The Complexity of Tax and Transfer Program
Rules Regarding Cohabitation:
Challenges and Implications
Anne E. Winkler
Uriversity of Missouri-St. Louis
The increased prevalence of opposite-sex cohabitation in the United States has opened up a host of research questions. First, there is the question of the factors underlying this trend, and whether cohabitation will eventually replace marriage, or if it is another step in what has been termed a “family-building process” (see, e.g., Brien et al., 1999; Bumpass & Lu, 2000; Kiernan, chap. 1, this volume; and Smock & Gupta, chap. 4, this volume). Second, there is the question as to the effects of cohabitation on children's well-being, both developmental and economic (see, e.g., Manning, chap. 8, this volume). Another question of interest, which is the focus of chap. 12 by Primus and Beeson, is how current government tax and transfer policies treat cohabiting couples with children vis-à-vis married-couple families with children and single-parent families.1
Primus and Beeson clearly show that disposable income can differ considerably depending on one's family structure and prevailing tax and transfer program policies. They also point out that tax and transfer policies provide differing and often conflicting incentives regarding a range of family structure decisions, including whether to marry, cohabit, or have children outside of marriage. The research evidence to date is varied, but it appears that welfare likely affects these decisions (see, e.g., Moffitt, 1998; Moffitt et al., 1998). Nevertheless, welfare cannot explain the decline in marriage or the rise in nonmarital fertility that began in the 1970s (Moffitt, 1998). There is also evidence that tax policies such as the Earned Income Tax Credit (EITC) have modest effects on the decisions to marry and divorce, as well as on the timing of births (see, e.g., Alm et al., 1999). Tax and transfer policies also influence decisions regarding paid work, though that is not the focus here (see, e.g., Eissa & Hoynes, 1998; Moffitt, 1992; Wolfe, 2000).
In evaluating the relationship between government tax and transfer programs and family structure, at least four questions arise: (a) What are the programs' rules regarding family structure?; (b) How does disposable income vary by family struc-____________________