITC would be costly. But at the same time, making the marriage penalty worse by expanding the childless worker EITC seems misguided.
At the very least, if policymakers intend to expand the childless worker EITC, they should also increase the married EITC to match it. And ideally, policymakers would continue discussing how to lessen the overall marriage penalty in the EITC. The government should be on the right side of marriage and not further penalize low-income couples who decide to marry.
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