Thinking like an economist

A few months back one of my colleagues sent me the following email:

Dear dismal scientists (all you econ prof’s too)

I am happy to report that after going to my tax accountant Wed night, this dismal scientist reduced his tax burden by $12,000 by divorcing the love of my life  (I was expecting as high as 15K)
As a result, we will be sending you postcards from Hawaii, Fl or where ever.  The only downside is that when we get re-married, Leslie wants a destination wedding.  I told her that Lawrence is a destination.  She had no sense of humor.


And here’s Justin Wolfers:

Because Betsey and I earn similar incomes, we would pay a marriage penalty.  The U.S. has a household-based taxation system which subsidizes married families when one person stays home and taxes most people extra if they choose to marry and both work full-time.  The average tax cost of marriage for a dual-income couple is $1,500 annually.  When our accountant ran the numbers for us a few years back we discovered marriage would cost us substantially more.  I love Betsey and all, but is the marriage certificate worth thousands of dollars annually?  I can love her plenty without the certificate.  But this isn’t just about a bean-counter saving his beans.  Truth is, I find it offensive that the tax man treats me differently according to a  very private decision””whether I marry or not.  And so I prefer to remain unmarried, at least in the eyes of the tax man.

I agree with Wolfers, and yet I am married.  Can you guess why?

By the way, both the Dems and GOP support me and my wife having to pay far more in taxes than Wolfers and his partner–even with identical incomes.  It’s not even controversial in Washington.  And yet nearly 100% of Americans are outraged when they find out about the marriage penalty.   Most don’t even know why it exists, why their reps support it.

Just one more reason why academics should pay no attention to “public opinion” polls.  There is no such things as public opinion, there is only election results.  No one knows what Americans would believe about Medicare if that sat down with all the government programs and tax revenues in a spreadsheet front of them, and told they had to equate the NPV of all future taxes with the NPV of all future spending.  We simply don’t know.  And anyone who argues otherwise isn’t thinking deeply enough about the issue.

Whether you want more or less money spent on Medicare, I guarantee that I can frame a poll question that gets the result you want.

Faulty arguments for the marriage penalty

I was surprised that a number of commenters actually defended the marriage penalty in the comment section of my recent tirade.  I thought it worth driving a nail into the coffin of one particularly popular but fallacious argument.

Some commenters argued something to the effect that “two can live almost as cheaply as one” (or more specifically at less than double the cost of one.)  First let’s consider someone born with the love of the sea.  It leads him to buy a sailboat as an adult. As a result, he has less income to spend on food, clothing, and shelter than the typical guy.  Should he pay a lower income tax rate, to compensate for his unusually high living expenses?

Now consider six young professional women.  Three are picky misanthropes who don’t like sharing bathrooms and kitchen counterspace with other women.  The other three women share a three bedroom apartment, thus having lower per person shelter costs.  How should we think about this situation?

Most people would say that the three women living alone are free to share an apartment with others if they wish, and thus must derive lots of utility of having their own private place.  I can certainly understand that, I was a picky misanthrope who lived alone for more than 15 years.  I can’t image anyone saying there should be different tax forms for the three women sharing an apartment, and that they should pay a higher tax rate than the other three.  Indeed, I don’t think people would want that to occur even if the government could costlessly ascertain who is living alone and who is not.  So why all the arguments for the marriage penalty based on the notion that it is cheaper to share an apartment with others?  I don’t get it.