Designed by Heritage's Center for Data Analysis (CDA), the calculator shows how a couple's tax burden would change under legislation recently passed by Congress. The "Marriage Tax Relief Reconciliation Act of 2000" was vetoed by President Clinton, but congressional leaders say they will attempt an override shortly after returning from the summer recess.
More than 44 million Americans--roughly 43 percent of all married couples-are affected each year by the marriage penalty, according to the Congressional Budget Office. The CBO estimates that they pay an average of $1,480 more in taxes each year than cohabiting singles earning the same income.
The Heritage calculator (http://www.heritage.org/Research/Features/TAXcalculator/) uses primary household income, secondary income, the total amount of deductions, and the number of dependents to show couples how much money they could keep each year if the marriage penalty was abolished. Many couples with relatively modest incomes find themselves saving more than $1,000 annually.
That's because current tax law penalizes married couples in three ways, says CDA Director William Beach. One is through the standard deduction: For a single taxpayer, it's $4,400. Yet, rather than being doubled for a two-income couple ($8,800), the deduction is only $7,350. "Married taxpayers who don't itemize deductions on their tax forms--and most low- and middle-income couples don't--have to pay taxes on an extra $1,450 in income," Beach notes.
This problem is compounded by the way married workers are treated by the various tax brackets. The tax rate nearly doubles (from 15 percent to 28 percent) on taxable income exceeding $26,250. For married couples, the higher rate kicks in--not at double that amount ($52,500)--but at a much lower $43,850.
As an example of how this slaps working married couples, consider four people each earning $32,500 a year. The single man and woman each take their standard $4,400 deduction and $2,800 exemption, leaving each with taxable income of $25,300. Both escape the 28 percent bracket. The married couple, however, can deduct only $7,350 from their combined earnings, leaving them (after exemptions) with a taxable income of $52,050-$8,200 of which will be taxed at the 28 percent rate.
"The latter couple suffer a one-two punch from the taxman," Beach says. "Though their earnings are the same as the unmarried couple's, they must pay taxes on $1,450 more of their earnings, and they are taxed at much higher rates on $8,200 of what they've earned. The married couple wind up paying an extra $1,284 to Uncle Sam--17 percent more than the unmarried couple pay. Their only 'crime' is that they got married!"
The third aspect of the marriage penalty hits low-income couples in particular: It bars nearly 1 million of them from using the Earned Income Tax Credit. Two unmarried parents with one child each can use the credit if their individual incomes stay below $27,413 (total household income: $54,826). But if those single-parent families unite, they must forfeit the credit, because they've exceeded the $31,149 income threshold set for married couples with two children.
The Heritage calculator also breaks down the number of couples the penalty affects by state and congressional district. For example, a married couple in California's 5th District would learn they are one of 48,251 other couples in their area--and one of 2,752,159 couples in the entire state hit by the marriage penalty. There are 58,406 such couples in New York's 2nd District, and 1,511,164 in all of New York state.
"More than almost any other issue, the marriage penalty debate boils down to a matter of simple fairness," says Beach. "On what grounds can we justify taxing those who get married at a higher rate than those who don't?"