Monday, July 28, 2014

The Gender of the Debt: SCOTUS Edition - Summary

What is the difference in taxes paid to benefits received by two Supreme Court of the United States ("SCOTUS") Justices based on his/her gender, whether his/her spouse earns money (and pays taxes) (or whether s/he is married at all) and whether s/he is a parent and takes equal responsibility for the nonfinancial aspects a child's needs (either through doing the work him/herself or through paying for child care, etc.)?

This is the next post in a series on "The Gender of the Debt", i.e. the role of gender stereotyping as a direct and indirect driver in the $19 trillion federal debt, which I've looked at in two previous posts, here and here

Here I am going to compare a set of hypothetical Supreme Court Justices.  I am using SCOTUS as an example because the salary is fixed and equal for each Associate Justice.  In 2013, this salary was $213,000.  I am simplifying this greatly in order to illustrate the effects and the relation to the federal debt.

In this post I am going to discuss the final summary.  To see the breakdown of the payroll tax, income tax, and benefits, go to the next post.

The people in the example are:

(a) Peer SCOTUS Married (a Supreme Court Justice who is "peer-married", i.e. married to a spouse who earns income (in this case, I'm assuming a slightly lower income for the spouse, at $200,000 to illustrate some effects on that spouse even with that relatively small amount of lesser income).  I've assumed this is a "she" or "Ms. Peer SCOTUS", to simplify the illustration, but it could just as easily be a "Mr. Peer SCOTUS".

(b) Patriarch SCOTUS Married (a Supreme Court Justice who is "patriarchally-married", i.e married to a spouse who does not earn income.  In this case, I assumed the spouse is a "stay-at-home-mother" or SAHM, but it could also be true for a spouse in a marriage where there are no children (or the children are grown).    For the purpose of illustration, I've included some examples of what would happen if Mrs. SAHM tries to reenter the workforce and earn income. 

(c)  Peer SCOTUS Single (a Supreme Court Justice who is single).  Again, I've assumed this is a "she" but it could easily be a "he".  In this case I've included the person who was the spouse in the marriage as a "single" also, to show the effects of his being married or single.

(d) Patriarch SCOTUS Single (a Supreme Court Justice who is patriarchal, i.e. does not take any responsibility for children or unpaid work of the family, other than financial responsibility, but who is not married).  I've included the person who was the SAHM, only now she's Miss SAHM not Mrs. SAHM, in order to show the effects of her being married or single.

Here is the Net Income After Payroll and Income Taxes and Including Social Security and Medicare Benefits:



Ms. Peer SCOTUS/ Mr. Peer Working Husband Married
Mr. Patriarch SCOTUS/Mrs. SAHM Married
Ms. Peer SCOTUS/ Peer Partner Single
Mr. Patriarch SCOTUS/ Miss SAHM Single
Gross Income - (Payroll Tax + Income Tax  + Cap Gains/Dividend Tax) + Social Security Benefits + Medicare Benefits = Net Income

$272,497 + 2x retirement Social Security Benefits + 2x retirement Medicare Benefits
$151,296 + 1.5x retirement Social Security Benefits + survivor 1x Social Security Benefit to Mrs + 2x retirement Medicare Benefits
Ms Peer: $145,275 + 1x retirement SS Benefit + 1x  Med Benefit
Mr Patriarch: $145,275 + 1x retirement SS Benefit + 1x  Med Benefit
Mr Peer: $136,380 + 1x retirement SS Benefit + 1x  Med Benefit
Mrs SAHM: $0 + 1x retirement Medicare Benefit
Combined: $281,655 + 2x retirement SS Benefit + 2x  Med Benefit
Combined: $145,275 + 1x retirement SS Benefit + 2x  Med Benefit






















And, finally, here is a calculation of the percentage tax rates paid by each SCOTUS and his or her spouse or unmarried partner.  I've included "effective tax rates" and "marginal tax rates".  Effective tax rates are the net tax rates paid; marginal tax rates are the tax rate each person would pay if s/he earned another dollar:



Ms. Peer SCOTUS/ Mr. Peer Working Husband Married
Mr. Patriarch SCOTUS/Mrs. SAHM Married
Ms. Peer SCOTUS/ Peer Partner Single
Mr. Patriarch SCOTUS/ Miss SAHM Single
Effective Tax Rates / Marginal Tax Rates
Ms. : 34.02% effective and 36.8% marginal
Mr Patriarch:  28.97% effective and 30.9% marginal
Ms: 31.80% effective and 33.03% marginal
Mr Patriarch.: 31.80% effective and 33.03% marginal
Mr.: 34.02% effective and 36.9% marginal
Mrs. SAHM = 0% effective and 30.9% marginal
Mr: 31.81% effective and 30.9% marginal
Miss SAHM: 0% effective and 0% marginal






What does this show?


Mr. Patriarch SCOTUS has a strong tax incentive to marry, as his effective rate drops by almost 3% by marrying Miss SAHM, and his marginal rate drops by more than 2%.  Moreover, when the additional benefits he and Mrs. SAHM receive in Social Security are factored in, he does even better by being married.  The less his wife earns, preferably zero, the lower his tax rate and the more benefits he receives.

But is this true for Miss SAHM?   Her marginal tax rate jumps over 30% on the first dollar she earns if she marries him, so she has a tax incentive not to marry him.  In benefits, she does get a 50% benefit during Mr. Patriarch's retirement (paid to Mr. Patriarch, though, not to her) and a 100% widow's benefit after he dies, so she does get more Social Security benefits by marrying him.   In Medicare, she receives the same benefits whether or not she marries him.

Ms. Peer SCOTUS has a tax incentive not to marry anyone, even Mr. Peer who earns less than she does.  She saves almost 2% in her effective tax rate and almost 4% in her marginal rate by not marrying anyone.

What about Mr. Peer Husband?   He also faces a tax incentive not to marry his SCOTUS partner.  His effective rate goes up by more than 2% and his marginal rate goes up by 6% if he marries her.

How about when we compare the couples relative payments in to benefits out?

In income taxes, if the couples are both married, the Peers are paying much higher taxes on the same income than the Patriarch/SAHMs.  If everyone is single, the rates on the income then are the same, though.  This is what would happen if the US joined other OECD countries in getting rid of the fiction of "earned income splitting" in tax measurement; the US could still have marital tax returns, but just get rid of this fiction in measurement.  This fiction in measurement is costing the Peers almost $10,000 a year in taxes.  Moreover, this fiction is a big factor in the federal debt, as the Patriarch/SAHMs are not paying almost $6000 in taxes per year they should be.

In benefits, in both Social Security and Medicare, the Peers, whether they are single or married, are heavily subsidizing the Patriarch/SAHMs, whether they are single or married, but this subsidy increases substantially if the Patriarch/SAHMs are married.    This subsidy is a big driver in the federal debt, as the Peers are paying for their benefits, but the Patriarch/SAHMs are not.  

********

So, in summary, both Ms. Peer SCOTUS and Mr. Patriarch SCOTUS have spouses who would pay lower tax rates by divorcing - or never marrying - their SCOTUS spouses.  Both Mr. Peer Husband and Miss/Mrs. SAHM pay a higher effective tax rate on their income and a higher marginal tax rate if they earned additional income if they are married to their SCOTUS spouses than if they divorced or never married.   Miss SAHM gets a bit more in Social Security benefits if she marries Mr. Patriarch; whether it's enough to offset her higher taxes, I don't know.

Ms. Peer SCOTUS has a strong tax and benefits incentive not to marry anyone - or to divorce if she is married.

Mr. Patriarch SCOTUS, though,  has a strong tax (and benefit) incentive to marry though, and pays the least/gains the most the less his wife earns.   He also is underpaying his taxes relative to Ms. Peer SCOTUS (even if she is single) and receiving additional benefits for which he is not taxed.

No wonder Mr. Patriarch SCOTUS might want to see patriarchal or "Adam's Rib" marriage as a type of marriage as required by the Constitution (which it is not) - and fail to see the debt-financed subsidies to this type of marriage as unconstitutional (which I believe they are).





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