Boston Globe - April 20, 2004
The Pay Gap Tax Credit
By Heather Boushey
Women continue to earn an average of 76 cents for every dollar earned by men, meaning that it takes women almost 16 months to earn what men earn in a single year. That's why Equal Pay Day always falls in April. This year, April 20 marks the date that women, counting from January 2003, will pull down as much in earnings as men had by December 31 of last year.
For the uninitiated, this issue merits a little more explanation. Economists have sliced the data every imaginable way, and found no other explanation for the difference in earnings by gender than this simple one: discrimination. Even when women and men have the same levels of education, fall in the same age range, and work in the same profession, the data show that women earn less than men.
People often assume that women earn less than men because, on average, working women have less formal education than working men. But for workers under age 45, the opposite is true: it's the women that are more educated.
The answer to this glaring inequity is clear. The pay gap could be closed with a simple amendment to the federal tax code establishing a Pay Gap Tax Credit. This tax credit would be equal to the gender pay gap faced by working women.
This tax credit is necessary because of the pay gap's stubborn persistence over decades of social and economic change. Back in the 1960s, when about 40 percent of women were working, the pay gap was 59 cents on the dollar. The gap closed over the 1980s as men's wages fell - not the way you want to achieve progress - but progress stalled over the 1990s. During the economic boom, men's wages rose enough to keep up with women's, leading to virtually no change in the overall pay gap.
Progress has been slow because we have not directly addressed the problem of the pay gap. Over the past twenty years, even as women have increased their participation in the labor market and they have improved their education and on-the-job skills, the pay gap has only closed by about one-quarter.
Some of the remaining inequity between women's and men's earnings is the results of women being segregated into the "caring professions," such as nursing and teaching. These jobs were historically the only ones available to college-educated women and remain underpaid relative to other comparably skilled jobs.
Closing the pay gap requires increasing pay in women-dominated professions to a level comparable to professions more dominated by men. Further, demand for these jobs is predicted to grow over the next decade. By filling the pay gap with a tax credit, Congress would help to ensure that women can afford to stay in these jobs.
Tax credits are an effective method for addressing inequities in our economic system. Take, for example, the Earned Income Tax Credit. This tax credit was designed to address inequity in earnings, providing the poorest paid workers with a refundable tax credit. The Pay Gap Tax Credit would do the same for women.
The formula for calculating the Pay Gap Tax Credit is simple. On their tax form, women will identify their educational attainment level, occupation, and age. These three values will be summarized in a look-up table, which will show the average earnings in the previous year for men with these same characteristics.
There are many occupations where women are disproportionately employed and where they are systemically underpaid, given their skills, such as nursing and child-care workers. The look up value of male wages will be adjusted to remedy the undervalued pay of these occupations. The Pay Gap Tax Credit would be equal to the difference between the woman's unadjusted earnings from her job and the average earnings of men with similar work attributes. It would be fully refundable.
The Pay Gap Tax Credit will level the playing field between men and women. Women who know that they are paid less than the male colleagues that they sit next to every day can be assured that this will be rectified each year on April 15.
Furthermore, it will inspire young women. Today's young women are more likely than young men to graduate from both high school and college. Once they get a job, however, these women earn less than their male classmates. Getting those missing earnings back on April 15 will send a clear message to young women: even though their employers might not think their hard work is worth that of a man's, Congress does.
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