With two cats in the yard life used to be so hard

Richard Reeves has a kind of silly article in Boston Review (“Dream Hoarders”) based on a forthcoming book, arguing that, rather than attacking the captains and colonels of capitalism and the 1 percent reaping the returns of globalization, progressives should focus their ire on the upper middle class- the 80th percentile instead of the 99th.

There are certainly ways in which our current political system advantages the well-off- Reeves points to the 529 college savings vehicle as an example- but it’s important to remind yourself just who these lucky duckies are. Almost everywhere, these are married, college-educated couples with children, and not unusual ones. In fact, in almost every state in the country, the average married, college-educated couple in their 40s with children makes above the 80th percentile of overall household income for that state:

hbar2

Even just looking at median incomes for 4-person households (without conditioning on marriage or education) gets you most of the way to the 80th percentile in most states:

median-income-4-person-families

While 529s and tax exceptions like the mortgage interest and state and local tax deduction are mainly claimed by the middle class and higher, we also have a progressive tax code and in-kind benefits that strongly discourage marriage for this same group, even if not as much as our means-tested welfare system discourages marriage for lower-income families. For example, let’s take a typical college educated married couple with two kids in Minneapolis, Minnesota, making $132,000 per year.

Median Income

If, plausibly enough, the husband makes $75,000 per year and the wife makes $57,000, the couple are paying a total of $22,542 of marginal state and federal taxes on the wife’s $57,000 in earnings, a marginal tax rate of over 39%. On the other hand, if she were not married, she would go from paying $22,542 on her income to paying $14,499 (all estimates from Smart Asset’s tax calculator.) That’s a $8,000 per year marriage tax, much larger than any typical benefit from a 529 (which obviously is not limited to married couples in any case.) In addition, the no-longer-wife would now be eligible for $4,320 per year in subsidized insurance purchase under Minnesota’s Obamacare program, along with CHIP eligibility for her kids.

Now, obviously she would be balancing this $12,000 per year tax on her marriage (putting aside other means-tested housing and in-kind programs) against her husband’s $75,000 income and the relative ease of pooling assets when legally married, along with the (quickly dwindling ) cultural pressures towards marriage. All things considered, it’s not surprising that the large majority of upper income middle aged people (with or without kids) still are married:

married (1)

But it’s simply not true that American public policy favors upper middle class households in an uncomplicated way. The combination of quite significant in-kind transfer programs for lower-income mothers with children with a progressive tax code that disfavors marriage means that we already discourage what one might call “the bourgeois lifestyle” in a number of ways.

welfarecliffs
Pennsylvania “Welfare Cliffs” for single mothers, where net income reduces with increased earnings or marriage. This is from 2012- implementation of the ACA enlarged these disincentives.

 

2 thoughts on “With two cats in the yard life used to be so hard

  1. I’m no social scientist, but I’m wondering why they design the welfare programs illustrated in the last chart to drop suddenly off “cliffs” when you hit a certain level of income. Why not have them taper down smoothly to nothing?

    The yellow bar for “Childcare” looks especially dramatically egregious — like you go from $17K / year to all of a sudden, nothing. Why not just incrementally decrease the subsidy? Would that help?

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    1. Some programs are designed to taper off- the EITC and Obamacare both put a lot of thought into that aspect of their design. My guess is that some of the programs in that graph are Pennsylvania state-administered programs based off of federal grants, and just don’t have as much thought put into their details. A potential reason why just turning things into block grants doesn’t always work so well.

      Liked by 1 person

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