For Low-Wage Workers, Two Incomes Are Not Much Better Than One

Changing the tax code could help struggling two-worker families stay afloat, according to a new study by MPRC Faculty Associates Melissa Kearney and Lesley Turner. Falling wages over the past decade have made it more difficult for low-income families to get by. Many families have responded to increasing financial pressures by sending two earners into the workforce, only to find that two incomes are barely better than one.

For low-income families having two incomes is expensive. The second earner is taxed at a higher rate, and the additional income makes the family ineligible to receive many tax breaks that were available to them before, notes Washington Post writer Jim Tankersley. Kearney and Turner calculated that when a second earner enters the workforce, about 70 percent of his or her earnings are eaten up by taxes, child care, and lost government benefits such as food stamps. “They go to work, and it’s sort of like a treadmill, which is the exact opposite of what you’d do if you were trying to design a tax system to incentivize people to go to work,” Kearney explained.

Kearney and Turner have devised a way to change the tax code to allow two-income families who make up to $110,000 a year to keep more of their earnings. The changes would be paid for by a combination of reducing other tax credits and cutting federal tax revenues.

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Read a related story in the Bloomberg News