Study shows how to lower divorce rate among poor Americans: Raise the minimum wage

A report by UCLA psychologists and RAND economists has identified an effective way to reduce the number of divorces among lower-income Americans: Raise the minimum wage.

The study, which is published in the Journal of Marriage and Family, is the first to analyze the effects of states’ minimum wage increases on the rates of marriage and divorce among low-wage earners.

“When policymakers think about ways of helping disadvantaged families, there has been a general tendency to try teaching them things like better communication or coping skills,” said UCLA psychology professor Benjamin Karney, the study’s lead author. “The assumption that the consequences of income inequality can be managed this way has been proven wrong again and again.

“Luckily, there are other, more direct avenues to improving the lives of disadvantaged families, and one is to pursue policies that improve their lives in concrete ways.”

The study is especially timely. In March, the Republican subcommittee of the Senate Joint Economic Committee published a report expressing members’ continued commitment to communication skills education programs as a way to strengthen marriage among low-income Americans. Over the past two decades, the federal government has allocated nearly $1 billion toward such programs.

But Karney said those initiatives are expensive and have been proven in several large studies to be ineffective.

The UCLA–RAND study shows that when states increased their minimum hourly wage by $1, divorce rates declined by 7% to 15% over the next two years among men and women earning low wages — including but not limited to those earning minimum wage.

The researchers also found that a $1 per hour increase in a state’s minimum wage reduced marriage rates by 3% to 6%. When younger low-wage earners earn more, they often delay marriage, rather than forgo marriage entirely, said co-author Thomas Bradbury, a UCLA psychology professor.

“Raising the minimum wage appears to bring the marital timing of low-wage earners more in line with the timing of more affluent people, who tend to marry at older ages,” he said, adding that later marriages are less likely to end in divorce.

Both changes — lower divorce rates and later marriages — are likely to strengthen low-income families, and the effects that occur after minimum wage increases are substantially larger than the effects of the federal programs on communication and coping skills, the researchers report.

“When the lives of poorer families get easier — that is, when they can be less poor — relationships within the family get easier as well, without anyone needing to be taught anything,” Karney said. “Any policies that address income inequality are likely to have measurable benefits for family stability.”

The researchers analyzed data from 2004 through 2015 from two independent monthly surveys: the Current Population Survey, a primarily telephone-based survey of approximately 60,000 households in populous areas, designed to be representative of the labor force, and the American Community Survey, a primarily mail-based survey of approximately 300,000 households in all geographic areas, designed to be representative of the broader population. The new analysis included only people between the ages of 18 and 35, who make up the majority of minimum wage earners.

Between 2002 and 2015, seven states — Alabama, Georgia, Kansas, North Dakota, Oklahoma, Texas and Wyoming — did not raise their minimum wages, except when required to do so by federal law.

“Financial considerations play a substantial role in whether couples consider their relationships worth maintaining,” Karney said. “Economic stress and financial strain predict less satisfying and less stable marriages, and higher levels of poverty and consumer debt predict a greater risk of divorce.”

Citing previous studies, the paper notes that when poorer people get married, they tend marry earlier and are about twice as likely to divorce.

In the study, the researchers defined low-wage workers as those earning $20 an hour or less. They write that the effects of increasing the minimum wage would be the same even if the definition of low-wage workers were based $16 an hour or less, or on certain tiers of federal poverty level guidelines.

The study’s co-authors are RAND economists Jeffrey Wenger and Melanie Zaber.

---

JOURNAL

Journal of Marriage and Family

More than 60% of corporations pay no state corporate income tax in seven states

Specifically, 69% of corporations in Connecticut pay no state corporate income tax.

 

A new Economic Policy Institute report finds that the effective state and local tax rate on corporate profits shrunk by between a third and a half between 1989 and 2017, resulting in a revenue shortfall between $43 billion and $57 billion.

Further, more than 60% of corporations pay no state corporate income tax in seven states—Connecticut, Colorado, Florida, Illinois, Michigan, Tennessee, and Wisconsin. And depending on the state, between 11% and 27% of corporations with over $1 billion in federal taxable income pay nothing or next to nothing in state corporate income taxes, according to the report.

This revenue shortfall has had real consequences for governments’ ability to provide basic services to their residents because state and local governments typically must match spending with revenue each year. To give a sense of the significance of revenue losses, state and local governments could essentially fully fund universal high-quality pre-kindergarten for all 3- and 4-year-olds with $57 billion.

The decline in tax revenue can be traced to a combination of state corporate income tax cuts, a rise in the share of corporate profits earned by S-corporations—which are exempt from most state corporate income taxes—and the ability of large, profitable corporations to exploit loopholes that allow them to minimize their tax bills.

Notably, the erosion of state corporate income tax revenue has nothing to do with corporations’ ability to pay. Corporate profits have risen even as corporate tax revenues have declined.

“Tax revenues are critical to the ability of state and local governments to provide basic services to their residents, including K–12 education, child care and elder care, maintenance of roads and bridges, and public health and safety, among others,” said Josh Bivens, director of research at EPI and author of the report. “However, in recent decades state and local policymakers have consistently allowed corporations to reduce their share of taxes. These policy decisions should be reversed to ensure profitable businesses pay their fair share in taxes.”

The report floats a number of reforms state legislators could implement to help stem these losses, including: 

• Raising statutory corporate income tax rates.
• Passing legislation that forces corporations to provide a state-by-state accounting of their profits and taxes.
• Taking steps to ensure corporations can’t simply evade taxes by setting themselves up as S-corporations or other new forms of businesses. Legislators can either tax these new business forms or raise personal income taxes progressively.

Congress should renew the American Rescue Plan’s EITC expansions

Source Center on Budget and Policy Priorities

As the April 18 tax filing deadline approaches, 17 million adults not raising children at home and who do important jobs but for low pay are eligible to claim an expanded Earned Income Tax Credit (EITC). Many of these adults, and all adults aged 19-24 (excluding students) and 65 and older, didn’t qualify for any EITC until the American Rescue Plan made them eligible in tax year 2021 — and they’ll again be ineligible starting this year unless policymakers extend this important fix to the EITC, an otherwise highly successful wage subsidy with bipartisan support.

The American Rescue Plan in 2021 raised the maximum EITC for workers without children from roughly $540 to roughly $1,500, and raised the income limit to qualify from about $16,000 to more than $21,000 for unmarried filers and from about $22,000 to more than $27,000 for married couples. It also expanded the age range of workers without children eligible for the tax credit to include younger adults aged 19-24 (excluding students under 24 who are attending school at least part time), as well as people 65 and over.

These changes made nearly 11 million workers without children newly eligible for the EITC; most will claim it when they file their 2021 tax returns this year (though claimants who miss filing a tax return this year still have three years during which they can file and claim their expanded credit). (See table below for details on these 11 million.)

In all, an estimated 17.4 million low-paid adults without children across the country will benefit from the expanded credit, including roughly 9.7 million white, 3.6 million Latino, 2.7 million Black, and 816,000 Asian workers. These adults work as cashiers, home health aides, child care workers, and in other roles crucial to people’s daily lives.

Among those benefiting from the Rescue Plan’s EITC expansions are nearly 6 million working adults aged 19 and older who aren’t caring for children and who will again be taxed into, or deeper into, poverty under current law because their EITC will be zero or paltry. (See graph.) This group includes about 3 million white, 1.3 million Latino, and 1 million Black workers (but excludes full-time students under age 24), many of them young and trying to gain a toehold in the labor market.

Share Chart on Facebook Share Chart on Twitter

Chart

To see how the Rescue Plan will help this year at tax time, consider a 25-year-old single woman who worked roughly 30 hours a week throughout 2021 as a child care worker and earned about $9.50 an hour. Her annual earnings of $14,250 were just above the poverty line of $14,097 for a single individual. Without the Rescue Plan, federal taxes would have pushed her into poverty:

• Some $1,090 — 7.65 percent of her earnings — was withheld from her paychecks for Social Security and Medicare payroll taxes.
• When filing income taxes, she can claim the $12,550 standard deduction, which leaves her with $1,700 in taxable income. Since she is in the 10 percent tax bracket, she owes $170 in federal income tax.
• Thus, her combined federal income and payroll tax liability, not counting the EITC, is $1,260. Without the Rescue Plan, she would have received a small EITC of $130, so her net federal income and payroll tax liability would have been $1,130.
• In other words, although her earnings were just above the poverty line, federal taxes would have pushed her income about $977 below the poverty line.
• Under the Rescue Plan, her EITC will grow to $1,142, giving her $1,012 more in income after federal income and payroll taxes than she would have had without the Rescue Plan, and keeping her above the poverty line.

This important EITC provision, however, was only the law for 2021, and if Congress fails to act, more than 17 million working people will lose this enhanced wage subsidy at a time when the costs of basic needs are rising. The EITC has long enjoyed bipartisan support, and policymakers should use it not just to stop the federal government from taxing people into poverty but to provide a crucial income boost to people who work important jobs for low pay. The way to ensure that is to extend this critical expansion of the EITC. It’s time for Congress to do just that.

Nearly 11 Million Workers Without Children Are Newly Eligible for Rescue Plan’s Expanded EITC
Workers without children newly eligible due to increased income limit and expanded age range, as well as total eligible
	Total	White	Black	Latino	Asian	Another race or multiple races
Newly eligible due to increased income limit
Age 25 to 64	3,859,000	1,879,000	688,000	969,000	195,000	128,000
Newly eligible due to expanded age range
Age 19 to 24	4,790,000	2,620,000	696,000	1,107,000	154,000	213,000
Age 65 and over	2,038,000	1,546,000	204,000	187,000	69,000	32,000
Total newly eligible	10,687,000	6,045,000	1,588,000	2,263,000	418,000	373,000
Total eligible for expanded EITC	17,445,000	9,659,000	2,739,000	3,640,000	816,000	592,000

Notes: The American Rescue Plan in 2021 increased EITC eligibility for workers without children by raising the income limit to qualify from $15,980 to $21,430 for unmarried filers and from $21,920 to $27,380 for married couples, and by expanding the age range to include younger adults aged 19-24 (excluding students under 24 who are attending school at least part time), and people 65 and over. The number of working adults newly eligible due to the Rescue Plan’s expanded age range includes adults in those age groups whose income falls in the increased income limit range. The Rescue Plan also extends eligibility to former foster youth and youth experiencing homelessness starting at age 18, who are not counted in this table and would make the total number newly eligible slightly higher. Racial and ethnic categories do not overlap; figures for each racial group such as Black, white, or Asian do not include individuals who identify as multiracial or people of Latino ethnicity. Latino includes all people of Hispanic, Latino, or Spanish origin regardless of race. Due to limitations of the Census data, the figures do not reflect IRS rules that require all EITC family members to have a Social Security number. As a result, the Latino figures, in particular, may be somewhat overstated.

Source: CBPP analysis of the March 2019 Current Population Survey allocated by race or ethnicity based on CBPP analysis of American Community Survey data for 2016-2018. Estimates are based on the economy as of 2016-2018 using tax year 2021 tax rules and incomes adjusted for inflation to 2021 dollars.