A new report, “The Taxpayer Costs of Divorce and Unwed Childbearing: First-Ever Estimates for the Nation and all 50 States”, raises the question of how much divorce costs taxpayers. This is an intriguing question, but unfortunately this report falls short on providing the answer. In the worst traditions of “advocacy science” the authors pick and choose among the costs and benefits, highlighting big costs and ignoring all taxpayer savings. Not surprisingly then, this report, produced by a coalition of family values groups comes up with a large taxpayer cost, finding that family fragmentation costs the U.S. taxpayer $112 billion per year, or $1 trillion each decade.
They suggest that if poor single women were to marry, around 60 percent of them would no longer be in poverty, leading to a decline in total poverty of about one third. Thus, they attribute one-third of the cost of anti-poverty programs to the costs of “family fragmentation”. Citing research by Harry Holzer linking childhood poverty to crime, they also attribute one-third of the costs of poverty-related crime to divorce, and factor in further tax costs caused by the intergenerational transmission of poverty. Add enough of this stuff up, and you hit over $100 billion per year.
But the research by Ananat and Michael (2008) that they rely on actually shows that divorce helps the financial situation of almost as many women as it hurts, and among those who gain, the gains are larger than the losses among those who lose. This report counts up the costs to the taxpayer from the women who lose income, but refuses to count even a single dollar of the rise in taxes or the decrease in poverty linked to those who gained income. They also ignore the financial benefits of divorces that allow women to escape domestic violence.
If one wanted to do a taxpayer account of divorce in the US, the starting point is to consider the household taxation system used in the United States. Unlike most other industrialized countries, the US tax system is not marriage neutral. In other words, when two people marry in the US their tax bill is likely to change. For most couples, chances are that marriage will lead their tax bill to go down. While this is not true for everyone (in particular, it is not true for high earners who have similar earnings), the majority of couples face tax savings and this savings is particularly large when men (or, less frequently, women) marry someone who stays at home rather than working in the labor market. So what happens when people divorce? Their tax bill is likely to go up. That’s right: divorce actually raises tax revenues. Moreover, research has shown that as family situations become less stable women increase their labor force participation (Johnson and Skinner, 1986) and when public policy shifted divorce law to allow unilateral divorce women’s labor force participation increased (Stevenson, 2008). As women put more hours in at work their taxable income goes up and they therefore pay more income tax. Why few people would advocate increasing marital instability in order to increase tax revenue, this is a factor that needs to be added in if one wants to come to the total tax consequences of divorce.
To read the full report, click on the links below.
Download Full Report as a Word Document
About CCF
The Council on Contemporary Families is a non-profit, non-partisan organization dedicated to providing the press and public with the latest research and best-practice findings about American families. Our members include demographers, economists, family therapists, historians, political scientists, psychologists, social workers, sociologists, as well as other family social scientists and practitioners.
Founded in 1996 and now based in the School of Education and Human Development at the University of Miami, the Council’s mission is to enhance the national understanding of how and why contemporary families are changing, what needs and challenges they face, and how these needs can best be met. To fulfill that mission, the Council holds annual conferences, open to the public, and issues periodic briefing papers and fact sheets.
