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What Marriage Equality Would Mean For The Economy

An exploration of the financial impact of legalizing same-sex marriage, from income tax filing to health care costs.

What Marriage Equality Would Mean For The Economy
[Photo: Flickr user Ted Eytan]

Update: On June 26th, 2015 the U.S. Supreme Court ruled in a 5-4 vote that same-sex couples have a constitutional right to marry, a decision that strikes down existing bans in 14 states, making same-sex marriage legal nationwide and protected under the 14th amendment.

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Last week, the U.S. Supreme Court heard long-awaited arguments on four cases related to same-sex marriage. At stake is the determination of whether there is a constitutional right to marry and whether states have an obligation to perform same-sex marriages. The court may also issue a narrower decision on whether states must recognize legal marriages performed in other states, and not rule on the states’ obligation to perform them.

“If the Supreme Court rules the way it’s expected to, then that’s it. That’ll be a 50-state solution,” says Ilya Shapiro, a senior fellow in constitutional studies at the Cato Institute, a Washington, D.C.-based libertarian think tank. Shapiro is among those who believe that marriage equality is rooted in the U.S. Constitution.

They’re big questions–with big economic implications, says M.V. Lee Badgett, a scholar at the Williams Institute for Sexual Orientation Law and Public Policy at the University of California, Los Angeles and director of the Center for Public Policy and Administration at the University of Massachusetts, Amherst. Although the exact numbers are tough to come by, nationwide marriage equality may affect everything from federal, state, and local taxation and government spending to consumer spending and health care costs.

Government Revenue

Marriage confers more than 1,100 rights and responsibilities for a couple under the law, ranging from how custody of minor children and hospital visitation are treated to how couples file their taxes. In 2013, the IRS and Treasury Department stated that legally married same-sex couples would be recognized as such for all federal income tax purposes, even if their state of residence doesn’t recognize same-sex marriage. This affects the income tax, estate and gift taxes, and payroll taxes associated with many employee spousal benefits. This may result in a “marriage bonus,” whereby the couple pays less tax than each would individually, or a “marriage penalty” if the couples pay more. The nonpartisan Tax Policy Center, a think tank devoted to tax issues, created a calculator to help spouses determine how they might be affected by filing jointly.

In 2004, the Congressional Budget Office (CBO) looked at the effect on government spending and revenue if same-sex marriage were legal nationwide (the latest report of its kind). The report estimated that, through 2014, marriage penalties would rise–and so would government revenue–to the tune of $200 million to $400 million each year. However, that represents less than 0.1% of federal revenue.

Badgett says that some asset transfers–for example, transfers of real estate between the couple–will no longer be subject to gift, state, or local taxes, as they have in some cases and locales if the couple is legally married, which may have an impact on revenue, but it’s difficult to say by how much.

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Government Spending

But what about spending on Social Security, Medicare, military veteran, and other federal benefits? Analysis by the Williams Institute in 2008 estimated that offering the same federal spousal benefits to the federal government’s approximately 30,185 employees with same-sex partners would cost $41 million the first year and roughly $675 million over 10 years. Increases in revenue were estimated at $10.7 million in increased revenue in the first year and $118 million over 10 years.

Within the bigger picture, the CBO analysis found a mixed bag. While spending on Social Security and the Federal Employees Health Benefits program would increase, spending on Medicare, Medicaid, and Supplemental Security Income would decrease. The analysis found that recognizing same-sex marriages would affect outlays by less than $50 million a year in either direction through 2009, and estimated overall spending reductions by roughly $100 million to $200 million annually between 2010 and 2014. States would realize roughly $300 million in savings on Medicaid alone, and fewer married couples–whose income and assets would be considered for eligibility–would meet Medicaid thresholds.

Consumer Spending

Financial information site NerdWallet determined that nationwide marriage equality would infuse roughly $2.5 billion into local economies just through spending on weddings. It took a look at the population that self-identified as lesbian, gay, bisexual, and transgender (LGBT), and combined that with the average marriage rate and wedding cost in each state. Analyst Sreekar Jasthi, the report’s author, says legalizing same-sex marriage would bolster the wedding industry in the long term by increasing the population of people who could get married.

The Williams Institute came up with a projected economic impact of $2.6 billion and developed an to show states how they would benefit from the spending boom. Williams estimates that roughly $750 million of that spending boom remains unlocked by states that haven’t legalized same-sex marriage.

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“In 2015, marriage is not the same prerequisite to homeowners that it once was. Married couples are still more likely to own homes than other people,” says Giacomo Santangelo, PhD, an economics lecturer at Fordham University in New York. However, he says home ownership can help a family’s financial stability and net worth. In 2013, the U.S. Census Bureau’s report America’s Families and Living Arrangements: 2012 found that 70% of children who lived with two married parents were in households that were at least 200% above the poverty level, while nearly one in two children who lived with only a mother, unmarried parents, or no parents at all were living below the poverty level. This research is primarily based on heterosexual married couples, since legal same-sex marriage is relatively new in the U.S.

Other Considerations

Unmarried same-sex couples often have expenses that would disappear if they were permitted to get married, Badgett says. For example, they may need to spend money on accountants and lawyers to give themselves and their children some of the custody, wealth transfer, and other rights and privileges married couples automatically enjoy. And, while that money is going into the economy, it could better be used to build the couple’s own economic stability, she says.

Marriage equality would also allow same-sex spouses greater access to health insurance, allowing spouses to buy coverage for themselves and their children with pretax dollars, which would reduce the cost, says Badgett. In 2009, The New York Times analyzed the higher costs that LGBT people may have. When it came to health insurance, where one partner may need to purchase insurance on the private market because he or she is not eligible for coverage through a spouse, increased costs ranged from $28,595 to $211,993. Overall, the analysis found that the lifetime cost to same-sex couples ranged from $41,196 to $467,562 more than for their married counterparts.

The economic impact of legalized same-sex marriage nationwide is an issue with myriad facets, ranging from personal economics to government spending. The Supreme Court’s decision may come at any time. The midyear break for the nine justices begins Monday, June 1, 2015.

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About the author

Gwen Moran writes about business, money and assorted other topics for leading publications and websites. She was named a Small Business Influencer Awards Top 100 Champion in 2015, 2014, and 2012 and is the co-author of The Complete Idiot's Guide to Business Plans (Alpha, 2010), and several other books

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