A Civil Right All Its Own: Same-Sex Divorce in America

“While the laws of divorce provide clear and reasonably predictable guidelines for child support, child custody, and property division on dissolution of a marriage, same-sex couples who dissolve their relationships find themselves and their children in the highly unpredictable terrain of equity jurisdiction.”

-- Goodridge v. Dept. of Public Health, 798 N.E.2d 941 (Mass. 2003)

Over ten years ago, the Supreme Judicial Court of Massachusetts ruled, by a 4-3 vote, that “barring an individual from the protections, benefits, and obligations of civil marriage solely because that person would marry a person of the same sex violates the Massachusetts Constitution.” It was a historic decision—the first of many over the past decade that has seen marriage equality spread to 17 states and the District of Columbia (see map).

While Goodridge will forever stand as a monument in America’s march toward equal justice, the relationship that spawned the lawsuit was—like many marriages—not as eternal. Two years after the ruling, the Goodridges split, with divorce coming three years later.

Unlike marriage, divorce does not lend itself to the same sweeping statements about American liberty. Indeed, while the SJC and the Supreme Court have long waxed poetic about the right to marry, there has been nary little ink spilled about the right to divorce.

And yet, there is no questioning it’s importance—as the SJC noted in the quotation from Goodridge excerpted above.

Today we’re going to tackle a problem that isn’t often discussed amidst the celebrations of marriage equality: the fact that same-sex couples encounter significant barriers in securing divorces if they move to states that do not recognizes their unions.

Indeed, while the Supreme Court’s recent decision in Windsor v. U.S. requires the federal government to recognize all marriages legally entered in the states, it did not require states to recognize the marriages of sister states. As a result, most of the 33 states that ban same-sex marriage by constitutional amendment or statute also prohibit same-sex couples from divorcing in their courts.

Courts across the country are currently hearing challenges to laws preventing same-sex couples from divorcing (most notably, the Supreme Court of Texas is set to decide In the Matter of the Marriage of J.B. and H.B. this Spring). But while the Full Faith and Credit Clause of the U.S. Constitution would seemingly prohibit states from discriminating against marriages legally entered into by sister states, that legal fight will take years to fully play out in the courts.

For now, the only option for same-sex couples who live in these states is to return to Massachusetts, New York, or another state that recognizes their marriage and maintain residency in their chosen state for between 3 months and 2 years (varies by state) to secure personal jurisdiction to seek a divorce.

In recognition of this problem, a number of states have passed laws allowing courts to grant jurisdiction, under certain circumstances, over divorce/dissolution proceedings for non-resident same-sex couples who have entered into a marriage, civil union, or registered domestic partnership in that state, including California, Colorado, Delaware, Illinois, Minnesota, Oregon, Vermont, and Washington D.C.

For example, in California, the law generally requires that at least one spouse be a resident of California for at least six months prior to filing a petition for dissolution. However, California makes an exception for nonresident same-sex married spouses to dissolve their marriage if 1) they married in California, and 2) neither spouse now lives in a state that will dissolve their marriage.

Colorado—which still does not permit same-sex marriage—applies similar exceptions for civil unions, as does Oregon for domestic partnerships.

These jurisdiction exceptions are clearly a stopgap measure on the road to a national decree on marriage equality (a ruling that I predict will come in the October 2015 Term at the Supreme Court). Not only that, but the exceptions are limited in their effect since they do not allow orders about other issues like property and debt, partner support, or children.

Nevertheless, despite being a half-measure, it is imperative that states like Massachusetts and New York pass these exceptions this legislative session. It’s a simple fix to a problem that affects thousands of families across the country.

Equal access to divorce may not generate the same excitement as marriage, but it is a civil right all its own and one that must be protected just as vigorously if we are to achieve equal justice under law.

Tax Time, Part III: First Principles for Tax Expenditures in NYC + Beyond

New York City’s FY 2014 budget officially stands at nearly $74 billion. New York State’s FY 2014 budget clocks in at $136 billion. The true numbers, however, are much higher, as both the City and the State give away billions of dollars in so-called tax expenditures: the breaks that allow individuals, institutions, and corporations to avoid paying tax in the first place.

According to the Government Accountability Office, the federal government sacrificed more than $1 trillion in tax revenue through 169 tax expenditures in FY 2012—roughly equivalent to the federal budget deficit that year and nearly 7 percent of GDP. The largest tax expenditure in the nation is the tax free status of employer-sponsored health care benefits ($184 billion), followed by retirement savings plans (401(k)) ($91 billion), and the mortgage interest deduction ($82 billion).

These tax expenditures inure largely to the benefit of the wealthiest Americans. As Robertson Williams of the Tax Policy Center reported in 2011, the top quintile receives nearly 65 percent of the value of tax expenditures (roughly equivalent to the share of total taxes paid), while the bottom quintile receives less than 4 percent of income from tax expenditures (but pays very little in federal income tax).

While arguments about the costs and benefits of these expenditures will continue to rage in Congress, we’re going to focus on New York City’s tax expenditures using the City and State’s annual tax expenditure reports.

New York City doles out over $6 billion in tax expenditures every year. Without throwing the whole system out (which is the preference of many economists), it is difficult to determine first principles for addressing these expenditures. However, I believe the following should guide policymakers in their efforts:

(1) That expenditures that support the poor are generally better than expenditures that support the well to do;

(2) That expenditures with provable outcomes are generally more supportable that expenditures with uncertain effects; and

(3) That expenditures with shorter time horizons are preferable to long-term expenditures (i.e. a 30-year abatement), given both the uncertainty of the future (i.e. what the “value” of the abatement will be) and the potential for additional experimentation (say, in how to structure an affordable housing situation)

Moreover, these expenditures must be made more transparent during the budget process itself, rather than simply as a report to be issued after the Fiscal Year ends. The public deserves to understand who benefits from abatements and what benefits are accruing to the public as a result. One way to do this is by launching a uniform development budget, which Bay State Brahmin will investigate further in a later post.

For now, let’s take a dive into NYC’s expenditures, starting with property tax abatements, then moving to business taxes, and sales/income tax breaks.

PROPERTY

I. The Senior Citizen Homeowners' Exemption applies a sliding scale of property tax relief to homeowners earning less than $37,399. However, no asset limit exists, which is potentially problematic because seniors have often paid off the fixed costs that take up so much of a working individual’s income (education debt/housing cost/etc.). 

II. The Clergy Exemption is unique in that it can apply to property owned by a member of the clergy that is not the clergy’s primary residence. Indeed, it can even be an income generating property. No similar exemption exists for other leaders of non-profits. I believe the Clergy Exemption, standing alone, is unconstitutional.

III. The Commercial Expansion Program is designed to stimulate office space development in Manhattan North of 96^th Street and all areas of the other four boroughs. It might be time to reexamine the geographic parameters, given that some neighborhoods in the boroughs today do not need this abatement to stimulate demand. Similarly, the Commercial Revitalization Program, which focuses on Lower Manhattan, should be reconsidered in light of Lower Manhattan’s immense growth/demand relative to other neighborhoods.

IV. Lower Manhattan Conversion: What if I told you that we spent $85 million in FY 2013 giving tax breaks to developers to convert non-residential buildings to residential use in some of the richest neighborhoods in the City (i.e. where residential development is already incredibly profitable). You’d say that was crazy. Well, color us crazy. We continue to do this in Lower Manhattan, though only for buildings that were issued permits prior to 2007 (thus, we should see this figure sunset over time).

V. The “Green Roof” Abatement only cost $100K in 2013 (which signals that it may not be well-known). Notably, it sunsets this year and the City Council should strongly consider pressing for renewal.

   

BUSINESS

I. Insurance Corporations: One of two big ones (the other being Business and Investment Capital, which provided $320 million to only 32 corporations), insurance corporations don’t pay the General Business Tax in NYC. This costs the City about $365 million annually (they used to pay taxes, but the tax was eliminated in 1974, when New York City was desperate to hang on to whatever business it could). It’s not at all clear why this one industry (which is quite wealthy and dominated by a handful of multi-national corporations) should receive this benefit.

II. The Film Production Credit cost the City $33 million last year. These credits have been widely criticized nationwide. Ironically, NYC probably needs the tax credit least since the City itself is such an immense draw for shows/movies (the world recognizes our skyline, not Milwaukee’s…)

III. Relocation and Employment Assistance Program (REAP): $32 million spent on helping firms relocate from outside NYC to locations north of 96^th Street in Manhattan, Lower Manhattan, and the boroughs outside Manhattan. It is far from clear that Lower Manhattan (or other neighborhoods in the City, such as Downtown Brooklyn) need a special incentive program (indeed, it wasn’t part of the program until 2004).

SALES/INCOME

I. Aviation Fuel Sold to Airlines: I wouldn’t have guessed this, but fuel sold to airlines at LGA and JFK is tax-free. Why? Certainly not to stimulate demand—the City’s airports have no vacant landing/takeoff slots. This giveaway to the airlines it cost you and me $117 million in 2013—the largest sales tax expenditure (as an aside, millions of New Yorkers continue to pay sales tax when they fill up at the pump). In addition, Airline Food and Drink for In-Flight Consumption is exempt (an additional $4 million).

II. Cable Television Service: Not only are we subsidizing the airlines, we are subsidizing the cable companies, to the tune of $101 million a year.

III. Credit for Unincorporated Business Tax Payments: This one gets a special star for incompetence, not because it is necessarily a bad credit, but because of how it is structured. The goal of the credit is not to “double tax” individuals who own/operate unincorporated businesses that pay the UBT (unincorporated business tax). Therefore, the credit lowers personal income tax (PIT) liability. It offers a 100% credit up to $42,000 in income, a sliding scale between 100%-23% up to $142,000 in income, and 23% for all income above $142,000.

So who benefits? You might think the dude earning $42,000 who gets the 100% credit. And, in a way, you are right (his PIT is eliminated completely). But really, you’d be wrong. Why? Because $97 million of the $126 million in benefits went to New Yorkers earning more than $1 million a year. Another $11 million went to folks earning between $500,000 and $1 million.

Tax Time, Part II: Eliminating Predatory Tax Return Services

Yesterday, we examined how expansions in the Earned Income Tax Credit (EITC) at the federal, state, and local levels can improve life for the working poor in the five boroughs and beyond.

Unfortunately, it is not enough to simply boost the EITC. We need to make the credit real by addressing the scourge of tax refund services that offer fast cash in exchange for significant fees associated with filing taxes.

We can do this in two ways. First, we need to partner with non-profit community organizations to expand successful PR campaigns to highlight the fact that NY provides FREE tax filing to people who earned less than $58,000 (adjusted gross income) in tax year 2013 (that’s nearly 60 percent of NYC households), both online and in person at dozens of locations throughout the five boroughs. Refunds for e-filing are usually issued within 30 days.

Second, we need legislation to limit predatory behavior that siphons EITC and other credits from those most in need. Currently, the vast majority of tax return advance companies aren’t actually committing fraud. All that means is that people can be ripped off and have no recourse.

In 2013, the Federal Government largely banned regulated banks from offering “refund anticipation loans” (RAL), which for years had swindled millions of low-income Americans (7.2 million in 2009) out of a significant portion of their tax returns in exchange for getting fast cash a few weeks in advance (in other words, it was a payday loan in disguise).

To give you a sense of just how usurious RALs are, consider that the last bank to offer an RAL in 2012—Republic Bank & Trust Company of Louisville, Kentucky—charged individuals $61.22 for a $1500 tax refund advance, the equivalent of an APR of 149 percent.

However, while the RAL is now technically a thing of the past, it lives on in a variety of guises—most notably the “refund anticipation check” (RAC) which is not a loan, but which carries fees of around 30 dollars and can include “add-on” surcharges running into the hundreds of dollars. The elimination of the RAL has led directly to growth of RACs—from 12.9 million in 2009 to 18.3 million in 2011.

Consumer champions in Congress—including Senator Elizabeth Warren (D-MA)—should work with the Consumer Financial Protection Bureau and state/federal law enforcement to prosecute fraudulent actors and identify gaps in existing law.

But New York shouldn’t wait for D.C. to act. Legislators should pass existing legislation in Albany that seeks to improve transparency of RACs and set limits on the usurious loan rates they currently impose.

The Empire State has one of the toughest payday loan laws in the nation— any non-bank lender who charges more than 16 percent interest in New York is subject to civil prosecution; charging above 25 percent can subject lenders to criminal penalties up to a Class C felony—and as the financial capital of the world, we should continue to lead the nation in progressive regulatory policy that protects consumers while permitting legitimate actors in the banking industry to offer a wide variety of services.

Cupid's Arrow: Consolidating Governments to Save Taxpayer Money

This Valentine’s Day, let’s train Cupid’s Arrow at local governments in New York and Massachusetts—a surefire way to streamline services and save taxpayer money.

New York State has over 10,000 local governments—cities, towns, villages, counties, special water districts, sewer districts, fire districts, etc. These overlapping jurisdictions impose significant and unnecessary administrative and operating costs on the public, leading the Empire State to have the highest property taxes in the nation.

Governor Andrew Cuomo has taken concrete steps to nudge municipalities to consolidate services—or, perhaps more directly, to provide an incentive for citizens to push for consolidation forcefully at the ballot box.

The Governor announced his latest consolidation initiative in his State of the State address last month. The plan creates a two-year freeze on property taxes for upstate municipalities that have agreed to abide by a 2 percent property tax cap. In year one, homeowners earning under $500,000 would receive a 2 percent tax rebate simply for living in a community that respected the tax cap. In the second year, homeowners would only qualify for the credit if their municipality submits a plan to consolidate or share services with their neighbors that saves 1 percent of the levy a year for three years.

While the push for consolidation has been opposed by unions representing municipal workers—who understandably fear the loss of jobs that comes with greater efficiency—the long term effects on the economy of upstate New York should be positive. Instead of having individuals duplicate efforts town by town, those people will gravitate toward more productive employment. Phasing in consolidation via attrition may be one way to achieve a compromise with unions, while securing long-term savings.

In addition to nudging local governments toward consolidation, the State should take steps to eliminate red tape that prevents counties from exploring joint procurement of health insurance and other goods/services. As Stephen Acquario, the executive director of the New York State Association of Counties, told City and State, “There is no reason why a county should not be authorized to reach out to towns, villages, cities, school districts and centralize procurement of health insurance for all of the local governments within its jurisdiction.”

New York is perhaps the most egregious example of the proliferation of government. However, Bay State is not immune from this waste. While Massachusetts eliminated most county government between 1997-2000 (sheriffs and county courts remain vestiges of the old guard), additional progress can and should be made.

To that end, Governor Deval Patrick launched the Community Innovation Challenge (CIC) grant program in 2012, designed to encourage sharing of services. In two years, the program has invested $6.25 million in 49 projects in 197 municipalities across the Commonwealth.

Last week, Hamilton and Wenham—long partners in running the Hamilton-Wenham Regional School District—received a CIC grant of $90,000 to continue their efforts in forming the State’s first-ever combined Public Facilities and Infrastructure Department. This continues a trend of shared service delivery by the two towns, which included the opening of Massachusetts’ first joint library in 2001.

All too often, conservatives lead this type of streamlining. But the truth is that efficient government is even more important for liberals, who believe that government should play a central role in ensuring opportunity for all, investing in public infrastructure, and enacting policy to protect the environment and strengthen the middle class. After all, if we want the public to place its trust in government's ability to invest their hard-earned money, we must do everything we can to make every dollar count.