Similarly, we assume that all of the effects of family fragmentation on children’s future earnings capacity operate only through their impact on rates of childhood poverty. Given the rich but difficult-to-quantify body of evidence that married par- ents contribute to increasing the human and social capital of their children in other ways (in addition to income),38 this decision represents another simplifying but cau- tious assumption, which increases our confidence that our results will not overesti- mate the taxpayer costs.
There is good evidence on the impact of childhood poverty on future productivity. Holzer and his colleagues estimate that childhood poverty reduces income nation- ally by $170 billion per year. That is, they find that if children in poverty had instead grown up in households that were not in poverty, then these children would as adults earn $170 billion more each year.39 Using Holzer’s estimate of total costs of childhood poverty on adult annual earnings and the estimate that marriage would reduce childhood poverty by 36.1 percent, we estimate that marriage would increase taxable earnings by over $61 billion per year.
To translate this data into an estimate of tax losses from losses in future productiv- ity, we must make simplifying assumptions about tax rates. For this analysis, we assume that all of the increase in earnings is taxed at the 10 percent rate for U.S. income taxes and that all of this increase in earnings is taxed at 15.3 percent for FICA (as tax economists generally find that employees bear the burden of FICA tax- ation through lower wages). To estimate losses in state and local taxation, we use the national average percentage of income that is paid in state and local taxes—11 percent—as reported by the Tax Foundation on April 4, 2007.40 (The details of this calculation are shown in table A.1.)
IV. What Is the Total Estimated Cost of Family Fragmentation?
OW MUCH DO HIGH RATES of divorce and unmarried childbearing cost U.S. tax- payers? Here is our estimate:
Family fragmentation costs U.S. taxpayers at least $112 billion each year, or over $1 trillion dollars per decade.41
This $112 billion annual estimate includes the costs of federal, state, and local gov- ernment programs and foregone tax revenues at all levels of government. Table 7 shows an itemized estimate.
To find the cost of family fragmentation in your state, turn to page 38.