How Will Gay Marriage Impact the Deficit?
With the Supreme Court striking down the Defense of Marriage Act, how would federal recognition of same-sex marriage affect the federal budget deficit?
On Wednesday, President Obama said, “I’ve directed the Attorney General to work with other members of my Cabinet to review all relevant federal statutes to ensure this decision, including its implications for Federal benefits and obligations, is implemented swiftly and smoothly.”
Would the federal budget deficit grow or decline? Data from the non-partisan Congressional Budget Office suggest that the federal budget deficit would decline by about two-tenths of 1% if the federal government recognized same-sex marriage, not enough to make a substantive difference in the deficit.
Nine states and the District of Columbia allow same sex marriage. Since the federal government does not recognize the same-sex marriages in these states, these couples are not eligible for federal housing, food stamps, or Social Security benefits provided to spouses. They do not have federal spousal benefits for bankruptcy, inheritance, student loans, and agricultural loans. (In Delaware, Minnesota and Rhode Island gay marriage will be legal later this year. As of Aug. 1, 12 states and the District of Columbia will allow gay marriage.)
If the federal government were to recognize states’ same-sex marriages, as the president implied, the Treasury would gain revenues because more single-sex couples would face marriage penalties both at the low and high-income end. On the other hand, the Treasury would lose revenues because it would have to pay out more for Social Security benefits for couples, and for spousal benefits in the Federal Employee Health Benefits Program.
Although CBO last estimated the effects of same-sex marriage in 2004, these estimates offer a useful guide to today’s fiscal effects. CBO concluded that Federal recognition of same-sex marriage would reduce the budget deficit by $500 million to $700 million a year during the years 2011 through 2014, or 0.016 percent of total federal spending of $3.7 trillion.
When single, people qualify for certain benefits, such as food stamps, Medicaid, housing vouchers, and Supplemental Security Income. However, marriage often raises their household income so they lose eligibility. CBO estimated annual savings in 2014 of $100 million in Supplemental Security Income, $300 million in Medicaid and $50 million in Medicare because married same-sex couples would not qualify for benefits. Legalization in all 50 states could raise tax receipts by $400 million annually because of the marriage penalty. In our system, if you’re getting government help, marriage doesn’t pay, whether for heterosexuals or gay couples.
But marriage does pay when it comes to federal benefits. According to CBO, the federal government would pay $350 million a year by 2014 for Social Security benefits for same-sex couples based on spousal income. Covering same-sex spouses in the Federal Employee Health Benefits Program would cost about $80 million a year before the Affordable Care Act. With the ACA, the figure should increase.
In a paper published in the National Tax Journal in December 2012, University of Michigan economist Adam Stevenson estimated an increase of $34 million per year in federal revenues, or 0.001% of federal spending, if same-sex marriage was legalized at the federal level. He estimates a lower revenue gain than CBO because he assumes that many gay spouses would change their labor force participation rates in response to the marriage penalty.
This has been shown in the context of marriage penalties for low-income Americans. As Urban Institute senior fellow Eugene Steuerle and University Chicago professor Casey Mulligan have shown separately, higher marginal tax rates result in substantial changes in behavior.
Steuerle told the House Committee on Government Reform and Oversight earlier this year, “low- to moderate-income households often face marginal tax rates of about 50 or 60% if they participate in universally available programs like SNAP (formerly food stamps), the EITC, and (soon) the new exchange subsidies, while some households face rates of 80 percent or higher if they participate in programs with limited enrollment, like TANF or housing subsidies.”
Facing higher marginal tax rates both on the lower and on the upper end if married, some same-sex couples might decide to stay single.
Some other economists, such as University of Michigan professor Justin Wolfers, suggest that states will gain from same-sex marriage because of increases in marriage license fees, sales tax and revenue from wedding expenses.
In July 2012, Mayor Michael Bloomberg detailed the benefits for New York City’s economy since same-sex marriage was legalized in 2011. In the first year, he reported, the city earned $259 million through marriage license fees, local celebrations and wedding-related purchases. Over 10% of the 75,000 marriage licenses issued in the first year after legalization were for same-sex couples (8,200). Same-sex couples spent an average of over $9,000 on weddings, resulting in a large boost to the economy, especially hotels, which housed wedding guests. The city gained $16 million in tax revenue, Bloomberg said.
New York may be seeing large gains because of the recent legalization of same-sex marriage. Data show that same-sex marriage rates peak the first year after legalization and then decline, both as a share of marriages and a share of population.
The table shows data on same-sex marriage rates from Massachusetts, Connecticut, Iowa, New Hampshire, and Vermont. In the first year of legalization, the number of marriages between same-sex couples was 6,121 in Massachusetts, 2,706 in Connecticut, 1,783 in Iowa, 987 in New Hampshire, and 642 in Vermont. But these numbers were clearly due to pent-up demand, rather than characterizing a permanent trend, because they declined dramatically in ensuing years. For instance, in Massachusetts, the number of same-sex marriages was 1,737 in 2012, 28% of the original number after 8 years.
The share of total marriages attributable to same–sex couples declined to 5% in 2012 from 18% in 2004 in Massachusetts; from 13% in 2009 to 6% in 2011 in Connecticut; from 8% in 2009 to 6% in 2011 in Iowa; from 10% in 2010 to 4% in 2012 in New Hampshire; and from 28% in 2009 to 9% in 2012 in Vermont.
State tax revenue does not show a consistent increase after legalization of same-sex marriages. In the first year, tax revenues in Connecticut declined by about 10% relative to the average revenue in the three years preceding legalization, while Massachusetts saw an increase of about 11%.
It is important to note, however that same-sex marriage was legalized in Massachusetts in 2004, during the economic boom, while Connecticut legalized it in 2008 during the Great Recession. Furthermore, tax revenues in Massachusetts rose at a lower rate than did revenues in other states over the same time period. At the very least, this shows that weddings from same-sex couples are not significant enough to dramatically increase revenues.
There are many arguments for and against same-sex marriage. Due to the low incidence of such marriages, its effects on federal and state revenues will be minor, a fraction of a percentage point. The Supreme Court decision is unlikely to have major fiscal significance on a regional or national level.
This piece originally appeared in WSJ's MarketWatch
This piece originally appeared in WSJ's MarketWatch