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Article Excerpt
While the Family Support Act of 1988 requires all States to assess their child support guidelines at least once every 4 years, States are not mandated to change their guidelines following the assessment. A number of economic changes could warrant the updating of a State's child support guidelines. One such change: Today, most obligors are fathers who are more involved in child-rearing than they were 20 years ago. In addition to paying child support, many obligors spend money on their children during visitation hours. This increase in father involvement and spending provides a rationale for implementing adjustments to child support schedules. Another change: A worsening in labor-market opportunities for less-skilled men has led to sharp increases in arrearages (Katz & Krueger, 1999; Welch, 2001). Including a downward adjustment for low-income obligors in child support schedules can help to reduce arrears caused by child support awards that surpass the ability of low-income obligors to pay (Holzer, Offner, & Sorenson, 2003; Sorenson & Zibman, 2001).
Another rationale for updating child support guidelines arises from changes that have occurred in the measurement of expenditures on children, as well as from changes in the empirical relationship between expenditures on children and the income of parents. These changes affect the accuracy of the numerics upon which States' child support guidelines are based. To understand better the implications of these changes, we examined the costs involved when States use schedules based on statistical relationships derived from outdated survey data. We evaluated an alternative child support guideline that was proposed for the Commonwealth of Virginia and then drew lessons for other States that similarly base their guidelines on older estimates of child-rearing expenditures. The alternative schedule for Virginia proposed that total child support awards as a share of monthly income be raised at all income levels except for the lowest end of the income distribution.
Virginia's child support schedule has not been updated since the mid-1980s. The schedule is based on a study of child-rearing expenditures published in 1984 that used the 1972-73 Consumer Expenditure Survey (CES), the best household expenditure data available at the time. Because the Bureau of Labor Statistics has made significant improvements in the quality and comprehensiveness of its data collection and because the data are collected annually, Virginia's current schedule is no longer tied to the best quality data from the CES. As was the case for Lino (2001), we found that average total expenditures on children have risen in past decades and have changed in composition. However, the child expenditure and income relationship upon which Virginia's schedule is based may also have changed since the 1970s, a hypothesis that was tested in this study. Such a change would imply that Virginia and 10 other States with older guidelines are no longer generating child support orders that are linked to accurate estimates of the child expenditure and income relationship. Statistical evidence in this study provides a strong economic rationale for developing a new child support schedule in Virginia and in other States with similar guideline structures.
Underlying Models and Measurement Issues
Federal legislation requires all States to have formal guidelines for calculating the dollar value of child support awards. These child support guidelines must take into account the earnings of the nonresidential parent, they must base support obligations on numerical criteria, and they must include the child's health care costs into the calculations. No particular method to determine State guidelines is mandated, so States must make decisions about the underlying model and measurement issues surrounding the definition of income and child-rearing costs (Belier & Graham, 1993; Venohr & Williams, 1999). States have chosen versions of three underlying models: the "Percentage of Obligor Income" model, the "Income Shares" model, and the "Melson Formula" model.
The Percentage of Obligor Income model entails the most basic calculations of the three models, in which the noncustodial parent pays a certain share of his or her income to the custodial parent. The share rises with the number of children; for some States, however, the share also changes as the income level of the obligor changes.
In contrast, the Income Shares model is more detailed. The underlying premise of this model is that the child should obtain the same percentage of total income that he or she would have obtained if the parents were together. In calculating the child support amount, the income of both the mother and father is combined to proxy for the total income of an intact family. This income calculation is then linked to estimates of child-rearing expenditures by intact families with the same income level and number of children. In the final basic step for converting estimates of child expenditures into a schedule of child support payments for noncustodial parents, the estimated child support amount is divided between the two parents according to their respective income shares.
Finally, the Melson Formula model is similar to the Income Shares model except that both parents are allowed a reserve amount to cover their own subsistence needs and to sustain employment.
No matter which model is chosen, however, States must make decisions regarding the measurement of income and expenditures on child-rearing. According to Beller and Graham (1993), to measure income, most States use either adjusted gross income (income adjusted for prior support orders and health insurance) or net income (income with these same adjustments plus deductions for taxes, mandated retirement contributions, and union dues). A few remaining States use gross income. A number of States also build into their schedules a self-support reserve that protects the ability of the obligor to meet his or her basic subsistence needs and to facilitate employment. With a self-support reserve, if the combined gross monthly income is less than a certain threshold, then the guideline is not used to compute the child support order. Instead, a fixed minimum award is applied to the noncustodial parent. At the other end of the income distribution, very high income levels are sometimes treated with an income cap, declining percentages, or noncash transfers in the application of child support guidelines.
There is less agreement among policymakers and academics about the best estimates of child-rearing costs. These estimates come from a number of studies that vary in the underlying methodology as well as the survey year used to determine the estimations. In a survey of this literature, Belier and Graham (1993) point to two indirect approaches--the Engel method and the Rothbarth method--and the direct approach for estimating child-rearing costs.
The Engel method is based on the premise that families who spend the same share of their total consumption expenditures on food are equally well off. When the Engel method is used to compute child-rearing costs, two families, one with no children and one with one child, are assigned equal proportions for food spending in the total budget. Then the cost of raising the first child is the increase in spending required to keep the one-child family spending the same budget share on food. The approach is similar for families with more children. The most important assumption this approach must satisfy is separability in consumption; that is, families will not change the way they allocate their spending across food and other consumption items as they have children.
The Rothbarth method is similar in notion and underlying assumptions, except that the equalizing factor across families is the budget share devoted to adult goods. Deaton and Muellbauer (1986) argue that the separability assumption causes the Engel estimator to overestimate child-rearing costs (families with children are overcompensated in computations to keep the food share equal), while the Rothbarth estimator underestimates child-rearing costs (families with children are undercompensated in computations to keep the adult-goods share equal). Finally, the direct approach for estimating child-rearing costs involves directly totaling different categories of spending on children. A few categories, such as child care or children's clothing, can be measured by actual spending on children, while most other categories, such as health care or housing, are measured by estimates of spending attributable to children.
By 1990, over 30 States, including Virginia, had based their guidelines on the Income Shares model. For most of these States, the estimates of childrearing expenditures were initially calculated from Espenshade's work (1984), which was based on the Engel method and data from the 1972-73 CES. Subsequently, a number of States have updated their child support guidelines to reflect more recent estimates of child-rearing costs. These recent estimates, drawn mostly from work in Betson (1990), use a range of methods applied to CES data from 1980 to 1986....
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