Married, With Taxes
The Republican proposal to eliminate the so-called marriage penalty sounds great. Eliminate unfairness in the tax code. Support families. That sort of thing.
Unfortunately, it's not that simple.
Marriage penalties arise because the tax code treats joint tax filers differently than two single filers with the same income. Married couples filing jointly stack the income of the lesser-earning spouse on top of the primary earner's income. The lower-income spouse is often shoved into a higher tax bracket - say from 15 percent to 28 percent. So the couple pays more in taxes than two single individuals making the same money. Married couples can file separately, but that could increase their tax liability.
Low-income couples and couples with similar income are most often hit. This penalty, economists say, may discourage some spouses from working, or working more hours.
The tax code's standard deduction can aggravate this anomaly. The combined standard deduction for two individuals (say, an unmarried couple living together) filing single returns is $8,500. The standard deduction for a married couple filing a joint return is only $7,100. Thus, joint filing boosts a couple's taxable income by $1,400.
But what Congress does to eliminate the marriage penalty can hurt other taxpayers. The present system trims the tax burden for about half of married taxpayers, mostly when one spouse (usually a woman) earns considerably less or does not work at all.
Before long, politicians would be complaining about the "stay-at-home tax penalty" that costs moms devoting full time to looking after children. Or you could get a "singles penalty."
As long as we have a progressive system, there is no way out of this tax dilemma. The present system is a compromise. Any revised system will be a compromise, with pros and cons.
Republican leaders in Congress have made elimination of the marriage penalty the centerpiece of their tax proposals. Whether the party can unify enough to make such a desire concrete in a tax bill before the fall election remains uncertain.
A marginal shuffle of the tax deck in this way would not be catastrophic. It might even be politically popular. With budget surpluses looming, it might also seem fiscally justifiable.
But it shouldn't obscure the larger goal of saving any surplus to reduce the federal debt. When baby boomers retire, it will be helpful if the cost of servicing that debt has been shrunk.