The Middle Class Parent Penalty: Child Benefits in the U.S. Tax Code

53 Pages Posted: 2 Dec 2000 Last revised: 14 Sep 2001

See all articles by David T. Ellwood

David T. Ellwood

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Jeffrey B. Liebman

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Date Written: December 2000

Abstract

Low-income families with children receive large tax benefits from the Earned Income Tax Credit, while high income taxpayers receive large tax benefits from dependent exemptions (whose value is greater to those in higher tax brackets). In contrast, middle-income parents receive substantially smaller tax benefits associated with children. This U-shaped pattern of benefits by income, which we call the middle-class parent penalty,' not only raises issues of fairness; it also generates marginal tax rates and marriage penalties for moderate income families that are as high or higher than those facing more well-to-do taxpayers. This paper documents how the tax benefits of children vary with income, and illustrates their impact on marginal tax rates and marriage penalties. It then examines five options for reducing or eliminating the middle-class parent penalty and the high marginal tax rates and marriage penalties it produces.

Suggested Citation

Ellwood, David T. and Liebman, Jeffrey B., The Middle Class Parent Penalty: Child Benefits in the U.S. Tax Code (December 2000). NBER Working Paper No. w8031. Available at SSRN: https://ssrn.com/abstract=252206

David T. Ellwood (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1121 (Phone)
617-496-9053 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jeffrey B. Liebman

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-8518 (Phone)
617-496-9053 (Fax)

HOME PAGE: http://www.jeffreyliebman.com

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
42
Abstract Views
1,593
PlumX Metrics