Association for Public Policy Analysis & Management

Policy proposals to expand the earned income tax credit (EITC) for workers without qualifying children (“childless workers”) have received a great deal of attention in recent years. Most recently, versions of an expansion were included in President Obama’s Fiscal Year 2016 Budget and in House Ways and Means Committee Chairman Paul Ryan’s anti-poverty blueprint. Supporters believe an expansion will increase employment levels and redistribute income to poor childless workers without disincentivizing work.  At the same time, marriage penalties associated with the EITC have also gained much attention over the years, with research mixed on how marriage affects the EITC for two unmarried parents. Acs and Maag (2005) found that cohabitating low-income couples would actually increase their EITC if they married because most couples only had one worker. However, Fisher (2011) found that increases in marriage tax penalties decreased the probability of marriage and that low-educated workers were most affected. The proposals for expanding the childless worker EITC would make these marriage penalties, if they exist, worse.

To assess the potential implications of an expanded childless worker EITC on the marriage penalty for unmarried couples, this paper uses data from the Fragile Families and Child Wellbeing study to assess the actual EITC marriage penalty among low-income unmarried parents (cohabitating and non-cohabitating) under current tax policy and a proposed expansion. The Fragile Families dataset includes earnings data for both the mother and the father at each wave of data collection as well as their relationship and marital status. Using these data, the study simulates the current and proposed EITC based on the marital status of the couple.

The results suggest that the issue is very complex because the family situations of unmarried parents are complex. However, it confirms that many unmarried couples are better off remaining unmarried for the purposes of the EITC, especially in the first few years after the birth of a child and that the childless worker EITC expansions would make this marriage penalty worse. In some cases, the penalty is substantial. Although the research is mixed concerning how much unmarried parents actually factor tax policy into their decision-making around marriage and family formation (Tach and Halpern-Meekin, 2014), this study suggests that policy makers must be aware of the potential disincentive to marriage associated with the EITC. The paper concludes with a policy discussion and recommendations for expanding the childless worker EITC while addressing the marriage penalties.