Kristin Maschka

    Tax Day Question: Can I Make Enough to Pay for Childcare?

    Posted April 18th, 2011 by

    When our daughter was born, my husband had just started his second year at a law firm and I had just been laid off from a part-time job. We sat down together to decide whether I should look for a new job or not. The question we asked ourselves was, “Could I make enough to pay for childcare?” If not, we reasoned, it would make sense for me to take care of our baby myself.

    Little did we know that the question had nothing to do with the cost of childcare and everything to do with tax policy.

    You see, before World War II, the United States used an income tax system of separate filing for married couples in which tax rates applied to each spouse’s income separately.* As Ed McCaffery, author of Taxing Women, explains in his book, when the war ended and the costs of war went away, Congress saw an opportunity to reduce taxes. They did it by eliminating separate filing and replacing it with mandatory joint filing for couples. At the time, Congress also had an interest in wanting families to return to normal. In other words, they wanted mothers who had entered the workforce during the war to go back home. Joint filing would encourage them to do just that. As the legislative counsel of the treasury at the time remarked, “Wives need not continue to master the details of . . . business, but may turn . . . to the pursuit of homemaking.”

    Joint filing introduced what McCaffery calls the “secondary earner bias.” The one who earns less, even today usually the woman, will be taxed more, which acts as a powerful but unseen disincentive for her to be employed.

    Graphic by Sue Hill Zamparelli

    How does it work? Married couples filing jointly are required to combine their incomes, no matter who earns what. However, the money doesn’t go into a common pool that is all taxed at the same rate.  As my friend Kimberly Tso explains in her blog post at The Two Penny Project, “Our federal income tax system uses graduated marginal rates. This is how to think about it: Imagine each dollar that you earn is stacked one on top of the other. Next, picture a large wedding cake next to the stack of dollar bills. Each tier of the cake (called the tax bracket) has a corresponding tax rate that increases as you go up each tier. …You only incur the higher tax rate if your stack of bills reaches that layer.” (See picture for example using hypothetical tax rates.) The policy goal of taxing the top layers more is for individuals who earn more to pay a higher percentage of their income in taxes compared to those who earn less.

    For a couple, combining the incomes into one stack and then applying increasing rates to each layer has another effect—the secondary earner bias. When my husband and I faced the question of whether I should find a job or not, we thought of his job and his income as primary because he already had a job and he earned more. So we also thought of his income as first in the stack—where it would get taxed at lower rates.

    My income was secondary. We could decide whether it was needed or not. We thought of childcare as coming out of my income because we wouldn’t need childcare unless I was employed. The question became, “Can I make enough to pay for childcare?” But the answer had everything to do with taxes. Given the combination of joint filing and graduated marginal rates, the very first dollar I earned would be in a layer on top of his income where it would get taxed at a higher rate. Subtracting childcare and that higher tax rate from my potential income, there wasn’t much left. Working for pay didn’t pay much. So we decided I wouldn’t, because we could afford for me not to. The World War II era policy worked on us precisely as it was intended.

    McCaffery also explains that the secondary-earner bias influences mothers’ decisions and family finances at all income levels, not just for those who can afford not to be employed. Middle-income families who have a harder time giving up even the small contribution of a second earner face a “full-time or nothing” decision about employment. Working part-time just isn’t worth it. At even lower income levels, the wages of a second earner can put a couple over a threshold that means the loss of a tax break called the earned income tax credit. At these income levels—typically a household income of less than $40,000 a year—the secondary earner bias is even greater. If these parents work more, or if they aren’t yet married and then get married, they see little gain and may even lose money.

    A policy decision made over 60 years ago continues to work as designed, invisibly, to discourage women from employment and lead mothers to ask themselves, “Can I make enough to pay for childcare?” Today there are those who claim women are “opting out” of the workforce or earning less because they “choose” to leave jobs to care for family but those people conveniently ignore – or are ignorant of – the fact that our tax policy was intentionally designed to push women out of the workforce.

    Awareness of the secondary-earner bias can help families shift their thinking. My husband and I now talk about childcare as a family expense, not as his or hers. However, there’s no escaping the rational economic calculation unless we change the policy itself. Most advanced countries today mandate separate filing like the United States did before 1948. There are multiple policy options available to decrease the impact of the secondary earner bias. It doesn’t have to be this way, and it’s time to put more money in the pockets of families that need it and stop allowing this antiquated policy to push women out of the workforce.

    Kristin Maschka is the author of the LA Times Bestseller, This is Not How I Thought It Would Be: Remodeling Motherhood to Get the Lives We Want Today. This piece is cross-posted from her blog.

    More Resources:

    * The pre-World War II separate filing shouldn’t be confused with today’s “married, filing separately” category, which is used in rare circumstances, such as when one spouse wants to avoid the tax problems of the other.

    Related Posts Plugin for WordPress, Blogger...
    Posted Under: E: Excellent Childcare
    Permalink

    21 Comments

    June 24, 2011 at 3:06 pm by Celine

    I have this same question, does any one have tips on how to pay for child care? I am a single mother of 2.

    [Reply]

    April 28, 2011 at 7:21 pm by Hilary

    i understand your point. and i think the best policy is for mothers to stay with their children for as long as possible. however,i do work 2 days a week because i want to and i have a 3 and 1 year old. i have a flexible job and try to work around my husbands schedule. when it comes to tax time you neglected to point out income caps for married verses single earners. that makes a huge difference in our case. if my husband was not married then he would be in a higher tax bracket. he is “rewarded” for his family. minnesota state also offers incentives for married couples. and dont forget that you do have the option to file seperately but that always shows us paying more taxes.

    and strangers(daycare) raising your kids just sounds ridiculous to me.

    [Reply]

    April 20, 2011 at 2:02 pm by anon

    Was going to read this, but then there was a pop-up asking me to sign up for something. And so I did not.

    [Reply]

    Anita Reply:

    Sorry anon! You can always close the box and go on to read the blogpost and our site. The box is an invitation to join our email list but isn’t required.

    [Reply]

    April 19, 2011 at 7:08 pm by Valerie

    Kristin, I thought the marriage tax penalty was removed by the Bush tax cuts. As they have been extended, the marriage tax penalty is still suspended. is this not correct??

    Best – Valerie

    [Reply]

    Kristin Maschka Reply:

    @Valerie,
    Secondary earner bias is a totally different thing than the marriage penalty issue.
    Will take me longer to explain than I have right now but happy to!
    Kristin
    http://www.kristinmaschka.com

    [Reply]

    April 19, 2011 at 11:44 am by Theresa

    I read this article and it is very interesting. A lot of moms would love to work from home. I know how it is to have to pay child care and not have enough money to make ends meet.
    edited to remove link

    [Reply]

    karen Reply:

    Will you please delete the comments from the person who is spamming an otherwise interesting discussion about a thoughtful article? I don’t want to read a sales pitch about a WAHM opportunity in a forum like this.

    [Reply]

    Anita Reply:

    @karen – Yep. Thanks for your input. We removed the link and pitch from the comments.

    [Reply]

    April 18, 2011 at 8:22 pm by judith walleser

    Speaking as a retired Grandmother who stayed home to raise 7 children, I would advise it is better to work,especially if you have a college education or other professional training. Upon retirement, which believe it or not, does come quickly, you will find you have very little. If you do not work, you will also “loose ” your training,especially if it is in a fast changing field. Your ss .will be partially based on your husbands income,also on what little you will earn by “not working” for years.

    [Reply]

    Kristin Maschka Reply:

    @judith walleser, So true! Too often mothers in particular focus on the short-term budget issues when deciding about employment. Have to consider both long term and short term impacts. My husband and I figured that out pretty quickly and modified his employment so I could get back in the workforce too.
    Kristin

    [Reply]

    April 18, 2011 at 7:34 pm by RudeAmerican

    While I think it’s a stupid tax policy aimed and fleecing more money out of working people, I find it a tad ridiculous that the misogyny here depends on imagining that your income is ‘on top’. The truth is the government shouldn’t be in the business of marriage in the first place. This isn’t really an issue of sexism it’s an issue of theft by the IRS and that happens men and women alike. If tax policy was just then the husband in this case could “pay” his wife half his salary for the hard work she does raising their children and they could be in an even lower tax bracket. This is a major flaw in the idea of taxing people differently depending on their income level.

    [Reply]

    Kristin Maschka Reply:

    @RudeAmerican, Actually, it’s not “imagining” that it’s on top, it’s a logical economic analysis families make given the economic incentives and that’s what the designers of the policy counted on.
    Kristin

    [Reply]

    April 18, 2011 at 7:22 pm by Sarah

    When my daughter was born and I lost my job, I decided to not seek another job because it would cost me a whole paycheck to cover childcare and travel expenses. Now that I have 3 kids Daycare would take not only my paycheck but their fathers as well.
    I never thought about the tax impact though.
    Now that my kids are approaching school age, I will think about it.

    [Reply]

    theresa trompke Reply:

    @Sarah, HI sarah,
    I just your post and just had to respond. Boy oh boy I can relate to knowing how tough day care is to pay and then not having anything left to pay bills which was the entire hope of paying day care in the first place. Allow me to introduce myself. I am from Nebraska and am a mom of 3 kids ages 10, 7 and almost 3. I keep terribly busy and I was sick and tired, I mean sick and tired of payching child care and not having enough to make ends meet. I had debt so bad that I didnt even want to wake up in the morning..
    edited to remove link

    [Reply]

    April 18, 2011 at 3:58 pm by Ashley

    Wow – so interesting and helpful. I struggled there for a moment but your graphic pulled me through! Many families I know are facing this question most acutely after their second child. Although childcare is essentially a wash for us (one of our incomes is used almost entirely for it), I think about how working now will impact our future earnings once our children are in school. But it is CRAZY and WRONG to think that this decision of working to pay childcare is commonplace and considered acceptable. Thanks for the great post!

    [Reply]

    Kristin Maschka Reply:

    @Ashley, Great point about the second child. That is the time when a lot of families hit this secondary earner bias reality pretty hard.
    Kristin

    [Reply]

    April 18, 2011 at 3:29 pm by Anita

    Thank you Kristin, for this cogent analysis of our tax policy. I learned a lot here.

    [Reply]

    Anita Reply:

    p.s. I’d love to hear about those “multiple policy options to decrease the impact of the secondary earner bias.”

    [Reply]

    Kristin Maschka Reply:

    @Anita,
    Glad you learned a lot. This is really a little known policy issue that impacts so many families.

    As for other policy options to decrease the impact of the secondary earner bias, a few include:
    * Allowing a secondary earner tax deduction (a proposal George W. Bush made in his 2000 campaign)
    * We could also expand tax credits or deductions for child care expenses to come close to the real costs and allocate them to the secondary earner.
    * We could fix the earned-income tax credit so that the poorest families don’t lose a tax break for staying married and working hard.

    Kristin

    [Reply]

    Trackbacks

    1. Women’s History We Still Live With Today « MomsRising Blog

    Leave a Comment

    Your name is required
    An Email address is required

    Notify me of follow-up comments via e-mail