Consider a couple, Gal and Pat, who are deciding whether Gal should return to work or stay at home to care for the couple’s 3-year-old child. Using the NBER’s TAXSIM model, discussed in Problem 12 and found at https://users.nber.org/~taxsim/taxsim27/, calculate the couple’s total tax liability in two scenarios: one in which Gal stays at home, and another in which Gal returns to work. Use the simulation for year 2018, and use output for federal tax liability and state tax liability. You should also calculate the couple’s Social Security (FICA) and Medicare payroll taxes, according to the discussion in Chapters 13 and 15.

Pat makes $300,000 per year, and Gal would earn $38,000 per year if returning to work. The cost of child care in the couple’s area is $2,000 per month. They live in California, file taxes with the status of Married Filing Jointly, and are each 35 years old.

They do not own their home and earn no dividend or capital gains income.

What is the after-tax value of returning to work this year?

What is the after-tax value of staying at home this year? Will Gal return to work if the decision is purely based on these monetary considerations?