WKU Prof: Same-Sex Marriage Legalization has Little Impact on State Income Tax Receipts

Nov 6, 2013

The Supreme Court declared the Defense of Marriage Act unconstitutional in June.

The debate over same-sex marriage is one that has heated up this year, with the Supreme Court striking down the Defense of Marriage Act (DOMA), which blocked the federal government from recognizing gay marriage. Seven states in 2013 saw same sex marriage legalized through court order, laws passed by state legislatures, or through popular vote.

WKU Economics Professor Susane Leguizamon has conducted  some research about an aspect of same sex marriage that most people probably haven't thought about: namely, what would the impact of nationwide gay marriage be on federal and state income tax receipts?

The research conducted by Prof. Leguizamon and her two co-authors finds 23 state would see a new fiscal benefit from same sex marriage legalization, while 21 would see a decline. Seven states wouldn't be impacted in this way since they don't have income taxes.

You can request a copy of the research by emailing Prof. Leguizamon here.

Here are some excerpts from our conversation with Prof. Leguizamon:

How would same-sex marriage legalization impact the income tax revenues of the three states in our listening area: Kentucky, Tennessee, and Indiana?

"If Kentucky were to legalize same sex marriage, our estimates predict that there would be a reduction of around $200,000 towards the state itself. Tennessee would be a much smaller amount, since they don't have a state income tax. They do tax deductions, so we predict they would see a reduction of around $60,000."

"Indiana, on the other hand, would see a very small increase of around $60,000. So these amounts are quite trivial in terms of the overall state budget itself."

If same sex marriage continues to be legalized on a state-by-state basis, with some states allowing it, and others rejecting it, I imagine that makes it very challenging for you and your fellow researchers to calculate the effects on federal income tax rates. Can you talk about how you tackled that issue?

We took a database of tax returns, and we were able to identify which individuals are same-sex, cohabitating couples. And we basically estimated what their tax liability would be if they were married, and estimated the tax liability if they remained single. Then we took the difference between the two to see how much their tax liability would increase or decrease."

"So this takes into account all of the things that may effect tax liability: deductions, mortgage interest credit, whose going to claim the children for the child tax credit."

"And we found that although the state revenue changes are pretty small, some of the individual couples may see a very large increase or decrease in their tax liability if they were allowed to marry."

I thought a really refreshing moment in your research came when you wrote that it's difficult enough to calculate the marriage tax effects of heterosexual marriage, and that trying to forecast the same effects of same sex marriage was even more difficult. For example, we don't know how many gay and lesbian individuals live in a given state, how many of them are in relationships, and how many would choose to marry if they were allowed to do so.

"You're absolutely right. There's not a good count of how many individuals are homosexual, much less how many of those are currently cohabitating. So we took some rough estimates from the American Community Survey."

"The marriage rate was a little more difficult to project, because we really don't have anything to base it on. There's nothing historical that will tell us if same-sex couples are different in their marriage preferences compared to heterosexual couples."

"So we explored a range of estimates, starting out with conservative estimates, all the way up to if they were to exhibit the same preferences for marriage as heterosexual couples."

"It was complicated figuring out if these couples acted as singles, who would take the child tax credit, and how would they choose to divvy up their assets? Do individuals really seek to minimize their tax liability upon separation?"

"Because our calculation requires two parts: acting as married, and acting as single. And it's a little more difficult to break up a couple for tax purposes than put them together."