April 14, 1999

A State Strategy for Increasing Child Support Payments from Low-Income Fathers and Improving the Well-Being of Their Children Through Economic Incentives
by Wendell E. Primus and Charita L. Castro

As welfare reform encourages families to rely on earnings and eventually moves them off of public assistance, income from the child support system will become an increasingly more important mechanism for providing income to children in single-parent, low-income families. Many poor children in single-parent families will have little chance of escaping poverty, and may face an increased risk of being pushed deeper into poverty, unless they are able to benefit from the earnings of their father — paid in the form of child support — as well as a combination of their mother's earnings and government assistance in the form of earned income tax credits, food stamps, child care subsidies, health insurance, and cash assistance when necessary.

Unfortunately, only a modest fraction of poor children in single-parent families currently receive child support income from their noncustodial parents. The proportion of never-married mothers whose children receive child support payments is especially low — around 20 percent. Research indicates that more than $34 billion in potential child support income goes unpaid each year and that almost two-thirds of single mothers receive no support.(1)

This paper argues that states should embark upon a new approach to the problem of non-payment of child support and inadequate child support payments by low-income fathers. The central thrust of this approach would be the addition of economic incentives for the payment of child support. The key components would be a new system of matching payments or subsidies to children when child support pay-ments are made on their behalf by low-income noncustodial fathers, and significant disregards of child support collections in calculating TANF benefits when custodial parents are still receiving welfare. By subsidizing child support payments and ensuring that those payments actually benefit the children of noncustodial parents, the intent of the proposal is to encourage low-income fathers to provide support on behalf of their children and to improve the well-being of those children. The proposal also highlights the need to avoid excessive child support orders that exceed the noncustodial father's ability to pay child support.

This strategy for subsidizing child support payments would be a supplement to, and not a substitute for, vigorous and effective child support enforcement efforts that hold noncustodial fathers legally responsible for the provision of financial support for their children. The strategy is likely to be most successful if accompanied by: employ-ment services (including publicly-funded transitional jobs when needed) to bolster the earnings of low-income noncustodial fathers; a broader range of counseling, peer group support, parenting, and mediation services to promote noncustodial fathers' involve-ment in the lives of their children; and accompanying changes in the culture of child support enforcement offices to assist noncustodial fathers in securing employment and becoming or remaining involved with their children. In addition, when appropriate for low-income fathers, issues of child support arrearages, the size of child support orders, and more flexible modification of those orders need to be addressed.

Individual elements of this strategy, including child support subsidies and expanded employment services for noncustodial parents, could be implemented immediately by states. The broader vision of a restructured system of incentives and supports for low-income noncustodial fathers, with the full range of components outlined above, is as yet untested. For this reason, states may choose to begin work on these more ambitious reforms by mounting pilot projects in one or several communities to demonstrate the feasibility of the approach and to assess whether it seems promising as a means of increasing child support payments and improving the well-being of children.

 

Incentives for Low-income Noncustodial Fathers to Pay Child Support

There are many reasons why low-income noncustodial fathers often fail to pay child support on their children's behalf. Unemployment and underemployment are key factors limiting the ability of low-income fathers to meet their child support obligations. Some noncustodial parents choose not to pay because of strained relationships with the custodial parents, conflicts over visitation rights, or concerns that custodial parents will not spend the funds wisely.(2) Others no doubt refuse to pay simply because they do not care about their children or reject the notion that they have a responsibility to provide financial support for their children.

Within this range of explanations, however, considerable evidence also supports the view that many noncustodial fathers are able to pay child support and would be willing to do so if they believed the child support system was fair and designed to improve the well-being of their children. Some fathers view the system as unfair because it is difficult to modify or adjust children support orders and to prevent the accumulation of large arrearages when their economic circumstances change and they are truly unable to meet their support obligations.(3) Perhaps more importantly, many noncustodial fathers (and custodial mothers) are discouraged and frustrated by the fact that child support payments in many instances yield no benefits for their children. When their children live in households that receive public assistance, some or all of the child support paid by noncustodial fathers typically is kept by state and federal governments as reimbursement for the cost of that assistance. While understandable from the vantage point of state and federal policymakers, the corrosive result is that noncustodial fathers often have no real incentive to meet their child support obligations.

The expectation that low-income noncustodial fathers will cooperate with child support enforcement efforts when their children derive little or no benefit from their child support payments is unrealistic at best. As one observer noted, "to many low-income noncustodial parents of children on public assistance, the biggest incentive for making regular and timely payment of child support (assuming that they actually had income from which to pay such support) would be knowing that their paying child support makes a real difference in their children's lives."(4)

One option available to states to create incentives for child support payment is to disregard a substantial portion of the child support payment when calculating welfare (TANF) payments to custodial families. The 1996 federal welfare law repealed a requirement that states "pass through" the first $50 in child support payments to custodial parents and their children rather than retaining the full amount as reimbursement for cash assistance. While 16 states have chosen to preserve a pass-through and two states have adopted a more generous pass-through in their TANF program than previously required under federal law, the remaining 33 states have eliminated the pass-through completely.(5) Only one state — Wisconsin — now passes through the entire amount of child support paid by the noncustodial father to the custodial mother and their children.

Even in the minority of states that have retained the $50 pass-through, the income gain for custodial families typically is reduced further by an offsetting reduction in food stamp benefits (since most TANF households also receive food stamps). For example, if a noncustodial father pays $250 in child support and a state passes through $50 to the custodial family, food stamp benefits to the custodial family are reduced by $15 as a result of the increase in income. Thus, the noncustodial father's children will gain only $35 in additional income as a result of his $250 child support payment. This high rate of effective taxation (86 percent) leaves the noncustodial parent with little incentive to meet his child support obligations and make payments through the formal child support enforcement system.(6)

In order to increase collections and improve child well-being, all states should significantly expand their child support disregards. In calculating the TANF payment, the state could establish a fixed flat amount to be disregarded (e.g., $100 or $200 per month), provide a disregard equal to a specified percentage of the monthly child support collections (e.g. 50 percent), or combine these two approaches. States also could choose to treat payments received from noncustodial parents in the same manner as they now treat the earnings of custodial parents.

Expanded child support disregards would do a great deal to restore incentives for payment of child support and to improve children's well-being. At the same time, this approach by itself has substantial limitations. First, the low earnings of many noncustodial father still will prevent them from providing financial support at a level commensurate with their children's needs. Second, child support disregards will improve the well-being of children in TANF households but they have no effect on the income available to support low-income children living in non-TANF households.

A system for subsidizing child support payments made by low-income fathers would enhance their ability to improve their children's well-being, and it would do so in circumstances when custodial parents were struggling to support those children without relying upon welfare. For both these reasons, states should consider the establishment of demonstration projects that would test the feasibility of matching payments or subsidies for child support paid by low-income noncustodial fathers as another option for increasing economic incentives to pay child support.

 

Key Elements of a Child Support Subsidy Plan

Economists often argue that positive incentives — subsidies provided directly or through the tax system — can influence individual behavior and encourage desired activities. The federal tax code contains a number of effective provisions that promote work effort by custodial parents and help them meet the basic needs of their children (including the Earned Income Tax Credit, dependent exemptions, and child tax credits), and federal benefit programs also offer help to low-income custodial parents in order to improve the well-being of their children. No similar incentives currently exist to promote work effort and encourage child support payments by noncustodial parents.(7) Of course, there would be little policy rationale or political support for extending similar tax incentives or earnings subsidies to noncustodial parents in circumstances in which they fail to meet their legal obligations to pay child support. However, a plan to match or subsidize child support payments could be effective in increasing the amount of child support paid by low-income noncustodial parents and serve as an important complement to current public policies designed to improve children's well-being.

In theory, incentives for child support payments by noncustodial parents could be structured within the federal tax code in a manner similar to those available to promote work among low-income custodial parents. In practice, any attempt to provide such incentives would require a high level of coordination between the federal tax and child support enforcement systems, leading to complicated new tax forms and an incentive system that was extremely difficult to administer.

A more practical and potentially effective option for states to consider is the provision of matching payments or subsidies directly to custodial parents based on the income of noncustodial parents and the level of child support payments they make. While there are many alternative designs that states might consider, the basic elements of such an approach would include:

There are a myriad of possible subsidy levels and phase-out rates that could be used as a structure for child support matching payments. The key decisions to be made by the state in establishing this structure are: (1) the maximum rate at which matching payments will be provided; (2) the range of noncustodial parent income over which this maximum rate will be applied; (3) the extent to which this matching rate will be reduced for noncustodial parents with incomes above this range; and (4) the income level beyond which noncustodial parents will no longer qualify for matching payments.

Table 1 illustrates three different options for this matching rate structure. The first option (shown in Column 1) offers a one-to-one matching rate for child support payments made by noncustodial parents with incomes of up to $9,000, and then phases out gradually so that matching payments are not provided when the incomes of non-custodial parents exceed $18,000. Under this option, if a noncustodial parent with an annual income of less than $9,000 pays $1,000 in child support, the state would contribute $1,000 in matching payments to the custodial family. The second option (Column 2) begins with a more generous two-to-one matching rate but phases out much more quickly, so that noncustodial parents with incomes exceeding $15,000 are not eligible for matching payments. Finally, the third option (Column 3) illustrates an intermediate matching rate that remains constant for all noncustodial parents with incomes up to $12,000 and then phases out slowly so that all such parents with incomes up to $26,000 are eligible for some level of matching payments.

Table 1
Three Illustrative Subsidy Rates of Child Support Payments
Depending on Income Level of Noncustodial Parent

Income of Noncustodial Parent

Matching Rate

Matching Rate

Matching Rate

0-8,000

1.00

2.00

1.50

8,001-9,000

1.00

1.80

1.50

9,001-10,000

0.90

1.60

1.50

10,001-11,000

0.80

1.40

1.50

11,001-12,000

0.70

1.20

1.50

12,001-13,000

0.60

1.00

1.40

13,001-14,000

0.50

0.80

1.30

14,001-15,000

0.40

0.60

1.20

15,001-16,000

0.30

0.40

1.10

16,001-17,000

0.20

0.20

1.00

17,001-18,000

0.10

0.00

0.90

18,001-19,000

0.00

0.00

0.80

26,001 and above

0.00

0.00

0.00

Note: The table presents a simplified example. The actual table that should be used would be in $50 or $100 intervals and the decline in the subsidy rate would be no more than .01, not 0.1.

Each of these alternatives works in much the same manner as the current federal Earned Income Tax Credit (EITC). As income rises from zero to a level approaching or slightly exceeding that generated by full-time work at the minimum wage, the matching rate remains constant. Within this range, however, the amount of matching payments to custodial families typically would rise because child support orders would increase with increases in the income of noncustodial parents. Beyond this income range, the matching rate as well as the amount of matching payments declines and eventually phases out completely.

Local child support enforcement offices appear to be the logical choice for administering this system of matching payments in each community. Under current law, these agencies establish the initial amount of the child support order (with the consent of the court) and they also collect child support payments from noncustodial parents. It should be administratively feasible for these agencies to determine the amount of any matching payment based on the type of structure outlined above and then to send both child support and matching payments to the custodial family.(8)

Within the broader framework of their TANF programs, states could proceed with these new initiatives on a statewide basis or undertake demonstration projects to test the feasibility of this approach. If a state revises its TANF eligibility criteria to include children who have noncustodial parents with incomes below specified levels (and who meet other criteria set by the state to ensure that they reside in a needy family), it is free to use either federal TANF funds or state "maintenance of effort" (MOE) funds for matching payments and the costs of administering these programs or demonstration projects. To the extent that custodial families receive only these matching payments and no other cash assistance under TANF, they also constitute child-only assistance that is not subject to the time limits or work requirements imposed by the 1996 federal welfare law.

 

Child Support Orders for Low-Income Noncustodial Fathers

In many states, combinations of improved child support pass-through/disregard polices and a child support subsidy plan could enhance greatly the incentives of low-income noncustodial fathers to pay child support and thereby improve the well-being of their children. In a substantial number of other states, however, the size of child support orders poses an additional and perhaps overwhelming barrier to the payment of child support by such fathers on a regular basis. For example, a noncustodial father in California with an income of $10,000 would have an annual child support order of $3,216 under current state guidelines; the same father in Maryland would have a child support order of $2,940. When low-income fathers are expected to pay such a large proportion of their earnings for child support, they are likely to view this obligation as either unreasonable or impossible to meet and other incentives for child support payment are likely to be ineffective.

Because child support orders are established in accordance with guidelines established by the state, every state can and should review the level of payments expected of low-income noncustodial parents to ensure that they are reasonable. Excessive child support orders are counterproductive, often leading noncustodial fathers to move into the underground economy and avoid all payments on behalf of their children. At the same time, proposals to reduce child support orders for low-income fathers — even when they are very high — can be controversial because such revisions have the effect in some cases of reducing child support payments made to poor custodial families. These policy tradeoffs, seemingly pitting noncustodial parents against custodial families, frequently stymie progress in reviewing state child support guidelines.

States that are concerned about the size of child support orders for low-income fathers and about the difficult choices they pose should consider adding an additional element to their child support subsidy plan: a cap on the proportion of income that low-income fathers will be expected to pay in child support. This option is attractive in such states because matching payments from the state can be structured to offset any income losses to custodial families that otherwise would result from reductions of child support orders in those instances in which noncustodial fathers are paying the amount ordered. Both custodial families and low-income noncustodial fathers would be better off under such a plan, and major impediments to the payment of child support by those fathers would be removed.(9)

To illustrate this approach, Table 2 shows the effects of a plan that combines child support subsidies and a cap on child support orders for two sets of hypothetical families in the state of California.(10) In these examples, a one-to-one matching rate for child support payments is used, with that rate phasing out on the schedule specified in Column 1 of Table 1 . Child support and any matching payments received by custodial families are treated under TANF as though they all were earnings of the custodial parent (i.e., the state's TANF earned income disregard is applied to the combined total of child support payments and earnings). Finally, child support orders are capped at a level equal to the sum of the following: 5 percent of the noncustodial father's net income up to $5,000; 25 percent of net income between $5,000-$10,000, and 35 percent on net income above $10,000. In California, this formula would reduce the child support order for a noncustodial father with an income of $10,000 from nearly one-third of his income to slightly more than 10 percent.

Table 2
Two Illustrative Comparisons of Disposable Income for A Custodial Family
(Mother and 2 children) and a Single Non-Custodial Parent Between
Current Law and Proposal for the State of California 1998

Custodial Family with No Earnings and a Noncustodial Parent with Earnings of $10,000

Custodial Family with an Earnings of $10,000 and Noncustodial Parent with Earnings of $10,000

Annual Child Support Order
(Annual Dollar Amounts)
     Current Law
     Proposal

3,216
1,069

3,828
1,069

Child Support Order as Percent of Noncustodial Parent's Earnings
     Current Law
     Proposal

32.2
10.7

38.3
10.7

Custodial Family's Income with Taxes and Transfers
(Annual Dollar Amounts)
     Current Law(Order Ignored)
     Current Law (Order Paid)
     Proposal

9,530
9,950
11,028

17,066
17,486
18,489

Effective Tax Rate on Child Support
     Current Law
     Proposal

86.9
(40.1)

89.0
(33.1)

Income as a Percentage of Poverty

Custodial Family1
     Current Law
     Proposal

76.0
84.3

133.6
141.3

Noncustodial Parent1
     Current Law
     Proposal

60.5
86.2

53.3
86.2

1 Takes into account earnings, federal taxes, child support paid, food stamps and TANF benefits and work expenses.

 

The effects of this subsidy plan as reflected in Table 2 demonstrate some of the potential benefits of this approach:

The formula illustrated in Table 2 works in California but will not necessarily be appropriate in other states. Some states still have inadequate earned income disregards for custodial parents, and if these low disregards also are applied to child support payments the formula outlined above will not generate the intended benefits for custodial families. For example, if this exact approach were utilized in the state of Maryland, custodial families could end up with less income than under current law even after they receive child support from noncustodial fathers and matching payments from the state. This unacceptable result serves as a reminder that, in any plan that includes a provision to cap child support orders, each aspect of the plan's formula and their interactions must be examined carefully to ensure that they yield the intended results. The details of any plan must be tailored specifically to respond to the unique circumstances and needs of each individual state.

 

Conclusion

The potential benefits of a child support subsidy plan along the lines described in this paper — for both custodial families and noncustodial fathers — are quite significant. Numerous questions regarding the design, cost, and eventual impact of such a plan also remain. For this reason, we believe that a series of demonstration projects by states is the logical next step in the development of the broader vision for a restructured child support program. We are able to provide advice and technical assistance to states that are interested in this approach and its many possible variations.

We urge states to adopt a plan for child support subsidies on a larger scale. The risks of immediate implementation or statewide demonstrations of such a plan are modest. Even if a child support subsidy plan yielded no increase in the willingness of noncustodial fathers to pay child support, the investment of federal and/or state funds would directly improve the well-being of children on whose behalf child support payments are made. In contrast, the risks of inaction are substantial, reflected in the persistent patterns of non-payment of child support by many low-income noncustodial fathers and high rates of poverty among their children.


Appendix A
Methodology and Description Tables

The purpose of the enclosed tables is to simulate what would happen to the disposable incomes of low-income custodial families and noncustodial parents under both current law and a proposed set of child support policy changes. In addition, the specific methodology of how the figures were derived is included to provide states with a guide in how to replicate these calculations in their own states. The impact of the proposal is also illustrated with manyexamples for three states which have high, medium, and low benefit levels — California, Maryland, and Texas, respectively— are included in the analysis.

Methodology

The tables illustrate hypothetical family scenarios and were created by calculating the appropriate benefits, taxes and child support payments for families with various levels of earnings and then calculating the resulting disposable income — earnings plus benefits, minus taxes, child care and work expenses, and plus or minus child support payments for these families. Listed below are the programs modeled in the analysis, the programs not included in the analysis, assumptions made for the analysis, and the program parameters (maximum TANF benefit, earnings disregard, and child support pass-through) used for the individual states included in the analysis. Furthermore, a description of how the child support order is capped and how the subsidy payments for noncustodial parents at various levels of earnings are calculated is discussed below.

In all these illustrative examples, we assume the intact and custodial family participates and receives the appropriate amount of TANF and food stamp benefits. In addition, we assume that the non-custodial parent does not participate in the food stamps program. In all but one case, the noncustodial parent is assumed to have income above food eligibility levels. Also, all cases assume the respective states' child support guidelines are applied and the full amount of the order is paid. In many instances, this is an unrealistic assumption.

Programs Modeled in the Analysis

Programs Not Included in the Analysis

Assumptions for the Analysis

Child Care

Food Stamp Shelter Deduction

Work Expenses

Tax Policy

Child Support

Participation

30% of earnings (of lower-earning spouse, if married); not to exceed $200 per month

$125

5% of earnings

$500 child tax credit is fully phased in (even though this will not be the case until 1999)

calculated using state’s published guidelines; assume full amount of order is paid

all families take advantage of all benefits available to them

Program Parameters Under Current Law(1)

 

Maximum TANF Benefit

Earnings Disregard

Child Support Pass-Through

California

$565 per month
(single-parent family of 3)
$673 per month
(two-parent family of 4)

disregard $225
and
50% of remainder

$50

Maryland

$388 per month
(single-parent family of 3)
$468 per month
(two-parent family of 4)

disregard 26%

$0

Texas

$188 per month
(single-parent family of 3)
$226 per month
(two-parent family of 4)

disregard $120

$50

 

Capping the Child Support Order

As discussed in the paper, the cap on the order is 5 percent of the noncustodial parent's net income up to $5,000, 25 percent of net income between $5,000-$10,000, and 35 percent on net incomes above $10,000. This cap is not intended to substitute for the considered judgment of the State and is clearly arbitrary. The Center is not endorsing this as the "right amount" for an order for a low-income non-custodial parent. Orders for low-income non-custodial parents should be reasonable and in the author's judgement current levels of orders in some states seem unrealistic.

 

Calculating the Subsidy

Table 1 presents the subsidy rates used for calculating the matching payment made by the state when child support is paid by the noncustodial parent. The figures in Tables 2, 3, and 4 use a maximum subsidy rate of 1.0 (column 1 of Table 1). Tables 5 and 6 subsidize child support payments at a maximum subsidy rate of 1.5 (column 2 of Table 1). The income level of the noncustodial parent determines the subsidy used for calculating the state subsidy. Once the subsidy rate is determined, the actual amount of child support paid is multiplied by the subsidy rate to yield the amount of the state subsidy:

Child Support Paid x Subsidy Rate = Government Subsidy Payment

Table 1
Income Level of Noncustodial Parent and Subsidy Rates Used for Calculating Proposal

Income of Noncustodial Parent

Subsidy Rate

Subsidy Rate

0-8,000

1.00

1.50

8,001-9,000

1.00

1.50

9,001-10,000

0.90

1.50

10,001-11,000

0.80

1.50

11,001-12,000

0.70

1.50

12,001-13,000

0.60

1.40

13,001-14,000

0.5

1.30

.

.

.

.

.

.

18,001-19,000

0.00

0.00

 

Description of Tables

The tables present the results of our calculations- the effects of the benefits and taxes listed above on the disposable incomes of custodial families and noncustodial parents at different levels of earnings. These tables compare how families fare under current law to how they would fare under the proposal. Under each of the following headings: (1) Annual Child Support Order, (2) Child Support Order as Percent of Noncustodial Parent's Earnings, (3) Custodial Family's Income with Taxes and Transfers, (4) Effective Tax Rate on Child Support, and (5) Income as a Percentage of Poverty- results under current law and the proposal are presented side by side to illustrate the effect the proposal would have compared to current law for both the custodial family and noncustodial.

The custodial family's income with taxes and transfers is subdivided into three categories. The first column under the heading represents the custodial family's income with taxes and transfers when no child support is paid. The second column is simply the custodial family's earnings with taxes and transfers under current law assuming the full order is paid. The third column calculates the custodial family's income with the amount of pass through received, the capped child support order, and the government subsidy. These three columns are used to determine the effective tax rate on the child support order under both current law and the proposal. In most cases, the effective tax rate on child support is lowered significantly under the proposal.

The last two columns of the table compare the custodial family and noncustodial parent's income at different earnings levels as a percentage of poverty under current law and the proposal. The poverty threshold for the custodial family is the threshold for a family of 3, or $13,086 in 1998. The poverty threshold for the noncustodial parent is the poverty threshold for one person, or $8,359 in 1998.

Some of the charts used in the presentation to the American Public Human Services Association on March 7th follow the state tables. The deleted charts were not relevant to the discussion of child support or are replaced by the fuller discussion in the paper.

 

Table 2
Impact of Proposal on Income (Expressed as a Percent of the Poverty Threshold)
of Custodial and Noncustodial Parents for the State of California1
Earnings

Annual Child Support Order

Child Support Order as Percent of Noncustodial Parent's Earnings

Custodial Family's Income with Taxes and Transfers

Effective Tax Rate on Child Support

Custodial Family

Noncustodial Parent

 

Current Law

Proposal

 

Current Law

Proposal

 

Current Law3

Current Law

Proposal  

Current Law

Proposal

0

10,000

 

3,216

1,069

 

32

11

 

9,530

9,950

11,028

 

87

(40)

2,500

7,500

2,532

617

34

8

11,589

12,009

12,453

83

(40)

5,000

5,000

 

1,716

218

 

34

4

 

13,648

14,068

13,954

 

76

(40)

0

15,000

 

4,764

2,163

 

32

14

 

9,530

9,950

11,650

 

91

2

3,750

11,250

3,888

1,295

35

12

12,619

13,039

14,160

89

(19)

7,500

7,500

 

2,772

617

 

37

8

 

15,602

16,022

16,466

 

85

(40)

0

20,000

 

6,204

3,429

 

31

17

 

9,530

9,950

11,676

 

93

37

5,000

15,000

4,764

2,163

32

14

13,648

14,068

15,768

91

2

10,000

10,000

 

3,828

1,069

 

38

11

 

17,066

17,486

18,489

 

89

(33)

0

25,000

 

7,656

4,696

 

31

19

 

9,530

10,141

12,119

 

92

45

6,250

18,750

5,844

3,113

31

17

14,677

15,097

18,735

93

(30)

12,500

12,500

 

4,032

1,530

 

32

12

 

17,725

18,145

19,438

 

90

(12)

0

30,000

 

9,096

5,962

 

30

20

 

9,530

11,154

12,562

 

82

49

7,500

22,500

6,924

4,062

31

18

15,602

16,022

17,969

94

42

15,000

15,000

 

4,764

2,163

 

32

14

 

17,907

18,639

20,027

 

85

2

0

35,000

 

10,548

7,228

 

30

21

 

9,530

12,167

13,005

 

75

52

8,750

26,250

8,016

5,012

31

19

16,456

17,757

19,155

84

46

17,500

17,500

 

5,484

2,796

 

31

16

 

18,089

21,020

22,024

 

47

(41)

0

40,000

 

11,988

8,494

 

30

21

 

9,530

13,180

13,448

 

70

54

10,000

30,000

9,096

5,962

30

20

17,066

19,190

20,098

77

49

20,000

20,000

 

6,204

3,429

 

31

17

 

18,271

23,401

20,791

 

17

27

 

Table 2 (continued)

Income as a Percentage of Poverty 2

Custodial Family

 

Noncustodial Parent

Current Law

Proposal

Current Law

Proposal

 

 

   

 

76.0

84

61

86

91.8

95

 

49

72

107.5

107

36

54

 

 

 

 

 

76.0

89

85

116

99.6

108

 

63

94

122.4

126

47

72

 

 

 

 

 

76.0

89

111

145

107.5

121

 

85

116

133.6

141

53

86

 

 

 

 

 

77.5

93

137

173

115.4

143

 

105

138

138.7

149

72

102

 

 

 

 

 

85.2

96

163

201

122.4

137

 

124

159

142.4

153

85

116

 

 

 

 

 

93.0

99

189

229

135.7

146

 

144

180

160.6

168

98

131

 

 

 

 

 

100.7

103

215

257

146.6

154

 

163

201

178.8

159

111

145

Note: Calculations use 1998 respective state child support and TANF parameters and federal tax and food stamp parameters but assume the $500 child tax credit is fully phased in (even though this will not be the case until 1999).
1 Proposal subsidizes child support payments as illustrated in column 1 of Table 1. The maximum subsidy rate is 1.0. The cap on the order is 5% of NCP income up to $5,000, 25% of amounts between $5,000-$10,000, and 35% on incomes above $10,000.
2 The poverty threshold for the married family is the threshold for a family of 4, or $16,766 in 1998; the poverty threshold for the custodial family is the threshold for a family of 3, or $13,086 in 1998; the poverty threshold for the noncustodial parent is the poverty threshold for one person, or $8,359 in 1998; and the poverty threshold for the custodial and noncustodial combined families is the poverty threshold for a family of 3 plus the poverty threshold for one person, or $13,086 plus $8,359 ($21,445) in 1998.
3 Custodial family's income under current law without child support.
 

 

Table 3
Impact of Proposal n Income (Expressed as a Percent of the Poverty Threshold)
of Custodial and Noncustodial Parents for the State of Maryland1

Earnings

                         

 

Custodial

Noncustodial

 

Annual Child Support Order

 

Child Support Order as Percent of Noncustodial Parent's Earnings

 

Custodial Family's Income with Taxes and Transfers

 

EffectiveTax Rate on Child Support

Family

Parent

Current Law

Proposal

Current Law

Proposal

Current Law3

Current Law

Proposal

Current Law

Proposal

 

 

   

 

   

 

   

 

   

 

 

0

10,000

2,940

1,069

29

11

8,044

8,044

8,987

100

12

2,500

7,500

 

2,772

617

 

37

8

 

9,332

9,332

9,877

 

100

12

5,000

5,000

2,220

218

44

4

10,621

10,621

10,814

100

11

 

 

 

 

 

 

 

 

   

 

 

 

 

 

0

15,000

4,212

2,163

28

14

8,044

8,044

9,043

100

54

3,750

11,250

 

4,008

1,295

 

36

12

 

9,977

10,674

10,847

 

83

33

7,500

7,500

3,228

617

43

8

11,910

13,222

12,454

59

12

 

     

 

 

 

 

 

 

 

 

 

 

 

0

20,000

5,316

3,429

27

17

8,044

8,503

8,668

91

82

5,000

15,000

 

5,112

2,163

 

34

14

 

10,621

12,478

11,621

 

64

54

10,000

10,000

3,852

1,069

39

11

13,195

15,895

14,618

30

(33)

 

     

 

 

 

 

   

 

 

 

 

 

0

25,000

6,204

4,696

25

19

8,044

9,130

8,898

82

82

6,250

18,750

 

6,060

3,113

 

32

17

 

11,265

14,175

12,110

 

52

73

12,500

12,500

4,308

1,530

34

12

14,729

17,741

16,442

30

(12)

 

 

 

 

 

 

 

   

 

 

 

 

 

 

0

30,000

7,008

5,962

23

20

8,044

9,690

9,129

77

82

7,500

22,500

 

6,948

4,062

 

31

18

 

11,910

15,821

13,804

 

44

53

15,000

15,000

4,704

2,163

31

14

15,786

18,585

16,910

40

48

 

   

 

 

 

 

 

 

 

 

 

 

 

 

0

35,000

7,980

7,228

23

21

8,044

10,370

9,844

71

75

8,750

26,250

 

7,788

5,012

 

30

19

 

12,554

17,597

15,656

 

35

38

17,500

17,500

5,196

2,796

30

16

15,539

20,729

18,615

0

(10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

40,000

8,880

8,494

22

21

8,044

11,000

10,730

67

68

10,000

30,000

 

8,460

5,962

 

28

20

 

13,195

18,551

17,369

 

37

30

20,000

20,000

5,640

3,429

28

17

17,196

22,836

20,625

0

0

 

   

 

   

 

   

 

 

 

   

 

 

Table 3 (continued)

Income as a Percentage of Poverty 2

Custodial Family

   

Noncustodial Parent

 

Current Law

Proposal

Current Law

Proposal

 

 

   

 

61.5

69

64

86

71.3

76

 

47

72

81.2

83

30

54

 

 

 

 

 

61.5

69

92

116

81.6

83

 

62

94

101.0

95

41

72

 

 

 

 

 

65.0

66

122

145

95.4

89

 

81

116

121.5

112

53

86

 

   

 

 

69.8

68

155

173

108.3

93

 

102

138

135.6

126

69

102

 

 

 

 

 

74.0

70

188

201

120.9

106

 

124

159

142.0

129

86

116

 

 

 

 

 

79.2

75

220

229

134.5

120

 

147

180

158.4

142

102

131

 

   

 

 

84.1

82

253

257

141.8

133

 

171

201

174.5

158

118

145

Note: Calculations use 1998 respective state child support and TANF parameters and federal tax and food stamp parameters but assume the $500 child tax credit is fully phased in (even though this will not be the case until 1999).
1 Proposal subsidizes child support payments as illustrated in column 1 of Table 1. The maximum subsidy rate is 1.0. The cap on the order is 5% of NCP income up to $5,000, 25% of amounts between $5,000-$10,000, and 35% on incomes above $10,000.
2 The poverty threshold for the married family is the threshold for a family of 4, or $16,766 in 1998; the poverty threshold for the custodial family is the threshold for a family of 3, or $13,086 in 1998; the poverty threshold for the noncustodial parent is the poverty threshold for one person, or $8,359 in 1998; and the poverty threshold for the custodial and noncustodial combined families is the poverty threshold for a family of 3 plus the poverty threshold for one person, or $13,086 plus $8,359 ($21,445) in 1998.
3 Custodial family's income under current law without child support.
 

 

Table 4
Impact of Proposal on Income (Expressed as a Percent of the Poverty Threshold)
of Custodial and Noncustodial Parents for the State of Texas
Earnings

Custodial

Noncustodial

 

Annual Child Support Order

 

Child Support Order as Percent of Noncustodial Parent's Earnings

 

Custodial Family's Income with Taxes and Transfers

 

Effective Tax Rate on Child Support

Family

Parent

Current Law

Proposal

Current Law

Proposal

Current Law3

Current Law

Proposal

Current Law

Proposal

 

 

   

 

   

 

 

 

 

   

 

 

0

10,000

2,196

1,069

22

11

6,364

6,784

7,861

81

(40)

2,500

7,500

 

1,716

617

 

23

8

 

8,205

8,625

9,069

 

76

(40)

5,000

5,000

1,152

218

23

4

9,039

9,710

9,345

42

(40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

15,000

3,156

2,163

21

14

6,364

6,997

7,977

80

25

3,750

11,250

 

2,436

1,295

 

22

12

 

8,622

9,578

10,164

 

61

(19)

7,500

7,500

1,716

617

23

8

10,961

12,158

11,825

30

(40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

20,000

4,128

3,429

21

17

6,364

7,674

7,372

68

71

5,000

15,000

 

3,156

2,163

 

21

14

 

9,039

11,115

11,022

 

34

8

10,000

10,000

2,196

1,069

22

11

13,195

14,731

14,618

30

(33)

 

 

 

 

 

 

 

 

 

 

 

   

 

 

0

25,000

5,100

4,696

20

19

6,364

8,351

8,071

61

64

6,250

18,750

 

3,888

3,113

 

21

17

 

9,931

12,652

12,110

 

30

30

12,500

12,500

2,676

1,530

21

12

14,729

16,603

16,442

30

(12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

30,000

6,060

5,962

20

20

6,364

9,028

8,958

56

56

7,500

22,500

 

4,608

4,062

 

20

18

 

10,961

14,189

13,804

 

30

30

15,000

15,000

3,156

2,163

21

14

15,786

17,043

16,910

60

48

 

 

 

 

 

 

 

 

 

 

 

   

 

 

0

35,000

7,032

7,029

20

20

6,364

9,705

9,705

52

52

8,750

26,250

 

5,340

5,012

 

20

19

 

12,148

15,883

15,656

 

30

30

17,500

17,500

3,648

2,796

21

16

15,539

19,183

18,615

0

(10)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

0

40,000

7,992

7,996

20

20

6,364

10,381

10,381

50

50

10,000

30,000

 

6,060

5,962

 

20

20

 

13,195

17,439

17,369

 

30

30

20,000

20,000

 

4,128

3,429

 

21

17

 

17,196

21,324

20,625

 

0

0

 

Table 4 (continued)

Income as a Percentage of Poverty 2

Custodial Family

   

Noncustodial Parent

 

Current Law

Proposal

Current Law

Proposal

 

 

 

 

 

51.8

60

73

86

65.9

69

 

59

72

74.2

71

43

54

 

   

 

 

53.5

61

105

116

73.2

78

 

81

94

92.9

90

59

72

 

 

   

 

58.6

56

136

145

84.9

84

 

105

116

112.6

112

73

86

 

 

   

 

63.8

62

168

173

96.7

93

 

128

138

126.9

126

89

102

 

 

 

 

 

69.0

69

200

201

108.4

106

 

152

159

130.2

129

105

116

 

 

 

 

 

74.2

74

231

229

124.4

120

 

176

180

146.6

142

120

131

 

 

   

 

79.3

79

263

257

133.3

133

 

200

201

163.0

158

136

145

Note: Calculations use 1998 respective state child support and TANF parameters and federal tax and food stamp parameters but assume the $500 child tax credit is fully phased in (even though this will not be the case until 1999).
1 Proposal subsidizes child support payments as illustrated in column 1 of Table 1. The maximum subsidy rate is 1.0. The cap on the order is 5% of NCP income up to $5,000, 25% of amounts between $5,000-$10,000, and 35% on incomes above $10,000.
2 The poverty threshold for the married family is the threshold for a family of 4, or $16,766 in 1998; the poverty threshold for the custodial family is the threshold for a family of 3, or $13,086 in 1998; the poverty threshold for the noncustodial parent is the poverty threshold for one person, or $8,359 in 1998; and the poverty threshold for the custodial and noncustodial combined families is the poverty threshold for a family of 3 plus the poverty threshold for one person, or $13,086 plus $8,359 ($21,445) in 1998.
3 Custodial family's income under current law without child support.
 

 

Table 5
Impact of Proposal on Income (Expressed as a Percent on the Poverty Threshold)
of Custodial and Noncustodial Parents for the State of Maryland1
Earnings

Custodial

Noncustodial

 

Annual Child Support Order

 

Child Support Order as Percent of Noncustodial Parent's Earnings

 

Custodial Family's Income with Taxes and Transfers

 

Effective Tax Rate on Child Support

Family

Parent

Current Law

Proposal

Current Law

Proposal

Current Law3

Current Law

Proposal

Current Law

Proposal

 

   

 

   

 

   

 

 

 

   

 

0

10,000

2,940

1,069

29

11

8,044

8,044

9,361

100

(23)

2,500

7,500

 

2,772

617

 

37

8

 

9,332

9,332

10,093

 

100

(23)

5,000

5,000

2,220

218

44

4

10,621

10,621

10,890

100

(23)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

15,000

4,212

2,163

28

14

8,044

8,044

10,254

100

(2)

3,750

11,250

 

4,008

1,295

 

36

12

 

9,977

10,674

11,573

 

83

(23)

7,500

7,500

3,228

617

43

8

11,910

13,222

12,670

59

(23)

 

 

 

 

 

 

 

 

 

 

 

 

   

 

0

20,000

5,316

3,429

27

17

8,044

8,503

10,348

91

33

5,000

15,000

 

5,112

2,163

 

34

14

 

10,621

12,478

12,832

 

64

(2)

10,000

10,000

3,852

1,069

39

11

13,195

15,895

15,067

30

(75)

 

 

 

 

 

 

 

   

 

 

   

 

 

0

25,000

6,204

4,696

25

19

8,044

9,130

11,199

82

33

6,250

18,750

 

6,060

3,113

 

32

17

 

11,265

14,175

13,853

 

52

17

12,500

12,500

4,308

1,530

34

12

14,729

17,741

17,299

30

(68)

 

 

   

 

 

 

 

 

 

 

   

 

 

0

30,000

7,008

5,962

23

20

8,044

9,690

9,129

77

82

7,500

22,500

 

6,948

4,062

 

31

18

 

11,910

15,821

14,942

 

44

25

15,000

15,000

4,704

2,163

31

14

15,786

18,585

18,641

40

(32)

 

 

   

 

 

 

 

   

 

 

     

0

35,000

7,980

7,228

23

21

8,044

10,370

9,844

71

75

8,750

26,250

 

7,788

5,012

 

30

19

 

12,554

17,597

15,656

 

35

38

17,500

17,500

5,196

2,796

30

16

15,539

20,729

20,852

0

(90)

 

 

   

 

 

 

   

 

 

 

     

0

40,000

8,880

8,494

22

21

8,044

11,000

10,730

67

68

10,000

30,000

 

8,460

5,962

 

28

20

 

13,195

18,551

17,369

 

37

30

20,000

20,000

5,640

3,429

28

17

17,196

22,836

23,026

0

(70)

 

Table 5 (continued)

Income as a Percentage of Poverty 2

Custodial Family

 

Noncustodial Parent

Current Law

Proposal

Current Law

Proposal

 

 

 

 

 

61.5

72

64

86

71.3

77

 

47

72

81.2

83

30

54

 

 

 

 

 

61.5

78

92

116

81.6

88

 

62

94

101.0

97

41

72

 

 

 

 

 

65.0

79

122

145

95.4

98

 

81

116

121.5

115

53

86

 

 

 

 

 

69.8

86

155

173

108.3

106

 

102

138

135.6

132

69

102

 

 

 

 

 

74.0

70

188

201

120.9

114

 

124

159

142.0

142

86

116

 

 

 

 

 

79.2

75

220

229

134.5

120

 

147

180

158.4

159

102

131

 

 

 

 

 

84.1

82

253

257

141.8

133

 

171

201

174.5

176

118

145

Note: Calculations use 1998 respective state child support and TANF parameters and federal tax and food stamp parameters but assume the $500 child tax credit is fully phased in (even though this will not be the case until 1999).
1 Proposal subsidizes child support payments as illustrated in column 1 of Table 1. The maximum subsidy rate is 1.0. The cap on the order is 5% of NCP income up to $5,000, 25% of amounts between $5,000-$10,000, and 35% on incomes above $10,000.
2 The poverty threshold for the married family is the threshold for a family of 4, or $16,766 in 1998; the poverty threshold for the custodial family is the threshold for a family of 3, or $13,086 in 1998; the poverty threshold for the noncustodial parent is the poverty threshold for one person, or $8,359 in 1998; and the poverty threshold for the custodial and noncustodial combined families is the poverty threshold for a family of 3 plus the poverty threshold for one person, or $13,086 plus $8,359 ($21,445) in 1998.
3 Custodial family's income under current law without child support.
 

 

Table 6
Impact of Proposal on Income (Expressed as a Percent of the Poverty Threshold)
of Cutstodial and Noncustodial Parents for the State of Texas1
Earnings

Custodial

Noncustodial

 

Annual Child Support Order

 

Child Support Order as Percent of Noncustodial Parent's Earnings

 

Custodial Family's Incomewith Taxes and Transfers

 

Effective Tax Rate on Child Support

Family

Parent

Current Law

Proposal

Current Law Proposal

Current Law3

Current Law

Proposal

Current Law

Proposal

 

   

 

   

 

 

 

 

 

 

 

 

 

0

10,000

2,196

1,069

22

11

6,364

6,784

8,235

81

(75)

2,500

7,500

 

1,716

617

 

23

8

 

8,205

8,625

9,285

 

76

(75)

5,000

5,000

1,152

218

23

4

9,039

9,710

9,421

42

(75)

 

   

 

 

 

 

 

 

 

 

 

 

 

 

0

15,000

3,156

2,163

21

14

6,364

6,997

9,189

80

(31)

3,750

11,250

 

2,436

1,295

 

22

12

 

8,622

9,578

10,889

 

61

(75)

7,500

7,500

1,716

617

23

8

10,961

12,158

12,041

30

(75)

 

 

 

 

 

 

 

   

 

 

 

   

 

0

20,000

4,128

3,429

21

17

6,364

7,674

9,052

68

22

5,000

15,000

 

3,156

2,163

 

21

14

 

9,039

11,115

12,233

 

34

(48)

10,000

10,000

2,196

1,069

22

11

13,195

14,731

15,067

30

(75)

 

 

 

 

 

 

 

   

 

 

 

 

 

 

0

25,000

5,100

4,696

20

19

6,364

8,351

10,372

61

15

6,250

18,750

 

3,888

3,113

 

21

17

 

9,931

12,652

13,853

 

30

(26)

12,500

12,500

2,676

1,530

21

12

14,729

16,603

17,299

30

(68)

 

 

   

 

   

 

 

 

 

 

     

0

30,000

6,060

5,962

20

20

6,364

9,028

8,958

56

56

7,500

22,500

 

4,608

4,062

 

20

18

 

10,961

14,189

14,942

 

30

2

15,000

15,000

3,156

2,163

21

14

15,786

17,043

18,641

60

(32)

 

 

 

 

 

   

 

 

 

 

 

   

 

0

35,000

7,032

7,228

20

21

6,364

9,705

9,705

52

54

8,750

26,250

 

5,340

5,012

 

20

19

 

12,148

15,883

15,656  

30

30

17,500

17,500

3,648

2,796

21

16

15,539

19,183

20,852

0

(90)

 

 

   

 

 

 

 

 

 

 

   

 

 

0

40,000

7,992

8,494

20

21

6,364

10,381

10,381

50

53

10,000

30,000

 

6,060

5,962

 

20

20

 

13,195

17,439

17,369

 

30

30

20,000

20,000

 

4,128

3,429

 

21

17

 

17,196

21,324

23,026

 

0

(70)

 

Table 6 (continued)

Income as a Percentage of Poverty 2

Custodial Family

 

Noncustodial Parent

Current Law

Proposal

Current Law

Proposal

 

 

 

 

 

51.8

63

73

86

65.9

71

 

59

72

74.2

72

43

54

 

 

 

 

 

53.5

70

105

116

73.2

83

 

81

94

92.9

92

59

72

 

   

 

 

58.6

69

136

145

84.9

94

 

105

116

112.6

115

73

86

 

 

 

 

 

63.8

79

168

173

96.7

106

 

128

138

126.9

132

89

102

 

 

   

 

69.0

69

200

201

108.4

114

 

152

159

130.2

142

105

116

 

 

   

 

74.2

74

231

229

121.4

120

 

176

180

146.6

159

120

131

 

 

 

 

 

79.3

79

263

257

133.3

133

 

200

201

163.0

176

 

136

145

Note: Calculations use 1998 respective state child support and TANF parameters and federal tax and food stamp parameters but assume the $500 child tax credit is fully phased in (even though this will not be the case until 1999).
1 Proposal subsidizes child support payments as illustrated in column 1 of Table 1. The maximum subsidy rate is 1.0. The cap on the order is 5% of NCP income up to $5,000, 25% of amounts between $5,000-$10,000, and 35% on incomes above $10,000.
2 The poverty threshold for the married family is the threshold for a family of 4, or $16,766 in 1998; the poverty threshold for the custodial family is the threshold for a family of 3, or $13,086 in 1998; the poverty threshold for the noncustodial parent is the poverty threshold for one person, or $8,359 in 1998; and the poverty threshold for the custodial and noncustodial combined families is the poverty threshold for a family of 3 plus the poverty threshold for one person, or $13,086 plus $8,359 ($21,445) in 1998.
3 Custodial family's income under current law without child support.
 

 


Endnotes:

1. 1See Elaine Sorensen, "The Benefits of Increased Child Support Enforcement," in Welfare Reform: An Analysis of the Issues, Urban Institute, 1995, pp. 55-58 and "A National Profile of Nonresident Fathers and Their Ability to Pay Child Support," in Journal of Marriage and the Family, November 1997, pp. 785-797.

2. 2Dan Bloom and Kay Sherwood. Matching Opportunities to Obligations: Lessons for Child Support Reform from the Parents' Fair Share Pilot Phase. Manpower Demonstration Research Corporation, April 1994, pp. 70-73.

3. Bloom and Sherwood, p. 74.

4. Margaret Stapleton. The Unnecessary Tragedy of Fatherless Children: Welfare Reform's Opportunities for Reversing Public Policies that Drove Low-Income Fathers Out of Their Children's Lives. Clearinghouse Review, January-February 1999, p.499.

5. -

6. This interaction with the food stamp program also creates some disincentive for states to expand their child support disregards, but the benefits of such a policy far outweigh its costs.

7. Only families who live with their children receive the family EITC. Parents who do not live with their children do not qualify for the family credit, although they may be eligible for the small EITC for workers without a child in the home if their income is below $10,030 for 1998.

8. The success of a child support subsidy plan administered by local child support enforcement agencies also may depend on the ability of state and local officials to change the culture of the child support office. Just as welfare reform during the early 1990s aimed to transform the culture of welfare offices from cash disbursement offices into agencies which focus on placing mothers in the workforce, child support offices must begin to help noncustodial fathers become employed and develop stronger ties to their children. This represents a major challenge, as the first priority of child support offices must continue to be the vigorous enforcement of child support obligations and the effective collection of child support payments. Through partnerships with other public and private agencies, however, these offices can help to bolster the capacity of noncustodial fathers to meet their child support obligations and thereby improve the well-being of their children.

9. In a time-limited demonstration project in which child support subsidies come to an end, reductions in child support orders that were made as part of the demonstration also should be reviewed. In those instances in which the noncustodial father has met the reduced obligation, consideration should be given to retaining the lower child support order beyond the life of the demonstration (particularly if the non-custodial father was not paying child support prior to this reduction in the child support order).

10. The appendix describes how these calculations were performed in greater detail and provides other examples of how such a plan could work in California as well as in Maryland and Texas.

Appendix Endnote:

1. L. Jerome Gallagher, Megan Gallagher, Kevin Perese, Susan Shreiber, and Keith Watson. One Year After Welfare Reform: A Description of State Temporary Assistance for Needy Families (TANF) Decisions as of October 1997. The Urban Institute, May 1998.