The Republican candidate would reduce tax rates that now punish women for entering the workforce.
Women have always voted for Democratic Party candidates in greater numbers than men have, and in recent weeks Donald Trump is losing women by a wider margin because of sexual-assault allegations. But the Republican nominee for president would actually help women more than Hillary Clinton would.
Here’s how: The top tax rate currently is 39.6%. The top effective rate is closer to 45% because limits on deductions add 1.2 percentage points, and the Affordable Care Act adds an extra 3.8 percentage points. Clinton has proposed an additional 4 percentage points, bringing the top federal rate to 49%. With state taxes, the top rate would be well above 60% in high-tax states such as California, New York and Connecticut.
“Mothers are more affected by the marriage penalty than other women because they are more likely to move out of the labor force to look after newborn children and toddlers, and then to return to work when their children are in school.”
In contrast, Donald Trump is proposing to lower the top rate to 33%, similar to House Speaker Paul Ryan’s rate. The two other rates he suggests are 25% and 12%, which would result in lower taxes for many two-earner families.
This is particularly important to working women. They are disproportionately represented in the top fifth of the income distribution, where combined federal and state income tax rates can reach over 50%. Frequently it is their work that pushes the family into the top brackets.
Taxes discourage married women not only from working, but also from striving for promotions and from pursuing upwardly mobile careers.
Mothers are more affected by the marriage penalty than other women because they are more likely to move out of the labor force to look after newborn children and toddlers, and then to return to work when their children are in school.
Recent data from the Bureau of Labor statistics show that the average number of earners in the top quintile is two. In the middle quintile, it is 1.3 earners. In the bottom quintile, it is half an earner. That second earner pushes families into higher tax brackets.
Economics professors have shown that lowering individual and corporate income taxes is the key to increasing incentives for Americans to work and for businesses to invest, resulting in greater economic growth — helping both men and women find jobs. With current labor force participation rates at 1970s levels, bringing people back to the labor force should be a priority.
Nobel Prize-winning economist Edward Prescott found that in the 1970s, the labor supply of France, Germany and the United Kingdom exceeded that of the United States. In the 1990s, Americans worked much more than Europeans did. Controlling for other factors, he concluded that when tax rates of European countries and the United States were comparable, their labor supplies were comparable as well. Prescott concluded that the difference in the marginal tax rate accounts for the predominance of the differences at points in time and the large change in relative labor supply over time.
Similarly, professors William Gentry of Williams College and Glenn Hubbard of Columbia University found that higher marginal tax rates discourage entrepreneurship. Entrepreneurship involves risk-taking, and people are less willing to take risks when the rewards will be wiped out by taxes. A 5 percentage point reduction in tax progressivity would increase the entry rate by 25%.
The increase in taxes in America in 1993, they found, lowered the probability of people becoming self-employed by 20%. The ensuing period of high growth and low unemployment could have been even better.
Professors Christina and David Romer, in a 2010 article in the American Economic Review, concluded that “a tax increase of 1% of GDP reduces output over the next three years by nearly 3%.” The Romers say the effect is highly statistically significant. Furthermore, the effect is larger and more significant than if they had examined all legislated tax changes rather than just the ones they determined to be legitimate.
The majority of Americans are women. The majority of voters are women. Yet despite their political power, the government all too often ignores, or even worse, stifles the interests of women. This is particularly true of the economic interests of women. Especially in the details of tax codes, the economic interests of women are neglected.
With high marginal tax rates, American women are discouraged from working and given every incentive not to pursue advancement. It would be in their economic interest to choose candidates who proposed to lower their taxes rather than to raise them.
This piece originally appeared on WSJ's MarketWatch
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Diana Furchtgott-Roth is a senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter here.
This piece originally appeared in WSJ's MarketWatch