Virginia appears to be on the verge of increasing its child-support schedule, which already imposes excessive child-support obligations on many (but not all) non-custodial parents. The proposed child-support increase ignores basic economic realities and overestimates the cost of raising children. It also appears to double-count expenses and make non-custodial parents pay custodial parents for costs that custodial parents have indirectly been reimbursed for by federal and state tax codes. It would force some low-income parents to pay what they cannot possibly pay, and substantially increase high-income parents’ obligations based on a misreading of Virginia child-support history and a likely failure to consider tax increases recently imposed on upper-income households. The increase is contained in a bill, HB 933, recently introduced in Virginia’s House of Delegates.
(Before I proceed any further, I should note that I have no personal interest at stake here: I am not divorced, and do not owe, pay or receive child support, and am raising my daughter with my wife, to whom I remain happily married. And although I am a lawyer, I don’t practice family law in Virginia. So I will not be affected by the proposed child-support increase).
As Jane Venohr, the drafter of the increased schedule, implicitly conceded on November 5, 2012, if you force non-custodial parents to pay more than they can afford, reducing them to poverty, they may simply give up and not pay at all — something that harms rather than benefits their children. The Meeting Minutes for the Virginia Child Support Guidelines Review Panel quotes her admitting that “Research shows that noncustodial parents whose child support obligations are more than 20% of their income are less likely to pay.”
But the schedule she has drafted increases the child-support obligations of some non-custodial parents who already pay over 50% of their income in child support (child-support obligations are the sum of the amount mandated by the child-support schedule, plus various statutory add-ons imposed on top of the amount mandated by the schedule). How can this make sense to anyone? But that is what her proposed schedule does.
For an example of a father further impoverished by Virginia’s child-support guidelines, see the Virginia Court of Appeal’s decision in Herring v. Herring, 532 S.E.2d 923 (2000). In the Herring case, the child-support obligation of the father, who made $1300 per month, was $673 per month under Virginia’s child-support guidelines for just two kids (his ex-wife made $1600 per month, for a combined household income of $2900 per month). John Herring, who earned only $1300 a month, was so poor that he had already been reduced to living in his sister’s basement. When a trial judge reduced child support obligations from a crippling $673 per month — consuming most of his net income — to a more reasonable $484 per month, the Virginia Court of Appeals reversed that reduction, because it was contrary to Virginia’s existing child support guidelines.
Under the increased child-support schedule drafted by Dr. Venohr, this poor man’s child support would go up substantially. His basic child-support obligation (not counting statutory add-ons, which were a majority of this man’s child support obligations) would go up by $59 or 8.7%. See pg. B56 of the child support panel report, showing increase of 8.7% and by $59 from $675 to $734 for households with combined monthly income of $2900.
The increased child support schedule proposed by the Virginia child-support panel report inflates non-custodial parents’ obligations by making them pay for costs that the custodial parent has already effectively been reimbursed for by things like the $1000 per child refundable tax credit, and the personal exemption from tax attributable to the child, and the earned-income tax credit, a subject I discuss in more detail further below.
The report accompanying the child-support increase hints that the proposed increase in child support did not take these things into account (to reduce non-custodial parents’ obligations), for the lame excuse that they are not reflected in monthly tax withholding, even though they are reflected in the custodial parent’s annual income. See Virginia Child Support Guidelines Review Panel, Report to the Governor and General Assembly (December 16, 2013).
On page B40, it writes,
the tax formula for custodial parents is only substantially different in the year-end tax filing, but there is no difference in the monthly income tax withholding formula for single taxpayers and head-of households. Further, the income withholding formula is more realistic for family budgeting since families tend to live paycheck to paycheck. The withholding formula does not advance the earned income tax credit and does not consider the child tax credit, which are sources of the tax code that may contribute to more after-tax income for the custodial family.
Indeed, in its child-support calculations, it apparently increased rather than reduced child support based on certain tax benefits to the custodial parent. (See page B43: “Decreases in the effective tax rate at low incomes make more income available for child support.”) This is even worse than the existing child support schedule, which fails to reduce the non-custodial parent’s obligations to reflect tax benefits received by the custodial parent for the children — by pretending that the custodial parent “has no dependents” for tax purposes, but at least does not expand the non-custodial parent’s obligations: (See page B39: “However, transforming BR estimates into a gross-income schedule requires tax assumptions. The most common assumption is that all income is earned and taxed at the rate of a single taxpayer with no dependents. This is the assumption used to develop the existing Virginia schedule.”)
Never mind that a thrifty low-income custodial parent could take care of a child entirely using the money derived from the $1000 per child refundable tax credit, the earned-income tax credit, and the personal exemption’s exclusion of $3900 in income from taxation. For many lower-income households, tax benefits like the refundable tax credit amount to most of the cost of raising a child. Upon a divorce, tax credits and exemptions are typically claimed by the custodial parent, to the exclusion of the non-custodial parent. (In Virginia, unlike most states, judges have no authority to order the custodial parent to waive the child tax exemption or credit so that it may be claimed by the non-custodial parent, even if the non-custodial parent provides most of the financial support for the child. See Floyd v. Floyd, 436 S.E.2d 451, 463 (Va. 1997); Pearlene Anklesaria, Child-Related Tax Breaks for Divorced Parents, 22 J. Am. Acad. of Matrim. L. 425, 426-27 (2009) (contrasting Virginia law with the law of most states). The custodial parent is also more able than the non-custodial parent to claim the Earned Income Tax Credit.
On page B16 and B34, the child-support report suggests that the schedule may engage in another form of double-counting of expenses at non-custodial parents’ expense. It apparently increases the child-support obligation at each income level based on past inflation, even though the schedule itself largely self-adjusts for inflation by making child support obligation rise with the parents’ income (income generally rises due to inflation, and child-support obligations are a function of income under Virginia’s child-support schedule). You cannot increase the non-custodial parent’s child-support obligations twice for the same inflation, first due to his increase in income due to inflation, and then yet again due to the inflation itself.
That would result in double-counting, since Virginia’s child support schedule bases child-support payments on parental income, which itself rises along with inflation, so adjusting the non-custodial parent’s obligations up to reflect inflation when they have already been increased due to inflation-related increases in income results in adjusting the obligations upwards twice based on essentially the same phenomenon. On Page B16, the report states “The schedule is based on Betson-Rothbarth (BR) measurements of child-rearing expenditures developed from the 2004-2009 Consumer Expenditure Survey (CES),” yet, “The schedule reflects April 2013 price levels.” Similarly, on page B34, the report states that although the “child-rearing expenditures” used in the schedule were drawn from earlier “price levels,” “They have been updated to April 2013 price levels.”
But as the report concedes on page B42, income rises along with inflation (which matters because child-support obligations rise with income under both the existing Virginia child support schedule, and the proposed schedule):
Median income for all Virginia households (with and without related individuals) increased from $61,000 (in 2012 dollars) in 1989 to $64,632 in 2012. In other words, income growth generally outpaced inflation in Virginia.
The report also likely understates the child support the typical non-custodial parent will pay because it assumes that daycare expenses will be as small for divorced parents as for married parents, and subtracts only that smaller amount from the schedule amount. (In imposing child-support obligations, Virginia courts do not simply impose the amount contained in the child-support schedule, but rather add to that amount by imposing additional, statutory add-ons, such as for daycare expenses, see Va. Code § 20-108.2(F)).
Since daycare expenses and health insurance and medical expenses are awarded on top of the child-support schedule, rather than already included in it, to avoid “double accounting of those expenses,” they must be subtracted from total child-rearing costs before those costs can be used to derive the basic schedule of child support obligations, as the report concedes on page B34. (“The studies measuring child-rearing expenditures include all expenditures on the children, including work-related child care expenses, the cost of the child’s health insurance benefit, and the child’s uninsured, medical expenses. In contrast, most income shares guidelines, including the existing Virginia guidelines, consider the actual amount of these expenses on a case-by-case basis when calculating the support award. Since the actual amounts are considered, they are not included in the schedule. Including them in both the schedule and worksheet would result in double-accounting of those expenses.”)
But the child support report understates the child support the typical non-custodial parent will pay because it assumes that daycare expenses will be as small for divorced parents as for married parents, and subtracts only that smaller amount from the schedule amount. See pg. B35, Exhibit 5 (showing child care percentages for married couples as low as 0.63% for one income level). But in divorced households, one parent usually doesn’t look after the kids while the other parent works, so such expenses — awarded by Virginia courts on top of the child-support schedule amount — are larger. And parents who spend more on daycare spend less in other ways, both on the child and on themselves (due to a crowd-out effect, as any economist would concede; I have an economics degree, and some graduate-level economics coursework, such as econometrics.). Thus, in real life — unlike under Virginia’s child support guidelines — the basic child-support obligation should be reduced somewhat when the parents have substantial add-on expenses like daycare expenses.
But that is not what happens in Virginia, under either the existing child-support guidelines or the proposed increased guidelines. Instead, courts impose onerous obligations on non-custodial parents. For example, in the Herring case, the child-support obligation of the father, who made $1300 per month, was $673 per month under Virginia’s child-support guidelines. See Herring v. Herring, 532 S.E.2d 923 (2000). Daycare expenses were not just 0.63% of Herring’s child support. In fact, they were almost half of all his child support obligations — nearly as big as the entire child-support schedule amount that they were added to. See Herring, pg. 925 (“On April 27, 1999, the district court calculated the presumptive amount of support based on mother’s gross income of $1,600 per month and father’s gross income of $1,300 per month—a distribution of fifty-five and forty-five percent, respectively—at $675. After adding expenses of $667 per month for child care and $154 per month for health insurance coverage, the district court determined that father’s forty-five percent share of the total was $673 and ordered father to pay that amount each month.”).
The proposed child-support increase contains other inequities as well. On page C1, the report proposes amending the child-support statute to require non-custodial parents to pay the new radically increased statutory minimum amount without any self-support reserve, even if the non-custodial parent proves he cannot pay, if the impossible payment is necessary to maintain “the custodial parent’s ability to maintain minimal adequate housing”:
If the gross income of the obligor is equal to or less than 150 percent of the federal poverty level promulgated by the U.S. Department of Health and Human Services from time to time, then the court may, upon hearing evidence that there is no ability to pay the presumptive statutory minimum, set an obligation below the presumptive statutory minimum provided doing so does not create or reduce a support obligation to an amount which seriously impairs the custodial parent’s ability to maintain minimal adequate housing and provide other basic necessities for the child.
Is it even constitutional to order someone to pay something the court knows they cannot pay, on pain of contempt of court? Virginia courts have always had the discretion to reduce child support downwards from the schedule when the non-custodial parent cannot pay and ordering such payment would be an exercise in futility. This provision would seemingly take that discretion away, in the guise of permitting them to “set an obligation below the presumptive statutory minimum.” Never mind that the Supreme Court’s decision in Turner v. Rogers (2011), indicates that states cannot enforce child support obligations that a non-custodial parent is simply unable to pay.
By increasing the number of impossible-to-pay child-support obligations, the proposed increase may increase the expense to taxpayers of operating state jail systems. Failure to pay child support can result in incarceration, under an exception to the usual rule that imprisonment for debt violates the Thirteenth Amendment, resulting in thousands of people being jailed who have failed to pay child support. (See United States v. Ballek (1999), which carved out an exception to the Thirteenth Amendment for child support, and Turner v. Rogers (2011), which discusses states’ practice of jailing non-custodial parents who are behind on their child support payments, including those who might be unable to pay. In Mahoney v. Mahoney (2000), the Virginia Court of Appeals refused to hear the appeal of a father jailed for non-payment of child support, due to his failure to put up an appeal bond. The requirement to put up an appeal bond can create a Catch-22 situation for parents, because if they are too poor to pay their child support obligation, then they may also be too poor to pay for an appeal bond).)
The proposed increase may also increase court costs in Virginia by increasing the number of time-consuming proceedings involving dead-broke non-custodial parents unable to pay their full child-support obligation. The Supreme Court’s decision in Turner v. Rogers (2011) made clear that states cannot constitutionally jail parents for contempt for not paying child support, if the non-payment is due to a genuine inability to pay. Moreover, while the Court stated that while the Due Process Clause does not “automatically require the provision of counsel at civil contempt proceedings to an indigent individual who is subject to a child support order,” the state must provide either appointed counsel (at state expense) or “alternative procedures” to enable the non-custodial parent to effectively prove his inability to pay.
The proposed new child-support schedule fundamentally inflates child-support obligations, and relies on an overestimate of the actual amount parents spend on children, because it uses the Rothbarth-Betson method of calculating child-rearing costs. While this method is not the worst method of calculating costs — there are other methods used in many states that yield even more inflated results — it nevertheless has a bias in favor of overestimates.
Australia’s child support agency advocates using the Rothbarth method as the least-bad method, but it nevertheless admits that both methods are very flawed methods of estimating child-rearing costs, in a commentary entitled “Costs of children and equivalence scales.” As it notes, the Rothbarth method is a very imprecise, roundabout way of attempting to gauge child-rearing costs: it compares “expenditures on goods that can be attributed” to adults, like liquor and tobacco, and compares how much less parents spend on these things than childless couples. “Expenditure on adult goods (e.g. alcohol, tobacco and adult clothing) should decline when a child is added to the family as resources are diverted from adult goods to meeting the needs of the child. The Rothbarth approach imputes the same welfare level to households that have the same level of consumption of adult goods. The Rothbarth method defines the costs of children as the reduction in income which would lead to the same reduction in expenditure on adult goods that the addition of a child to a family generates.”
As the agency notes, “A number of criticisms have been made of the Rothbarth method. Perhaps the most telling is that although children do not consume adult goods, their presence may alter their parents’ tastes for adult goods. Similarly, the presence of a child is likely to change the way the parents spend their leisure time and ‘surplus’ cash. This makes it very difficult, if not impossible, to find adult goods for which family consumption is not directly affected by the presence of children. In practice, tobacco and alcohol are often used as adult only goods and it seems rather strange to equate welfare with consumption of these goods. Both the Engel and Rothbarth methods ignore the impact of the addition of a child to a household’s preference between items.”
As economist Rogers puts it, “If parents want to share household shared goods with children, then the Rothbarth methodology overstates child costs,” since a tendency to share –rather than impoverishment — may explain a fall in consumption of adults-only goods after the arrival of children. If “after having children, the parents have a preference to spend more time with shared goods” — like me and my daughter watching our living-room TV together, even though I didn’t watch much TV there before the birth of my daughter — “then the Rothbarth methodology overestimates child costs.”
The Rothbarth method also overstates child-rearing costs because it assumes that reductions in consumption of adult goods are the result of child-rearing costs, rather than increases in the effective price of adult-only goods due to the presence of the children that in fact have little effect on the household’s overall living standard. “For example,” notes Australia’s agency, “the birth of a child will increase the price of outside entertainment for a couple if babysitting services need to be paid for,” reducing the amount of outside entertainment they purchase even if the child costs very little to raise.
I and my wife spend very little on our daughter compared to the amount households with our income level are ordered to pay under Virginia’s existing child support guidelines, which assume that the average household spends lots of money on their kids. Yet our consumption of adult-only goods like tobacco, alcohol, and forms of entertainment aimed at adults has crashed since the birth of our daughter.
We no longer go to adult-oriented comedy clubs, like the Improv, because the material wouldn’t appeal to our daughter. My wife now smokes less, to reduce our daughter’s exposure to second-hand smoke, and uses E-cigarettes. Since becoming a father, I have consumed less alcohol, because when I am caring for my daughter, I don’t want to risk a spilled wine glass, don’t want to lose focus (even if it would be relaxing), and don’t want to tempt my daughter to drink my wine. Owing to scarce time left over after caring for our daughter, my wife has bought far less adult clothing since the birth of our daughter.
Using the Rothbarth methodology, which assumes that a reduction in spending on adult-only goods is the result of child-rearing costs, it would seem like we spend much of our income on our daughter. But nothing could be further from the truth. In reality, we actually spend only a few percent of our household income on our daughter, and the costs attributable to her have never approached half of what Virginia’s child support schedule assumes households with our income typically spend on their children.
As Australia’s child-support agency notes, “The logic underlying the Rothbarth method is that children brings needs but no resources to a family, and those needs can be met only by making cuts elsewhere in the budget.” This is itself a flawed assumption that can lead to overestimates of the cost of raising a child, since in developed countries, “families with children receive government child related income supplements to assist with the costs of bearing and raising children so that in reality children bring additional resources to a family.” For example, in the U.S., households receive a refundable child tax credit (which lower income-households can receive from the government even if they pay no income tax), a personal exemption of $3900 per child from taxable income, and tax credits from the federal government to cover part of the cost of providing daycare for the child (as well as a tax exemption from the State of Virginia for the same expenses).
For many lower-income households, tax benefits such as the refundable tax credit amount to most of the cost of raising a child. Upon a divorce, tax credits and exemptions are typically claimed by the custodial parent, to the exclusion of the non-custodial parent. These tax benefits are not reflected in Virginia’s child support schedule, although they should be. Instead, Virginia law leaves courts with the discretion to consider taxes as a “deviation factor” in reducing or increasing child support obligations (except for day-care-related tax credits and exemptions, which courts must consider if the other parent actually shows the amount of the resulting “tax savings”). But in practice, these tax benefits are not usually addressed by Virginia courts in child-support rulings. The courts also refuse to allocate the tax benefits of raising children to a non-custodial parent even when that parent pays for most of the child’s living expenses. Even if most litigants knew about these tax issues — and were inclined to litigate them — they could be hampered by their lawyers’ lack of knowledge. Calculating the value of these tax benefits to custodial parents requires math skills, which lawyers often lack. A classmate of mine at Harvard Law School, who went on to become the General Counsel of a Fortune 500 company, told tax-law professor Ed Warren that 10 percent of 100 is 20! Due to mathematical illiteracy, lawyers sometimes mess up the calculation of their clients’ sentences under the very simple formulas provided in state and federal sentencing guidelines, as Slate noted in an October 22, 2009 article by Ray Fisman, entitled “Errors in Judgment.”
The proposed child-support increase also imposes inflated child-support obligations on upper-income households, and relies on an inaccurate history of Virginia’s child support schedule. The following passage on page 1 of the Child Support Guidelines Review panel report is not true, since the legislature revised the upper end of the child support schedule (for households making over $10,000 per month) in 1995 to reduce obligations at such levels:
Although there have been several changes to the narrative portion of the guidelines statutes since their original enactment, Virginia has never updated the actual table of obligation amounts titled Schedule of Monthly Basic Child Support Obligations found at Va. Code § 20-108.2(B). Virginia is one of only eight states never to have updated and revised its original guideline schedule.
But the legislature did revise the child support schedule in 1995, through HB 945, signed into law on Jan. 25, 1995. That bill properly got rid of some of the excessiveness of the child support levels for upper-income households. A Virginia legislative web page describing that bill and its history is found here.
The panel’s proposed schedule partly nullifies the 1995 change by reinstating in part the excessive child support amounts for upper-income households contained in the original 1988 child support schedule. It increases child support obligations by more than a quarter for many such households.
This increase is not warranted. While the panel did not fully restore the excessiveness of the original 1988 schedule as to such households — recognizing that they have faced a tax increase that reduces their income to spend on children (the new 0.9% Obamacare Medicare tax on upper income households’ earned income), there is no sign that it took into account other, far more significant recent tax increases on upper-income households that recently went into effect that will reduce disposable income for such households, such as the 3.8% Net Investment Tax contained in the Affordable Care Act (levied on capital gains, dividends, investment interest, passive rental income, and other investment income), and the additional increase in capital gains tax rates and dividend tax rates from 15% to 20% for many households that recently went into effect as part of the earlier deal between the President and Congressional leaders to resolve the so-called Fiscal Cliff. For a discussion of the Medicare tax and the Net Investment Tax, see this link at Forbes Magazine.
(Note that recipients of child-support do not have to pay tax on it, and child-support payments are not tax-deductible for the non-custodial parent. Earlier, I discussed how the child-support schedule ignores tax benefits that disproportionately benefit lower-income households. The IRS Form 1040 can be found here. The $3,900 tax exemption per child is listed right on line 42 (“Exemptions. Multiply $3,650 by the number on line 6d.”) The additional tax credit of $1,000 per child claimable on line 51 is made clear on pg. 45 of the instructions for the IRS Form 1040 form. See 1040 Instructions, currently available here. In addition, a federal tax credit of up to around $1,000 per child is available for day-care, on line 48 of the Form 1040, called the “Credit for child and dependent care expenses.” (The credit can be computed on IRS form 2441, which can be found here.) The custodial parent’s daycare expenses can also be deducted on the Virginia tax return, see “Child and Dependent Care Expenses Deduction” available here. Yet non-custodial parents are ordered to pay day-care expenses anyway, on top of the amount contained in the child-support schedule, as the decision in Herring v. Herring (2000) illustrates. In that case, $667 per month in daycare was added on top of the $675 per month from the child-support schedule. See Va. Code § 20-108.2(F). Custodial parents with incomes below $37,870-46,227 per year (depending on their number of children) can also claim a refundable “earned income tax credit” for qualifying “children” who “lived with” them on line 64a of the Form 1040. See 1040 Instructions at pp. 51.)
