As our lawmakers—newly reminded of the power of female voters—huddle to strategize about the “fiscal cliff,” they have an opportunity to address a real threat to female prosperity: a tax code that is disproportionately burdensome to married women, especially working moms.
Although some states have adjusted their tax rates to correct for this, and Congress has adjusted the penalty for certain tax levels, it is still true that when couples come together “for richer, for poorer,” the IRS has no problem making working women poorer.
Here’s how the marriage penalty works: Mr. and Mrs. report a combined income to the IRS. This pushes them into a higher tax bracket than they, or at least one of them, were in when they were single, so their taxes rise. They are taxed on their joint income even when electing to report as “married filing separately.”
Women are the ones who typically take the larger financial hit, since most married women are second earners—by choice, it should be noted. The Pew Research Center reports that nearly two-thirds of married women with children 17 and younger would prefer to work part-time, a luxury enjoyed by only 26 percent of working mothers. Still, whether wives are second earners by choice or not, why should the tax code penalize their contributions and disincentivize the use of their talents?
As columnist Kimberley Strassel summed up the problem, “A married woman who does the same job as a single man keeps fewer of her dollars.” A wife working part-time can actually cause her household a net loss if her paycheck bumps the couple into the next tax bracket and the family incurs childcare expenses. That puts working mothers in an absurd position. For all the glass ceilings women have broken, working wives are standing on a trap-door tax floor.
What’s more, should a wife seek out the working mom’s dream of flexibility, say by shifting from a staff job to a freelance role, the prize comes with a hefty price tag. A woman who structures her working life to maximize flexibility will pay tax rates as high as 60 percent in some states.
The government penalizes most harshly the professional situation that is most desirable for many women: self-employment. A self-employed woman will always pay taxes at a higher rate than that of her salaried husband earning the same amount. The “self-employment tax” hits the independently motivated worker (regardless of sex) with both the employer and employee contributions to Social Security and Medicare. There is no reason to exempt self-employed women from paying into Social Security and Medicare like everyone else. But the fact remains that a woman making a living as an independent contractor sees less of her income than a woman with a boss.
And then there is childcare. If a couple decides to hire someone to care for their children at home, their options are: take another financial hit and hire an accountant, or buckle in and get cracking on the I-9 Employment Eligibility Verification form, the W-4 Withholding Allowance Certificate, the SS-4 Application for Employer Identification Number, IRS Publication 926 Household Employer’s Tax Guide, Form 1040ES, Estimated Tax Payment Coupons, Schedule H Household Employment Taxes, Form W-2 and W-3 reporting forms, and a similar series of state forms. The forms come with different due dates and different penalties for missing the due dates—it can be dizzying just trying to file the proper paperwork by the right date. Employing a nanny is akin to taking on an extra part-time job, the burden of which tends to fall on the mother.
In today’s competitive childcare market, most nannies require that their income cover their portion of Social Security, Medicare, the federal unemployment tax, and state unemployment and disability insurance. In many urban areas, the starting rate for decent childcare is $20 an hour if you don’t choose day care (or you did not think to put your child on the waiting list for the local center on your way home from your first sonogram). And while the federal government still allows a childcare deduction of up to $1,050 for one child, a woman working even part-time can burn right through that in a matter of weeks. Many working mothers choose to take the financial hit, accepting that to keep their hand in professionally means spending more on good childcare than they will take home. Again, this puts the working mother in the position of working even though it makes zero financial sense.
Republicans just lost an election partly because they failed to counter the Democrats’ preposterous claim of a Republican “war on women.” Democrats hung social issues like “reproductive rights” around Republicans’ necks. These tactics helped win them single women.