@LOS ANGELES—Work does not pay, at least for Katrina Thompson.
The mother from Westlake Village, 35 miles west of downtown LosAngeles, quit her job three years ago after realizing that taxes,child care costs and work-related expenses cut too deeply into herpay.
As a preschool program director working 30 hours a week, the37-year-old took home $1,500 a month. But she also was paying $800to keep two boys in day care.
When her third baby came, she faced a $1,000 child care bill amonth. That was on top of normal work-related expenses such ascommuting and wardrobe costs, among others. She figured that shewould have netted about $200 a month.
While her main reason for quitting was to stay close to herchildren, the frustration of taking home so little money for herwork was the final straw.
The cost of day care for ``one (child) was fine, two was OK butthe third one broke the camel's back,'' said Thompson, whosehusband is a self-employed attorney and a free-lance cartoonist.``You're losing money.''
Her situation is not uncommon, contends Edward McCaffery, a lawprofessor at USC and the California Institute of Technology.
A built-in bias in the U.S. tax code penalizes secondary wageearners, who are typically women, he argues in his book, ``TaxingWomen,'' which will be released nationally Tuesday, the day incometaxes are due.
Add to this bias the cost of child care and other job-relatedexpenses, and secondary wage earners are working more but makingless.
``Laws are set up to make it hard be a two-earner family. Lotsof women lose money or are barely breaking even by working,''McCaffery said. ``It's not that women shouldn't work, but thatthere should be tax reforms.''
He believes that the United States' tiered income tax system andthe ``married, filing jointly'' category is biased against workingmothers.
McCaffery points out that U.S. tax laws count the income of themain breadwinner in the family, usually the husband, before thesecondary earner. That means the husband's pay is assessed at thelower tax tiers before the wife's income is considered. So herincome lands in a higher bracket. If she were single and filed asan individual, she would start at the lowest tax tier.
For example, if Joe and Jane Smith earn $25,000 and $20,000,respectively, Mrs. Smith's federal taxes would be $3,000 but wouldhave been only $1,500 if she could file as an individual. (TheSmiths could file under ``married, filing separately'' but thatwould mean higher taxes for both of them.)
This built-in bias against secondary earners has existed sinceshortly after World War II, McCaffery said.
Congress passed ``married, filing jointly'' in 1948. Prior tothat, people could file as individuals even if they were married.Fifty years later, it might not be fiscally sound for secondaryearners to continue working, McCaffery said.
Many people don't realize they're not earning much because theytend to focus on their gross income, instead of their net income _money left over after taxes, Social Security and other expenses.
In a simplified example, Mr. Ramirez makes $60,000 a year as alawyer. His wife, a homemaker, is thinking of going back to work asa marketing representative earning $30,000.
His salary lands him in the 30 percent federal tax bracket. Ifshe decides to work, her income will start to count where his ends.
Her $30,000 faces total taxes of 48 percent—30 percentfederal, 8 percent Social Security/Medicare and state and localtaxes of about 10 percent.
Right there, her salary will be cut in half to $15,600.
By working, Mrs. Ramirez will have to leave their two kids inday care. The couple should expect to spend about $200 a week _that's $20 a day per child, five days a week.
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@In one year, day care could add up to about $10,000 for a50-week work year.
That leaves $5,600 for Mrs. Ramirez. Add $960 for a child caretax credit and her future net pay so far: $6,560.
But don't forget Mrs. Ramirez's expected work-related expenses,such as dining out, housekeeping, commuting, wardrobe and othercosts.
McCaffery uses estimates of $51 to $84 a week—$10 to $17 perweek day—over a 50-week work year. The lower end is an estimatefor a blue-collar suburban family and the upper end is for ametropolitan, upper-income couple.
Using $84 for the Ramirezes, work-related costs come to $4,200 ayear if Mrs. Ramirez decides to take the marketing job.
Mrs. Ramirez's future net pay is now $2,360, which is less than$200 a month for a $30,000 job.
Here's a twist: If Mr. Ramirez earns just $4,000 more annually,he would be adding the equivalent of his wife's net income of $200a month to his take-home pay. And if Mr. Ramirez doesn't get araise, the couple can cut back on expenses to make up the $200. Thehusband could take lunch to work instead of eating out—$10 spentper work day adds up to $200 a month.
Ironically, the poorest working couples—such as minimum-wageearners—are the hardest hit under the current tax structure,McCaffery said.
For a low-wage couple where the husband earns $15,000 and thewife $10,000, McCaffery said they actually lose money by having asecond income.
What about the money working wives pay into Social Securityduring their employment? Won't they get that back? McCaffery saysthere's a catch there too.
To recoup the Social Security taxes during retirement, the wifemust earn more than half her husband's average income over a35-year period. If she drops out of work for a few years for anyreason, her average income drops. That makes it harder for her toreach her husband's halfway mark. Women also tend to make less thanmen—an additional obstacle to the 50 percent mark.
They can still get Social Security benefits if they don't reachthe halfway point. But the money will be half of what her husbandwould receive in Social Security. It's also what she would havegotten anyway as a homemaker.
``If you stayed at home, you would have gotten the same thing,''McCaffery said.
So she and her husband would get 1 1/2 times his SocialSecurity, whether he paid into it alone or both of them did.
These revelations, while negative, nevertheless should come as arelief to parents who want to stay home with their children butdon't think they can afford to, said Leslie Godwin, owner of ParentSupport Services, a Calabasas consulting group.
To make up the loss of a few hundred dollars a month from asecond income, families should consider cutting costs, Godwin said.
That's what Thompson did.
She estimated that her net pay would add only $200 a month, soher husband started bringing homemade lunches to work and cuttingback on his trips to Starbucks. Other changes include rentingmovies instead of going to the theaters and taking the children tothe park instead of Discovery Zone.
What does Thompson get in return?
``I'm less stressed. I don't feel guilty (about leaving mychildren),'' she said. ``I'm not worried about who's taking care ofthem.''
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