August 30, 2000

August 30, 2000 | Commentary on Taxes

Saying 'I Do'...To Higher Taxes

Expect to hear a lot over the next couple of weeks about the "marriage penalty," that quirk of the tax code that forces two-income married couples to pay more than singles who live together. Congress will try to override President Clinton's veto of a bill that would repeal the penalty, and he'll repeat: The nation can't afford it. Besides, it's a tax cut for the rich.

Wrong on both counts. First, the expense: Fixing the marriage penalty would "cost" the government (remember that we're talking about returning taxpayer money here) $89.8 billion over five years. That sounds like a lot, but the Congressional Budget Office (CBO) is projecting a non-Social Security surplus of $695 billion over the same period - nearly eight times the total amount of tax relief approved by Congress.

It's doubtful the president places any real stock in his criticism of marriage-penalty relief as "fiscally irresponsible." More than once, he has offered to sign the legislation if Congress would also adopt his even more expensive Medicare prescription drug plan. And there is a great deal of bipartisan support on Capitol Hill for marriage penalty relief, even among those who normally shun tax cuts.

That leaves his charge that this is a tax cut for the rich, which ought to be news to the more than 50 million Americans affected every year by the marriage penalty. The CBO estimates that 43 percent of all married couples are affected, paying an average of $1,480 more in taxes each year than singles who earn the same income.

Consider Sharon Mallory and Darryl Pierce. Three years ago, they were employees at a Ford Motor Co. electronics plant in Indiana. Each made about $9 an hour, and they wanted to get married. But wedded bliss would come at a cost: Because of the marriage penalty, Sharon would have to forfeit her $900 tax refund and pay $2,800 in taxes when she said, "I do."

One way couples such as Sharon and Darryl are penalized is through the standard deduction: For a single worker, it's $4,400. Yet for a two-income couple, it's not $8,800, as simple fairness would suggest, but $7,350. That means married workers who don't itemize deductions on their tax forms - mostly low- and middle-income couples - must pay taxes on an additional $1,450 in income simply because they're married.

Another reason married couples pay more can be found in the way tax brackets work. Take a married couple with a combined income of $66,000, each earning a respectable but below average salary of $33,000 (or $15.87 an hour). The tax rate for single workers increases from 15 percent to 28 percent once their incomes exceed $26,250. After deductions, our hypothetical couple would have $25,800 in taxable income. Hence, you might expect them to escape the 28 percent bracket, right?

Wrong. Two single people with the exact same incomes would have no problem, since each files separately, and each makes less than the amount taxed at 28 percent. They wouldn't start to feel the bracket bite until their incomes passed the $52,500 mark. But for the married couple, the 28 percent rate kicks in at $43,850. For them, an additional $8,550 is taxed at the higher rate, for no other reason than the fact that they're married.

Couples can figure out how much this penalty costs them by visiting The Heritage Foundation's Marriage Tax Relief Calculator, which debuts Sept. 5 at www.heritage.org. Using the primary household income, the secondary income, the total amount of deductions, and the number of dependents, the calculator tells you how much more money you'd be able to keep at tax time without the marriage penalty. Our hypothetical couple above, for example, would get to keep an additional $1,414 in income - a 15 percent reduction in their taxes.

The marriage penalty imposes yet another cost on low-income couples: It prevents many from using the Earned Income Tax Credit (EITC). Nearly 1 million low-income working couples forfeit the EITC every year simply because they're married. Two unmarried parents with one child each can use the credit as long as their individual incomes don't exceed $27,413 (total household income: $54,826). But if the same couple (with the same income) gets married, they can kiss the credit goodbye - because their household income has surpassed the $31,149 threshold for two children.

Tax-cut advocates usually justify their position by pointing to the size of the budget surpluses now pouring into Washington. But the marriage penalty deserves to be killed on the grounds of simple fairness. Getting married is taxing enough without government getting in on the act.

 

Rea Hederman is a policy analyst at The Heritage Foundation (www.heritage.org), a Washington-based public policy research organization.

About the Author

Rea S. Hederman, Jr. Director, Center for Data Analysis and Lazof Family Fellow
Center for Data Analysis

Related Issues: Taxes

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