Saturday, October 20, 2018

Cost of Alimony

I ran across some interesting statistics in an article on the changes in tax law for alimony. Basically the law no longer allows for alimony to be deducted by the payer. However, this change does not affect existing agreements or orders.

One of the reasons the law was passed is because people were cheating. in 2015 15 million people who pay alimony deducted it from their taxes. I am one of them. However, only 10 million alimony recipients declared alimony, which was taxable for them, on their taxes.

So 5 million people who received alimony paid no taxes on it. That is a  huge amount of money not paid to the government that law abiding taxpayers needed to make up for. Yet another reason why alimony is a cost for all taxpayers.

And let's keep in mind that for those 5 million people who are cheating the system, this is unlikely the only crime they are committing. Criminals rarely commit only one crime.

Even for the 10 million that dutifully declared the alimony they received on their taxes, there is a cost to taxpayers.  The alimony recipient has a strong incentive not to make more money as that would put their alimony at risk. So they become willfully underemployed thus also reducing tax revenue for the government. Furthermore, because normally the alimony recipient earns less money than the payer the amount of the tax deduction for the payer is greater than the taxes paid by the recipient so again the government receives less taxes.

When you add up the cost of the cheaters, willful underemployment, and the effect of alimony duductability it comes out to a massive amount of lost taxes. Taxes that must be made up by those who follow the rules and act with integrity.

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