OCR conversion of Dr. Gardner provided this handout.
September 12, 2011 Child Support Review Committee
Child Support Guidelines
I. Child Support Formulas Across the United States
A. There are 13 states that use the ‘Percentage of Obligor Income’ model, including Texas, Mississippi, and Arkansas.
- The child support amount is determined based on a percentage of noncustodial parent income only. Income can be gross or net. The percentage may be flat or vary according to income. Most of these states assume that the custodial parent spends an equal amount on the child.
- Example: Mississippi’s guidelines, shown below,
“..provide the percentage of the noncustodial parent’s adjusted gross income that should be awarded for support based on the number of children due support.”‘
Number of Percentage of Adjusted Gross Income
Children That Should be
Due Support Awarded for Support
One (1) 14%
Two (2) 20%
Three (3) 22%
Four (4) 24%
Five or More (5) 26%
B. There are 33 states that use the Income Shares model.
- According to PSI, among those Income Shares states that updated their schedules after 1991, most have updated their schedule using the Betson-Rothbarth estimates, which were not released until late 1990.2
- All of the Income Shares states that continue to use the Espenshade-Engel estimates have never updated or last updated their schedule prior to the release of the Betson-Rothbarth estimates, with the exception of Michigan and Rhode Island.
C. Three states (HI, DE, MT) are based on the Melson formula and 2 states (DC, MA) use a hybrid approach.
II. Summary of Louisiana’s use of the Income Shares model
A. The basic principle of the Income Shares model is that it seeks to allocate to the child the proportion of the parental income that would have been spent on the child if the parents were living together.
B. Basic Methodology:
- Use the Consumer Expenditure Survey (CEX) to obtain estimates of child-rearing expenditures as a percentage of total household consumption expenditures.
- To the basic child support obligation should be added the costs of child care, extraordinary medical expenses (in excess of $250 per year), and the child’s share of health insurance premiums.
- Adjust the national estimates of child-rearing expenditures to reflect Louisiana’s lower income distribution.
- Relate a family’s consumption expenditures to net income.
- Relate net income to gross income using current withholding tables for a single obligor.
- Incorporate a self-support reserve to ensure that the support obligation (other than the monthly minimum) does not reduce the obligor’s net income below a level necessary to maintain a subsistence standard of living.
- The foundation of Louisiana’s current child support guidelines are estimates of child-rearing expenditures.
- National estimates of child-rearing expenditures are typically developed using the U.S. Bureau of Labor Statistics Consumer Expenditure Survey (CEX).
- There are several different methodologies available, and in use, for estimating child-rearing expenditures. The following apply to Louisiana’s current guideline schedule:From the combined adjusted monthly gross income range of $600 to $10,000 the child-rearing estimates are based on a study completed by Dr. Thomas Espenshade in 1984. The estimates are based upon national data from 19724973 and use the Engel estimator.
- From the combined adjusted monthly gross income range of $10,000 to $30,000, the economic estimates of child-rearing expenditures are based on a study by Dr. David Betson. These estimates are based upon the Rothbarth estimator using national data from 1998 — 2004.Ill. Economic methodologies for estimating child-rearing expenditures.
- The general approach is to compare expenditures between two households that are equally well off economically, one with children and one without. The additional expenditures by the household with children are deemed to be the costs of child-rearing.
- The child-rearing expenditures are estimates from samples of two-parent households.
- The example described in Louisiana’s “Economic Basis for Updated Child Support Schedule’ written by Performance.Service.Integrity. in 2004 describes two families who are assumed to have two adults and are considered to be equally well off:
Family A Family B Number of Children 0 2 Total Household Expenditures $18,000 $30,000 Children’s Additional Cost $12,000 Children’s Share of Total $12,000 /
- The $12,000 is considered as the marginal cost of the children.
- For this approach it is necessary to construct a standard of well-being that is independent of income. Only with such a standard can two families be considered as equally well off, one with children and one without, even though they have different incomes.
B Rothbarth estimator.
- This estimator uses the proportion of family expenditures on luxury goods as a standard of well-being. The Rothbarth approach estimates child expenditures based on the level of household expenditures on adult goods (e.g. adult clothing, alcohol, tobacco).
- According to the US DHHS Lewin/ICF Report, the primary basis of the Rothbarth methodology is that it is theoretically most likely to understate child-rearing expenditures. However, this has been contested by more recent studies.
- Dr. Betson conducted his first study in 1990 using date from the 1980-86 CEX. Since then he has completed three additional studies:
a. In 2002 he updated his estimates using CEX data from 1996 — 1998.
b.ln 2006 Oregon commissioned a study in which Dr. Betson updated his estimates using 1998 — 2003 CEX data.
c. NEW: In 2010 California commissioned Dr. Betson to update his estimates using CEX data from 2004 through 2009.
- Under this standard, total expenditures devoted to food are deemed to be a valid indicator of economic well-being. The Engel approach estimates child expenditures based on total household expenditures on food.
- Thus, if two families of different size spend the same proportions of their incomes on food, they are deemed to be equally well off.
- According to the US DHHS Lewin/ICF Report, the primary basis of the Engel methodology is that it is theoretically most likely to overstate child-rearing expenditures.
- The third most frequently used economic estimate is based on Wisconsin’s interpretation of a 1981 summary article of child-rearing costs.
- Wisconsin uses a flat percentage of gross income to determine child support. The amount of the obligee’s income has no effect on the child support order amount.
E. USDA estimates
- The USDA’s Center for Nutrition Policy and Promotion (CNPP) develops economic estimates for the major categories of child-rearing expenditures.
- No states uses the CNPP estimates as the basis of its child support schedule. The CNPP only considers three income ranges (low-income, middle-income, and high-income).
IV. Converting net income to gross income
A. The following assumptions are made to simplify the conversion process:
- All income is treated as earned income subject to taxes;
- All income is assumed to be earned by a noncustodial parent with no dependents; and
- Only adjustments for federal and state taxes and FICA are considered.
- For federal taxes, two federal withholdings are assumed (the employed withholding guide for federal taxes does not separate standard deductions from exemptions, each is considered one withholding).
- For state taxes, the one personal exemption is assumed.
- “In modeling differential tax impacts associated with different family situations including the new child tax credit, we have found that adjustments to account for the actual tax impacts generally serve to increase the total net income available for support, increase the total support obligation, and, except in unusual circumstances (e.g. all income is earned by the custodial parent), increase the noncustodial parent’s share of that obligation” (PSI 2004).
B. Net income is computed independently using CEX data on gross income and on itemized deductions for
- Federal, states, and local taxes, including personal property taxes;
- Social security (FICA) taxes; and
- Union dues, which are considered to be mandatory expenses. Thus,
Net Income = Gross Income — taxes — FICA — union dues
- To relate expenditures on children to net income, where EC = expenditures on children, C = total consumption expenditures, and NI = net income:
EC/C X C/NI =EC/NI