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Policy Proposals

Giving secondary earners a tax break: A proposal to help low- and middle-income families

December 2, 2013

The Problem

The current structure of the tax and transfer system in the United States makes it particularly challenging for low-income married couples with children to work their way into the middle class. Specifically, the tax and transfer system has an inherent secondary-earner penalty that discourages work efforts and reduces the return to work for a secondary earner within a married couple. When children are a part of the situation, a spouse’s work efforts often bring associated child-care costs, making the return to work even lower.

The Proposal

With a secondary earner tax deduction for low- and moderate-income families, households in which both spouses work would have more disposable income. This would also increase the likelihood that greater numbers of low-income families would establish double-income households. The recommended deduction would equal 20 percent of earnings—up to $60,000—by secondary earners.


Abstract

The current structure of the tax and transfer system in the United States makes it particularly challenging for low-income married couples with children to work their way into the middle class. Specifically, the tax and transfer system has an inherent secondary- earner penalty that discourages work efforts and reduces the return to work for a second earner within a married couple. When children are present, a spouse’s work efforts often brings associated child-care costs, making the return to work even lower. In this new discussion paper the authors suggest that under the current federal tax and transfer system, and assuming standard child-care costs, a family headed by a primary earner making $25,000 a year will take home less than 30 percent of a spouse’s earnings. They propose a secondary- earner deduction for low- to moderate-income families that would increase disposable income for affected families.