Kearney and Turner propose changes to the tax code
The US tax and transfer system redistributes resources and reduces income disparities by reducing the number of families located at either end of the income distribution and raising the number of families in the middle range. But MPRC faculty associate Melissa Kearney says that the system doesn’t work well for everyone and can be a barrier to entry into the middle class. For families who are at or just above the federal poverty line, each additional dollar in earnings means reduced eligibility for government transfer programs as well as additional taxes owed.
In a 2013 Hamilton Project paper, Kearney and her colleague Lesley Turner showed that between payroll taxes, childcare expenses, and the loss of eligibility for tax credits and food assistance, a two-income family in which each spouse earns $25,000 can expect to take home only about 30% of the second worker’s income. Kearney and Turner propose a secondary earner tax deduction, which would allow low-wage dual-earning couples to keep more of their earnings, making it easier for low-income families to work their way into the middle class.