Iowa's Stimulus Plan - Same-Sex Marriage

In an Iowa Supreme Court ruling Varnum v. Brien on April 3, 2009, the State effectively legalized same-sex marriage in the State of Iowa. On April 27, 2009 Iowa joins the likes of Massachusetts and Connecticut and soon to be joined by Vermont as the only states in the US that allow same-sex marriages. Several states, California, Colorado, Maryland, New Hampshire, New Jersey, New Mexico, and Washington recognize civil unions between same-sex partners, each providing varying degrees of benefits to the partners. In Iowa, Massachusetts, and Connecticut, same-sex couples are offered the same rights as opposite-sex couples at both

the state and federal level.

The Economics Policy Review will not make any arguments for or against same-sex marriage based on economic impact or based on morality or religious beliefs. The article serves merely to assess the potential impact on the state of Iowa with same-sex marriages beginning later this month.

Many have regard Iowa as a recession resistant state due to the high reliance on agriculture, low consumer debt, and less dramatic real estate impact. Iowa reported an unemployment rate of 4.9% verse 8.1% for the US as a whole. Despite this, the potential impact on state budgets for major legislation cannot be ignored. The Williams Institute at UCLA provides in depth analysis of same-sex partnerships on state budgets. Following the initial district court hearing on Varnum v. Brien, the Williams Institute published The Impact on Iowa's Budget of Allowing Same-Sex Couples to Marry in April 2008. The study estimated a $5.3 million per year net benefit of same-sex marriage. The study moves step by step through the relevant categories of fiscal impact, income tax, inheritance tax, public assistance, sales from increased tourism, administrative fees, and employee benefits.

The study was published prior to Connecticut legalizing same-sex marriage on November 12, 2008. Additionally, Massachusetts does not allow out-of-state couples to wed, thus eliminating any precedent for tourism revenues. According to the 2005 American Community Survey there were 5,833 same-sex couples in Iowa; extrapolating the 2000 and 2005 data forward at a compound annual growth rate of 9.8%, there is an estimated 7,714 same-sex couples in Iowa at 2008 year-end. Using similar extrapolation, the neighboring states would have 120,728 same-sex couples to draw on for marriages and thus tourism dollars. See Chart below:


The Williams Institute assumes 50% of Iowa's same-sex partnerships and 25% of neighboring, using similar data, 34,039 couples would wed over the next three years; of which, 3,857 would be Iowa residents.

Using the fiscal impact categories above, the Williams Institute assumes inheritance tax (decrease in revenue) and income tax (increase in revenue) effective net. The assumptions seem fairly valid. The study assumes that many same-sex couples are DINKs (double income no kids), thus in a joint filing, Iowa's progressive tax structure would increase the effective tax rate on a large majority of couples, generating an additional $700 per couple. Despite a detailed discussion, it is difficult to reproduce the Williams Institute calculations. The following assumptions will be used: 50% marriage rate and a similar break-down of 85% have an increase in taxes, 5% no impact, and 10%, using 5,833 couples in 2005 and 7,714 couples in 2008E. There is a net income tax increase of $1.7mm with the 2005 population and $2.2mm using the 2007 estimated population.

The inheritance tax requires a number of difficult assumptions to forecast, average death rate, wealth of deceased, etc. The Williams Institute uses a probability distribution of wealth, charity assumptions, and gifts to children to estimate the annual impact is a decrease in revenue of $1.5mm or roughly equivalent to the $1.7mm increase in revenue.

The tourism impact could be the most substantial for Iowa relative to its peers. While Connecticut, Massachusetts, and Vermont (Fall 2008) are the only states with legalized same-sex marriages, many of their neighbors have variations that would limit the population draw; additionally, Massachusetts does not allow out of state marriages. Effectively, Vermont and Connecticut are competing for New York, Pennsylvania, Rhode Island, and Delaware marriages. New Jersey, Maine, and Maryland have a variation of civil unions. Iowa will have a virtual monopoly on same-sex marriages to its neighboring states and a population of over 120,000 couples.

The Williams Institute estimate the increased sales tax based on two groups, in-state and out-of-state. The in-state marriages assume an average opposite sex wedding costs $23,000, but same-sex couples due to lack of family support and social stigmas would spend only 25% on their weddings and out-of-state couples would spend 10%, resulting in $5,750 and $2,300 per wedding respectively. As a result, in the first three years following legalization, it can be assumed that in-state couples will spend $5.5 million and out-of-state couples will spend roughly $140 million on weddings. With the State of Iowa's 5% sales tax rate, the state would yield an additional $7.2 million in sales tax or $2.4 million per year. This neglects the benefits of increased employment or the broader multiplier implied by the increased spending. It can be reasonably concluded that the State will benefit considerably beyond the Williams Institute's roughly $2.0 million in sales tax.

The Williams Institute highlights the large area for potential impact is a reduction in state incurred expenses as a result of same-sex marriage. The Williams Institute estimates the level of assistance given to same-sex couples and likewise the savings by applying data from the lower of the 1999 Iowa Census on same-sex verse opposite-sex couples assistance levels to the estimated same-sex couple population. According to their data, same-sex couples receive $9.5 million in public assistance which would be reduced to $2.8 million when partners become eligible on their spouses benefit plans.

On balance, same-sex marriage should provide economic benefits to all current and future states considering the initiative. Iowa presents an interesting circumstance due to the virtual monopoly on same-sex marriages in the Midwestern corridor. Prior legalizations either of competition from surrounding states or do not allow out-of-state marriages. Whether the impact is $1.0 million or $100 million annually, the opponents can rest assured, they will not be paying for a lifestyle to which they are in opposition.