Glenn Reynolds linked to a piece in The Fiscal Times that talks about the continuing marriage penalty in the tax code, and how the rate increase on “wealthy” would hit dual earner especially hard in places where both the cost of living and salaries are high.
As noted by a commenter there, the tax divorce is child’s play compared to the possibility of a benefits divorce for single income families. Consider a study from Pennsylvania Secretary of Public Welfare Gary Alexander that found that a single mom is better off earning $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045.
in a previous ZeroHedge piece they calculated that a “one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year.”
Now some have suggested that most people wouldn’t willingly move from a higher paying job to a minimum wage job, because it’s very possible that the minimum wage job would be unpleasant. In the case of a married couple with a single earner this objection becomes moot because the non-wage earning spouse doesn’t even have to work to start collecting these benefits.
Here”s the “plan:”
The wage earner keeps the house, the non-wage earner gets support. The support that the non-earner receives is made low enough that the non-earner is technically eligible for all the welfare programs noted in the graphic below from the second linked piece:
The wage earning spouse pays for big-ticket things, at least as far as taxes go. The beauty of the “benefits divorce” is that you still live together and pay for things as you did before, you just take a portion of your income and call it alimony and child support. You would have to have two checking accounts, but mostly it’s just moving money around.
Another benefit to the wage earner is that they would be able to scale back on their employer-provided healthcare since they would no longer need family coverage. With the government-funded Medicare coverage for the non-wage earner and children the total family health care costs would probably go down substantially. Throw in food stamps, school lunches, tax credits, etc. and the net benefits to the non-wage earning parent really add up.
If the single wage earner family made $100,000/yr (with no or negative net benefits), after a benefits divorce they’d still have the same $100,000 (collectively), but pick up an extra $25,000 to $40,000 a year in government benefits simply by being divorced.