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Cost Benefit Analysis: The Economics of Same-Sex Marriage

by Elaine Schwartz    •    Mar 28, 2013

The Supreme Court same-sex marriage case is really about government catching up with life.

More than 4 decades ago, Nobel laureate Gary Becker explained that we could view the family as a business firm. In order to produce income and run a household, the firm “employed” husbands and wives. With a predetermined division of labor, the husband managed the income and the wife, the household.  Specialization generated more efficiency.

Fast forward to 2013. With a growing number of heterosexual couples and with same-sex couples, traditional roles have been upset because both work outside the home. It no longer is necessary for opposites to attract. Instead, as economists Justin Wolfers and Betsey Stevenson say, we have “hedonic” marriage in which there is more “productivity” when people with similar skills and interests form a pair.

However, the US government has not yet recognized that the family as an economic unit has changed. Perhaps then, we could say that the Supreme Court same-sex marriage case, United States v. Windsor, is actually about catch up. Federal regulations need to catch up with the realities of contemporary marriages and families.

As a result, described by Professor Lee Badgett, the federal government still favors heterosexual married couples. To be exact, in 2004, the US General Accounting Office cited 1138 benefits “…in which marital status is a factor in determining or receiving benefits, rights and privileges.”

Or, we could be talking about $500,000.

Income taxes, estate taxes and and gift taxes are impacted by marital status. For health insurance, when an employer does not offer same-sex domestic partner insurance, then paying for private insurance is the alternative. Add to that an inability to qualify for Social Security spousal benefits and other retirement plans and the lifetime loss could be close to $500,000. In the current Supreme Court case, the $363,053 estate tax was the most publicized figure.

Conveying some cost benefit analysis, a 2009 NY Times article presented the details. Their hypothetical same-sex couple was 2 women with 2 children who together earn $140,000 in 2 different proportions. Called the best case, the split is $70,000/$70,000 (top bar on graph below); the worst case is $30,000/$110,000. Each bar shows how they would differ from a similar heterosexual couple. Based on these couples, the cost could be $500,000. The only financial benefit came from the income tax “marriage penalty” which meant, in these 2009 graphs, that married couples pay more income tax than same-sex couples.

Marriage Makes Health Insurance Less Expensive.

Marriage Makes Health Insurance Less Expensive. Worst case refers to same-sex partners with unequal income while with best case, each earns the same amount.

Sources and Resources: Hat tip to Julian at Imagodigital for sending me the ABC News article about the economics of same sex marriage. The ABC News article led me to Professor Badgett’s academic perspective and the NY Times, “The High Price of Being a Gay Couple,” my source of the above graphic. Finally, a Bloomberg article by economists Justin Wolfers and his domestic partner Betsey Stevenson about Gary Becker’s work and hedonic marriage was the ideal complement to the more traditional discussion of the economics of same-sex marriage.

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