Michael Jahr 2022 Marriage Penalty Testimony

The following is testimony delivered by Badger Institute Senior Vice President Michael Jahr in favor of AB 692, a bill designed to eliminate the marriage penalty for participants in the Wisconsin Earned Income Tax Credit (EITC) program. 

The testimony was submitted to members of the Assembly Committee on Ways and Means on Feb. 2, 2022.

Thank you, Chairman Macco and Members of the Assembly Committee on Ways and Means, for holding this hearing on AB 692.

This is more than a tax issue or even a fairness issue. As you know, families are one of the most important institutions in society — and they play a critical role in the wellbeing of children.

Time and again, research bears out what societies have long recognized: Family structure plays a role in child outcomes.

In a 2015 report, Princeton University sociology professor Sara McLanahan and Brookings Institution Fellow Isabel Sawhill concluded that “most scholars now agree that children raised by two biological parents in a stable marriage do better than children in other family forms across a wide range of outcomes.”

These outcomes include school achievement, future economic success and avoiding behavioral pitfalls.

Unfortunately, Wisconsin’s Earned Income Tax Credit can penalize and discourage marriage in certain circumstances.

The EITC is designed to incentivize and reward work for low-income parents by providing a refundable credit that grows as a parent earns more through paid employment. Once a certain income level is met, the credit gradually tapers off.

The credit amount is determined by both income and the number of dependent children.

A substantial body of academic research indicates that the EITC encourages non-working parents to enter the labor market.

But the program can include a “marriage penalty,” where means-tested public benefits are reduced when cohabitating couples get married.

Benefits may be reduced because income for the married couple is considered jointly instead of separately, increasing the couple’s income over the eligibility threshold.

According to a Badger Institute policy brief published in 2019, the penalty can be as large as $1,000 depending on how many children are in the household and how much the couple earns independently and jointly.

So, there is a built-in incentive to stay unmarried.

Syracuse University professor Katherine Michelmore finds that:

“Single mothers who expect to lose the federal Earned Income Tax Credit benefits upon marriage are 2.5 percentage points less likely to marry their partners and 2.5 percentage points more likely to cohabit compared to single mothers who expect no change or to gain Earned Income Tax Credit benefits upon marriage.”

From a policy perspective, it makes no sense that a married couple should be worse off than an otherwise identical couple that is cohabitating.

The bill we’re discussing today, AB 692, would address this issue by allowing an EITC participant who gets married to claim either the credit that is calculated based on his or her current status as a married individual or the combined credit that each spouse claimed in the preceding taxable year, whichever is greater.

It would also allow a married couple to continue to claim the credit if their federal adjusted gross income is less than an amount, calculated by the IRS, at which the federal credit begins to phase down, plus $20,000.

This bill would rectify an unintended policy that serves no purpose. The state of Wisconsin, while rightfully encouraging work, should not be discouraging marriage.