Joint Taxation Reduces Work for Some Married Partners, but Comes with a Cost
In June 2013, the historic United States v. Windsor ruling legalized same-sex marriage, and the federal government instantly recognized over 71,000 same-sex unions formerly only acknowledged by individual states.
As a result, 71,000 couples were now being federally taxed as a family instead of as individuals, creating a shift in U.S. taxes not seen since joint taxation was originally introduced in 1948. This meant researchers had the unique opportunity to understand the effects of joint taxation in a modern context for the understudied LGBTQ+ population.
Looking into this new tax environment, researcher Elliot Isaac compares married same-sex couples to married different-sex couples to estimate whether and how couples adjust their work in response to joint taxation. Isaac also examines joint taxation’s effect on federal tax revenue.
Isaac finds small, but significant results. His research shows that under joint taxation, married lower earners are taxed more and work less, with a 1.1% decrease in the probability of employment. In contrast, married higher earners generally face lower tax rates under joint taxation, leading to a 0.02% increase in the probability of them working. Isaac’s estimates suggest a gender disparity in this policy’s impact – gender explains up to half the difference in behavioral changes to taxes, specifically when looking at lower earning women and higher earning men.
Because lower earners are less likely to work under joint taxation than they were under individual taxation, these changes imply that relative to individual taxation, joint taxation causes distortions in the labor market and raises less tax revenue among married couples. Isaac’s analysis suggests that reducing tax rates for lower earners in married couples could mitigate labor market distortions by decreasing work disincentives in the U.S. tax system. However, whether reduced distortions are worth the potentially unequal tax burdens for otherwise equally earning families remains an open question.
Read the article (open access) in the Journal of Human Resources: “Suddenly Married: Joint Taxation and the Labor Supply of Same-Sex Married Couples After U.S. v. Windsor” by Elliott Isaac.
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Elliott Isaac is an Assistant Professor of Economics at Tulane University.
