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Braver, S.L. & Stockburger, D. (2004).
The Law and Economics of Child Support Payments (pp. 91-127).
If greater equalization of living standards is desired by decision- or policy-makers, there is another mechanism
of income transfer for divorced or separated families designed precisely for this purpose: alimony. However, alimony/spousal
maintenance appears less politically acceptable at present (with both spouses so often being employed full time)
than it was historically.
While equalization of living standards can thus hardly be regarded as a legitimate goal of child support guidelines,
suppose it were. It is widely assumed by its advocates that applying this goal will lead to much higher child support
awards. What has not been widely recognized, however, is that child support guidelines could conceivably be generous
enough already that equality of outcomes has commonly been achieved. In fact, it is at least theoretically possible
that guidelines have already become too generous; that the living standards advantage generally believed to be
enjoyed by the non custodial parent (NCP) may already be overcorrected.
Thus, by inept income transferring through child support, we might inadvertently be making custodial households
more well off than non custodial ones. An important goal of this chapter is to provide the concepts and calculations
to properly compare post-divorce living standards, which requires the analyst to take into account a large number
of factors.
Most frequently overlooked are two factors:
(1) differential taxation of the two households; and
(2) that an appreciable portion of expenses due to children may be borne directly by the non custodial household.
With respect to taxation, Braver (1999; Braver & O'Connell, 1998, Ch. 3) showed that a large number of tax
advantages are available to the custodial parent (CP), but not similarly available to the NCP. These include the
claiming of the children as "exemptions"; the Child Tax Credit; a lower tax rate for "head of household"
filing status; the availability of the Earned Income Credit; and the fact that child support income is tax-free.
When the CP receives the child support, she doesn't pay any taxes on it, unlike most other income. In contrast,
when a NCP pays child support to his ex-spouse, he must pay federal income tax, social security or FICA tax, state,
and local taxes on this amount. (Alimony has the opposite tax status.) Consequently, NCPs pay all the taxes on
the child support amounts while CPs keep the full amount.
Full article (with thorough analytical details):
http://www.public.asu.edu/~devra1/stock.pdf
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