Don't Propose on Valentine’s Day
With Valentine’s Day fast approaching, many lovers are undoubtedly contemplating popping the question. But unfortunately, getting married may cost a lot more than people expect due to the structure of government programs.
Tying the knot costs lovers, and it's not just the ring, the flowers, the dress, and the wedding. Higher tax rates, reduced college financial aid, and the loss of Affordable Care Act subsidies all combine to create a marriage penalty if both partners work, which is often the case.
The Taxman
When two people marry, their income is combined for tax purposes. This additional income can lead to higher taxes paid by a working married couple than if they had remained single and filed separately. When the penalties from getting married are too costly, people may be more hesitant to exchange vows.
Frequently it is the income of second earners that pushes families into the top brackets—where combined federal and state marginal income tax rates can top 50 percent. When the additional associated costs of entering the workforce (transportation, professional clothing, and possible child care) are added, working becomes an even more expensive decision. It should come as no surprise that when the reward for working decreases, people choose to work less.
Second earners in families with children are most responsive to decreased incentives to work. Often women, they are more likely to move out of the labor force to look after their children.
It should come as no surprise that the labor force participation rate for prime-age working women has been declining, especially since the recession. At the beginning of 2007, 76 percent of prime-aged women were in the labor force. Now, this rate has declined to 74 percent. If the labor force participation rate had stayed steady at 2007 levels, an additional 1.1 million prime-age working age women would be working or looking for work.
To correct this problem, America could follow the U.K.’s example and move to single, instead of joint, filing. A deduction for second earners could also be reinstituted (one existed from 1981 to 1986). Additionally, a flatter tax rate would reduce the marriage penalty.
Financial Aid
The potential reduction in college financial aid can be just as devastating to young lovers as the increase in taxes. This too serves as a deterrent to marriage.
Federal college student aid is determined by filling out the FAFSA, which relies on IRS tax return data. Aid is reduced based on higher Expected Family Contribution levels, which are determined by income, assets, and benefits received. In addition to young couples having to pay more for college, this formula punishes people with older children who get married. This is the case even if the new spouse is not the biological or legal parent of a college student.
Consider Monica (not her real name), the African American mother of two daughters. An immigrant, she is an American success story, gaining her citizenship and raising two daughters on her own. She remarried in 2013.
Before getting married, Monica’s income made her eligible for financial aid which brought her yearly tuition liability to $15,000 for her eldest daughter at college. If she had stayed single, her per-student tuition liability would have likely remained the same, so she would have been responsible for $30,000 a year for both of her daughters combined.
Instead, her liability rose to $25,000 for each child because of her new husband’s income. This increase happened even though Monica’s husband is not the biological or legal father of her daughters, and he has children of his own to support. Getting married was expensive for Monica.
Health Insurance Subsidies
The structure of Affordable Care Act subsidies has decreased incentives to marry. This is true of all government welfare programs, but especially true of the ACA, because health insurance is both required and expensive.
My Manhattan Institute colleague Diana Furchtgott-Roth provided the following example to show how the structure of ACA subsides discourages marriage. She wrote, “Say that Jeff, who receives health insurance from his employer, wants to marry Jenny, who is buying her subsidized health insurance from the state exchange. If they married, Jenny would no longer qualify for subsidized coverage.”
Furthermore, since premium subsidies are on a sliding scale, two married people getting their coverage on the exchange would pay more than if they were single. Households with earnings at 133 percent of the poverty line can pay no more than 4 percent of their income in healthcare premiums. Households at 400 percent of the poverty line can pay no more than 9.6 percent of income. These limits (and the associated subsidies) disappear when household earnings exceed 400 percent of the poverty line. Two people making $32,000 annually would have qualified for generous subsidies when single, but not when they got married and earned a combined income of $64,000.
Major federal policies have the unintended, but never-the-less unfortunate, consequences of discouraging marriage. Financial disincentives to marriage—from higher tax rates, to reduced college financial aid, to the loss of Affordable Care Act subsidies—make making the already complex decision to propose even more daunting.
So, this Valentine's Day, watch out. You may be liable for more than the cost of the ring.
Jared Meyer is a fellow at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.
Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning eBrief.