SCHOOL OF LAW
405 HILGARD AVENUE
LOS ANGELES, CA 90095-1476
Phone: (310) 825-4841
Appropriations Committee Testimony on AB 205
R. Bradley Sears, Williams Project Director
Members of the Appropriations committee, good morning. My name is Brad Sears and I am the Director
of the Charles R. Williams Project on Sexual Orientation Law, a think tank on sexual orientation law and public
policy at UCLA School of Law.
I am here this morning to present findings of a study on the impact of AB 205 on the state budget of
California. The principal author of the study is Dr. M.V. Lee Badgett, research director of a think tank located at the
University of Massachusetts at Amherst. The Williams Project requested Dr. Badgett to lead this study because she
prepared a similar study in 1998 for the state of Vermont, prior to the enactment of Vermont's civil union legislation.
Although we are still completing our study, we have reached some preliminary conclusions. Using the
best data available, we estimate that AB 205 will have, at minimum, a positive impact on the state budget
ranging from $2.5 to $6.5 million dollars a year.
In order to reach this estimate, we focused on the changes in California law that are most likely to have a
fiscal impact. Today, I'd like to focus on the two areas we have identified in our report that likely to drive AB 205's
net impact on the state budget:
First, changes in the number of persons eligible for means-tested public benefits provided by the state; and
second, changes in the tax filing status, and therefore the tax payments, of couples in domestic partnerships.
First, I'd like to talk about AB 205's impact on public benefits programs. Based on our analysis, it is
clear that savings in this area will be the single most important economic consequence of AB 205, and will most
likely off-set all other impacts on the state budget, including any impact created by changes in income tax revenues.
We estimate that AB 205 will result in saving ranging from $5.8 million dollars to $155.4 million dollars each
year by decreasing the number of people who are eligible for means-tested benefits programs.
Page 2 of 4
Using the 2001 California Health Interview Survey (CHIS), a survey of 50,000 representative California
households, we identified the number of people who are enrolled in five of California's means-tested benefit
programs, Medi-Cal, TANF/CALWorks, California Food Assistance Program, SSI Disability, and Healthy Families,
who are also in a same-sex partnerships. We also estimated an average benefit amount for each of these programs.
To assess the impact of AB205 on these programs, we then estimated how many of these recipients would
remain domestic partners or who would become domestic partners, if AB 205 becomes law. This number is
uncertain, because some benefits recipients might choose to dissolve domestic partnerships or to not become
domestic partners in order not to lose benefits. However, research on the impact of welfare programs on the
probability of marriage has shown that the prospect of losing eligibility for welfare benefits results in only a small
reduction in the likelihood that a welfare recipient will marry.
However, in order to account for this uncertainty, we used a range of estimates for the number of same-sex
couples who are enrolled in these programs who would remain or become domestic partners under AB 205. The
most likely scenario is that 20% of such recipients would remain or become domestic partners under AB 205. This
estimate is simply based on the proportion of same-sex unmarried couples identified in Census 2000 who have
already registered as domestic partners in California (18,400/92,138 ). Using this estimate of 20%, we calculated
that the state would save $155.4 million dollars each year from savings from these six means-tested benefits
programs.
However, our overall estimate that AB 205 would generate at least 2.5 million dollars for the state is based
on an extremely conservative assumption. Our overall estimate is based on the assumption that only 1% of these
benefits recipients would to remain in or become domestic partners --thus we assumed that 99% would not register - or would actually dissolve their current domestic partnerships --to avoid a loss in benefits. Based on this
extremely conservative assumption, the state would still save approximately $5.8 million dollars a year.
The second impact of AB 205 that I would like to address is its impact on state income tax revenues.
The most likely estimate is that AB 205 will increase tax revenues by approximately $700,000 each year.
AB 205 will impact state income tax revenues in two ways: First, AB 205 will eliminate the ability of
now “single” taxpayers with dependent children, who are in same-sex relationships, from using the “head of
household” filing status. This would increase the taxes owed by these couples. Second, AB 205 will give domestic
partners the right to use the “married filing jointly” tax status. This will give some domestic partners the option to
use that status if it is financially desirable for them to do so---in other words, if it will reduce taxes for these couples.
April 30, 2003, Appropriations Committee Testimony for AB 2005
Page 3 of 4
To understand the net tax impact of AB 205, we needed to estimate three things: the number of couples
who will be registered under AB 205, the number of those couples who will have children and potentially qualify as
head of household, and the income structures of those couples. First, like the Franchise Tax Board, we used the
number of couples registered as of January 2003 to calculate the number of couples registered under AB 205,
approximately 18,400.
Second, using data from Census 2000, we estimated that 26% of these couples will have children
living in the household, potentially qualifying one member of the couples under the “head of household” filing
status.
Finally, we estimated the incomes of those who will be registered as domestic partners under AB 205.
Based on existing research, we assume that the tax impact of AB 205 will have no impact on who registers as
domestic partner. We based this assumption on studies that have shown that non-economic factors drive couples
decisions to form commitments and that the federal “marriage penalty” has had very little impact on the likelihood
that a couple will marry. Further, to the extent that some couples consider the economic consequence when
deciding to register as domestic partners, other financial advantages may outweigh a negative tax impact.
Thus, we based our estimates of the income structures of registered domestic partners on the income
structure of all same-sex couples in California. We used the best available data to do this data from the Current
Population Survey (CPS) from 1996 to 2001. The CPS is a monthly survey of a national sample of households
conducted by the U.S. Census Bureau for the Bureau of Labor Statistics. We then ran tax scenarios using this
actual income data to calculate the impact of AB 205.
Using this data, and the FTB assumption that 25% of couples will have a reduction in taxes under AB 205,
we estimated that AB 205 will increase tax revenues by $707,000 a year. This estimate includes couples that would
have their taxes increase, decrease, and stay the same. When you add this $700,000 in tax revenues to the $5.8
million dollars in savings from state means-tested benefits programs -- there is total positive impact on the state
budget of $6.5 million dollars.
Our finding on AB 205 impact's tax revenues is somewhat different from the analysis provided by the state
Franchise Tax Board. The FTB calculated that AB 205 will result in a loss of state tax revenues of roughly $5
million in Fiscal Year 2005-6. However, the FTB analysis does not adequately assess the tax impact of AB205 for
two reasons:
First, the FTB uses “hypothetical examples” to claim that the average domestic partnership will
reduce their taxes by $1,000 under AB 205. Our simulations were based on actual data regarding California
April 30, 2003, Appropriations Committee Testimony for AB 2005
Page 4 of 4
same-sex couples, data from Census 2000 and from Current Population Surveys from 1996 to 2001. The CPS
is a monthly survey of a national sample of households conducted by the U.S. Census Bureau for the Bureau of
Labor Statistics. Moreover, the FTB's hypothetical examples distort the economic situation of lesbians and gay
men: Their analysis is based on a common stereotype about lesbians and gay men --that they earn more money than
their heterosexual counterparts. Their estimates assume that a large number of persons in same-sex couples have
incomes over $100,000. In addition, the FTB assumes that partners in lesbians and gay couples have larger
differentials in incomes than members of heterosexual married couples.
Numerous empirical studies have demonstrated that neither of these assumptions is correct. The presumed
"wealth" of lesbians and gay men is a prejudicial stereotype, similar to the stereotypical wealth of Jews or Asians.
In fact, studies consistently demonstrate that the incomes of lesbians and gay men are skewed towards lower
incomes. Moreover, the incomes of lesbians and gay men in couples are closer to their partners than the incomes of
members of married, heterosexual couples. This is largely due to the continuing gender wage gap, and gender
divisions of labor, that impact the income structures of heterosexual, but not gay and lesbian, couples.
Second, the FTB's final analysis fails to take into account the fact that in some cases the taxes of
couples will actually increase under AB205, even though three of their seven hypothetical clearly show this
effect. Thus, they assume that all domestic partners who will experience a tax increase under AB 205 will dissolve
their relationships and that no couples will register as domestic partners if doing so will result in a tax increase.
Thus, the FTB ignores the political, cultural, and emotional reasons for couples registering as domestic partners, and
the fact that other economic consequences might outweigh the tax increases for these couples.
However, even if we use the FTB's assumption that only those that will experience a tax benefit will
register as domestic parents, when you couple that assumption with the income data provided by Census 2000 and
the Current Population Surveys, we still estimate that the total decrease in tax revenues would be only $3.3 million
dollars per year. Thus, using the most conservative estimates, we still project that the state will save $5.8
million dollars in means-tested programs and will experience a loss of tax revenue of, at most, $3.3 million
dollars -- for a total positive impact of $2.5 million dollars. Thank you.
April 30, 2003, Appropriations Committee Testimony for AB 2005