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Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Tuesday’s query:
Question: What’s with the inequitable treatment of household employers?
I’m a working mom, and after paying yet another year’s worth of nanny taxes and related expenses, I’m frustrated by what seems to be the very sexist treatment of these costs under the tax code. Paying for child care — and related expenses such as unemployment insurance, workman’s comp policy and nanny taxes — amounts to more than 30 percent of my after-tax income.
These are very real costs of earning my income. I’m required to register with the state and federal government as a business, pay state taxes and unemployment insurance contributions quarterly, do withholding, etc. If I were any other kind of business, I could use these expenses to reduce taxable income, but as a household employer I’m limited to a measly $3,000 deduction that in my case is eliminated anyway by the alternative minimum tax.
This seems a huge and largely gender-based inequity since child care costs are the burden of working women. Is it simply that most people don’t even bother to comply? Maybe compliance would go way up — benefiting both the Treasury Department and household employees who would get Social Security — if us working moms could deduct our true child care expenses.
Paul Solman: What an excellent point. I’d never thought of it until this email. If what you mean by non-compliance is working parents taking more than the $3,000 deduction, my guess is that they don’t. And some may not take the deduction at all due to ignorance. But your logic certainly makes sense.
The closest I’ve come to this issue is the fact that household work, if done by the parents themselves, is not counted as part of GDP (gross domestic product, as measured by the final sales of everything in the economy in a given year).
Therefore, if you’re a dad or mom who takes care of his children full time, you are making no official contribution to the country’s total output. If, however, you’re a parent who hires someone to do the job for you, those wages are counted as part of GDP. Makes you wonder about GDP as a measure, doesn’t it? For a recent alternative yardstick, see this site, where you can download the “Report by the Commission on the Measurement of Economic Performance and Social Progress” of Nobels Amartya Sen and Joe Stiglitz. It’s a fitting week to do so, as it was commissioned by Nicholas Sarkozy, the outgoing (in both senses of the word) president of France.
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions