Reforming Welfare to Reduce Marriage Penalties and Put Children First

EXECUTIVE SUMMARY

Policymakers concerned with inequality and ensuring the American Dream is attainable for all should be deeply concerned with the breakdown of the nuclear family among America’s working class. While family breakdown—concentrated among the lower tiers of the income ladder—has many causes, the high marriage penalties embedded within our state and federal safety net programs are likely among them.

When determining whether a family’s income is below the threshold required to qualify for a safety net program, only a single parent’s income is typically counted. If the parent marries, or accurately reports to the authorities that he or she lives with the other biological parent of their children, then both adults’ incomes count toward whether the family qualifies for the program. Counting more than one adult’s income makes it more likely that the family earns too much to qualify for assistance. Conversely, any income from a live-in partner (who is not a biological parent of any children in the household) is usually not included in the calculation of whether the household’s income qualifies for safety net program benefits.

This makes the married couple, or the cohabiting joint biological parents who are making an accurate representation to authorities about their cohabitation, much less likely to qualify for various benefits, or makes the benefits they receive much less substantial.

In many states, the program with the steepest marriage penalty of this kind is the Child Care Assistance Program (CCAP). Depending on the family size, the incomes of both parents, and the cost of quality childcare in the local community, this program may penalize marriage to the tune of almost $10,000 per year when a family has just one child.

To rectify this marriage penalty, CCAP should be reformed in several ways. First, the income of live-in adults who are not the biological parents of the children in the household should also count toward program eligibility. This removes the financial penalty for a parent to either marry or cohabitate with their child’s other biological parent compared with alternative cohabiting arrangements.

More crucially, CCAP must follow the lead of our tax-code, which adjusts the income level at which a higher tax rate kicks in, to account for, and not penalize, the two adult earners who can exist within a family structure. Specifically, the income threshold at which a family is no longer eligible for childcare assistance should be raised for poor and working-class married couples, and their required copayment should be structured to increase slowly with gains in household income.

The tax code provides a guide for where the qualification threshold for poor and working-class married couples should be. The tax code increases the threshold at which middle-class earners are taxed at a higher rate, if they are married, by about 50 percent. Depending on the rate in question, the threshold increases even higher for an upper-class married couple (meaning that policymakers have already worked hard to reduce marriage penalties for two high-paid professionals). Likewise, this paper proposes a similar adjustment for the income thresholds that determine eligibility for CCAP, if a couple is married.

Next, no matter where the income threshold for program eligibility is set, a single eligibility threshold means that a family risks complete benefit cutoffs and steep increases in living costs if the family opts for a marriage, or earns one too many dollars. To rectify this, after the new threshold is reached, this paper proposes continued eligibility up to a second, higher threshold, and a sharp ramp up in program copayments commensurate with gains in family income that acts to phase out program benefits until an ultimate cutoff point is reached. This change gradually phases out the benefit instead of abruptly ending it, which helps to eliminate strong and sudden disincentives to work and marriage.

Finally, although the specific changes discussed apply to childcare assistance, the general changes proposed are applicable to other safety net programs in all American states and territories, and can be implemented at both the state and federal level.

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