Long Road to End 'Marriage Penalty'
This week's Senate action is a first step in ending the income-tax quirk, but GOP backers face more high hurdles
WASHINGTON — The "marriage penalty," an income-tax quirk that has become the rallying cry of congressional Republicans, has moved a big step closer to elimination.
The Senate's effort to cut taxes for some married couples - using money raised by a prospective price hike on cigarettes to do it - shows how the issue has gained momentum on the Hill since last summer. The idea has so much backing, especially from social conservatives and the religious right, that the Democratic leadership has decided to hold its peace rather than object.
This week's strides, however, do not mean a quick and easy stroll down the aisle for those who would end the marriage penalty.
For one, there's no guarantee the Senate will pass the tobacco bill; without it, they'll have to find the money elsewhere to pay for reducing couples' tax bills.
For another, GOP leaders over in the House reject the idea of using the tobacco bill to fund a tax cut, preferring a measure limited to preventing teen smoking without a tax increase. "We're not going to use the tobacco bill as a cash cow for any purpose," vows House majority leader Dick Armey (R) of Texas.
Tax-cutting poster child
The marriage penalty results in many married couples paying more income tax than they would if they could file as single individuals. Spouses hit by the penalty have complained about it for years, but a Congressional Budget Office report last summer gave new impetus to correcting it. With House Republicans eager to appease grumpy social conservatives and energize GOP voters for next fall's election, the issue quickly became the party's tax-cutting poster child.
Many argue the tax law discourages marriage, instead creating an unintended incentive for men and women to live together and file their taxes singly. The skyrocketing numbers of dual-income couples in the past two decades, combined with greater equality of spouses' paychecks, mean the penalty affects far more people than it used to.
Redressing the marriage penalty, however, is expensive. One estimate pegs the cost of eliminating it entirely at $29 billion a year.
Moreover, Congress has had to grapple with how to lower the taxes on those penalized without raising the taxes of other couples. Under current tax law, 42 percent of married couples paid a "penalty" of $1,400 a year in 1996, while the rest got an annual "marriage bonus" of $1,300. Who wins and who pays depends upon how much each spouse earns. If one spouse earns $75,000 while the other earns no salary, the couple pay $3,872 less than if they were not married. But if each spouse earns $37,500, they pay $1,391 more in taxes just because they are married.
Under a tobacco-bill amendment offered by Sen. Phil Gramm (R) of Texas and approved Wednesday night, some of the revenue from a proposed $1.10-a-pack cigarette tax will be earmarked to fund a marriage-penalty reduction. The amendment allows couples making less than $50,000 a year to deduct an additional $3,300 from their joint return.
Senator Gramm argues that the burden of the new tax, which is meant to make cigarettes too expensive for teenagers and thus discourage youth smoking, will fall primarily on blue-collar working families, especially those making less than $30,000 a year. Instead of using the money for social programs envisioned by the White House and others, Gramm would return one-third of it to taxpayers through the marriage-penalty reduction. The proposal would phase in over several years until 2008.
Democrats argue that the Gramm amendment siphons money away from antismoking programs and from states that would be reimbursed for smoking-related health-care expenses.
In addition, the Gramm proposal would eventually cost more than the one-third of tobacco revenue allotted to it, meaning the rest of the money would come from the federal budget surplus (which many want to devote to shoring up Social Security).
A Democratic counterproposal, which failed, would have made married couples eligible for a 20 percent deduction against the paycheck of the lower-earning spouse. The deduction would phase out for couples earning between $50,000 and $60,000 a year.
Meanwhile, House GOP leaders last week managed to round up just enough votes to enact their budget resolution, which calls for $101 billion in tax cuts over five years to pay for marriage-penalty reductions. But it left to the tax-writing Ways and Means Committee the task of hashing out how the tax cut should be structured.
The Senate's budget resolution, passed in April, calls for $30 billion in tax cuts, meaning the two chambers will have to cobble together an agreement in conference committee. Senate majority leader Trent Lott (R) of Mississippi says he believes they could compromise on a tax cut of $60 billion to $70 billion.
So it appears unlikely Congress can do away entirely with the penalty this year, limiting itself to helping lower-income working families.
"It takes a large amount of money to wholly eliminate it," Representative Armey says, "and falling short of the money to do that, then you have to focus on ... where you think it will be the most beneficial to the most ... people."