Testimony

Statement by
Wade F. Horn, PH.D
Assistant Secretary for Children and Families
U.S. Department of Health and Human Services

on
The Marriage Calculator

before
The Subcommittee on the District of Columbia Committee on Appropriations
United States Senate

Wednesday, May 3, 2006

Mr. Chairman and Members of the Subcommittee, thank you for calling today's hearing on marriage penalties embedded in some government policies. I appreciate the Subcommittee's interest in supporting healthy marriages and share your commitment to improving the well-being of children and families not only in the District of Columbia but throughout our nation.

As you know, research shows that healthy and stable marriages support children and limit the need for government programs. Whether the problem is abuse, neglect, or poverty, the evidence is clear that the best chance a child has of avoiding these problems is to grow up with their mother and father in a stable, healthy marriage.

Research also shows that adults in healthy marriages are happier and healthier. A report from the Institute for American Values suggests that communities with high rates of healthy marriages evidence fewer social problems such as crime and welfare dependency, compared to those with low rates of healthy marriages.

Marriage Penalties
Unfortunately, certain government policies result in disincentives to marriage. We know that some government policies may financially penalize some couples who choose to marry, or discourage some couples from marrying despite what they know about the benefits of healthy marriage for themselves and, importantly, for their children. For some couples marriage would be unwise from a short-term economic perspective because they would lose thousands of dollars in assistance and income to their families.

Our efforts aimed at helping low-income couples achieve their goals of forming and maintaining healthy marriages may run headlong into the financial realities imposed by current rules within federal and state tax and public assistance transfer programs. That's because when two adults marry, they may face a drop in their net income -- after taxes and loss of public assistance. This phenomenon is referred to as a marriage penalty.

In some cases marriage penalties occur because tax or transfer program rules explicitly differ for married and single people. Many marriage penalties, however, are inherent in the nature of means-tested programs that are designed to give greater benefits to lower income households. Tax rates generally climb and transfer benefits fall as income rises. Thus two individuals in the lowest tax bracket may move up to a higher tax bracket when they marry because their combined income is higher. Similarly, a woman receiving public assistance may lose her benefits if she marries a working man. In these cases, if the individuals did not marry, the sum of their net incomes would be higher than their net income as a married couple-they face a marriage penalty.

A complex combination of federal and state tax and program rules determines the financial consequences of marriage. These consequences vary considerably depending on each couple's specific circumstances, such as the couple's total income, the distribution of income between the partners, the sources of income, and the relationship of the partners to all the children in the family. Conversely, in some cases, a couple's net income can increase after marriage because the couple can take advantage of more tax credits and deductions and because they become eligible for larger transfer benefits. When neither partner receives transfer income or the partners have very different income levels, the couple is likely to see increased income when they marry. When one partner receives a considerable amount of transfer income or the partners have similar income levels, the couple is more likely to face a marriage penalty.

Further, the size of the penalties can be quite large. Consider a woman with two children ages 1 and 5 living in District of Columbia in 2003. In this example, the woman works 20 hours a week for $7 an hour, has no assets, and has child care costs of $200 per month. She receives TANF, Food Stamps, WIC, housing assistance, and a subsidy that offsets some child care costs. The father of her children works 40 hours a week for $7 an hour and pays $200 in child support. If they were to marry, the father would be able to claim extra deductions and credits on his taxes. However, the mother would lose her TANF benefits, and her food stamps, child care subsidy, and housing benefits would be reduced. The couple's net income would drop by about $4300 a year. While their living expenses would likely fall because it is less expensive to maintain one household rather than two, the loss of $4,300 a year in income (or eleven percent of their total net income) is not insignificant.

A 2005 study by Adam Carasso and Gene Steuerle of the Urban Institute demonstrates that in aggregate, unmarried couples face hundreds of billions of dollars in increased taxes or reduced transfer benefits if they marry. These penalties potentially present a significant disincentive for marriage.

Given these potential impacts of substantial marriage penalties for many couples, any efforts to assess marriage penalties require sound and detailed information about the consequences of tax and transfer program policies.

I am pleased to report the availability of a new tool for this purpose. The Administration for Children and Families (ACF) sponsored the development of a comprehensive, web-based tool to assess the financial implications facing low-income couples as they choose between living separately, cohabiting, or marrying. The tool is called The Marriage Calculator and it is now available to the public, policy makers, and analysts.

The Marriage Calculator
Under a contract from ACF, the Urban Institute developed three products that are Internet accessible, including:

  1. A database cataloging relevant federal and state tax policies and social service program rules as they relate to marriage.
  2. A user-friendly software application, The Marriage Calculator, which can be used over the Internet to calculate the financial implications of marriage across states and under user-generated scenarios about family composition and income.
  3. A set of standardized tables highlighting financial implications related to marriage across states and prototypical couples.

These tools illustrate how multiple public assistance programs and tax policies interact to affect marriage penalties and incentives and how they differ across states and across different income and family structure scenarios.

The Marriage Calculator takes information provided by the user about a family's income and assets, the number, sex, age, and parentage of the children, and their decisions to participate (if eligible) in a variety of public assistance programs, and computes the net income of the family in four situations: if the man and woman are: (1) living apart; (2) cohabiting, but not reporting their cohabitation; (3) cohabiting and reporting their cohabitation to government benefit programs; or (4) married. The calculator applies the tax and transfer rules that were in place during 2003, capturing the detailed state-specific variations in rules and the complex interactions across programs and tax policies. The calculator displays the net income of the family (after taxes and including benefits and subsidies) under each living arrangement and in each state. It also shows the individual components of that net income.

The calculator analyzes Federal and state income taxes and payroll taxes as well as the following public assistance programs: Temporary Assistance for Needy Families (TANF), Food Stamps, Special Supplemental Nutrition program for Women, Infants, and Children (WIC), public or subsidized housing, subsidized child care through the Child Care and Development Fund (CCDF), and Medicaid and State Children's Health Insurance Program (SCHIP).

This new resource allows state and Federal policy makers to closely examine the financial consequences of tax and transfer policies as a basis for possible reforms to reduce marriage penalties.

Of course, decisions about marriage involve more than calculations of immediate financial gains or losses. Couples also consider the long-term benefits for children of being raised by parents in a healthy marriage, regardless of income level, and the many emotional, physical and financial benefits of marriage for adults as well. Policy-makers should take this larger view as well.

The Healthy Marriage Initiative
President Bush, like Members of this Subcommittee, is focused on family formation and healthy marriages with an important purpose in mind: to enhance the well-being of children. The dedicated funding for healthy marriage and responsible fatherhood grants provided in the Deficit Reduction Act and the continuation of support through other discretionary grant programs within my agency will allow us to meet the President's objective to strengthen the institution of marriage and help parents rear their children in positive and healthy environments.

The new funding will support a variety of activities that will provide interested individuals and couples with the skills and knowledge necessary to form and sustain healthy marriages. For example, it will allow us to fund programs to:

  • help high school students learn to develop healthy relationships and gain knowledge about the value and benefits of healthy marriage for themselves and their future children, if they desire to marry and have children;
  • offer pre-marital services to help engaged couples focus on topics critical to the long-term health of their relationship and marriage;
  • offer help to married couples who are struggling, to gain skills to revitalize and strengthen their marriage;
  • work with non-married pregnant women and expectant fathers interested in marriage to gain the skills that are necessary to form and sustain healthy marriages and help them with parenting and financial management skills as well as with finding employment or advancing to higher wage jobs; and
  • reduce the disincentives to marriage in means-tested aid if offered in conjunction with any of the above mentioned activities.

In addition, to expand the initiative provided in the Deficit Reduction Act, the Administration's FY 2007 budget proposes to establish a competitive matching grant program for family formation and marriage. One hundred million dollars in competitive grants would be targeted to innovative approaches to promoting healthy marriage and reducing out-of-wedlock births.

Conclusion
We are excited about the opportunities before us to make these kinds of services widely available in support of healthy marriages. While these services can be beneficial to couples at all income levels, I am especially pleased that the new legislation allows us to make these services available to low-income couples, for whom these services otherwise would not be widely available or affordable.

We also are excited about the opportunities that this new tool, The Marriage Calculator, presents to examine the impact of existing policies and consider alternatives to reducing marriage penalties. We believe The Marriage Calculator provides an opportunity to explore this issue in more detail and specificity than was previously possible. It is a great new tool that complements other efforts to meet President Bush's objective to strengthen the institution of marriage and the well being of children in this country.

Thank you. I would be pleased to answer your questions.

Last Revised: May 2, 2006