More Tax Deductions for Married Persons?

Item from the Smart Marriages Archive, reproduced in the Divorce Statistics Collectio n

As negotiators from the House and Senate struggle this week to reconcile
two competing tax bills, here is the
question for marriage buffs: Which would make the U.S. tax code more
marriage-friendly, the "Financial Freedom
Act of 1999" passed by the U.S. House on July 22, or the "Taxpayer Refund
Act of 1999" passed by the Senate
on July 30?

The answer is somewhat complicated and not very encouraging. The House
bill would help marriage a little. The
Senate bill, even though it arguably would eliminate the tax code's
marriage penalty, would hurt marriage a
lot.

The marriage centerpiece of the House bill would eventually (by 2003)
make the standard deduction for married
couples exactly twice as large as it is for single filers. Currently, the
standard deduction for a single person is
$4,300, while the deduction for a married couple is $7,200, yielding a
marriage penalty (the difference between
$7,200 and 2 times $4,300, or $8,600) of $1,400. For couples in the 15
percent bracket, that’s a penalty of
about $200 per year. The House bill would eliminate this inequity, which
is a good thing to do.

But it’s small potatoes, and that’s about all the good news
there is. The 30 percent of taxpayers who
itemize their deductions – including a high proportion of all
married couples with children, especially those
with home mortgages – would be unaffected by changes in the
standard deduction. More importantly, the
House bill hardly touches the basic marriage-punishing feature of the
current code: the fact that, from top to
bottom, tax brackets for married couples are less than twice as wide as
tax brackets for single people.

As a result, under the current system, married couples, alone among
legally recognized economic partnerships, are
not permitted fully to share their income for purposes of taxation. At
the same time – and here is the fact
that many people, wrongly, believe to be the beginning and end of the
marriage penalty – the joint incomes
of about 40 percent of all married couples actually push them into tax
brackets in which they pay more in taxes as
a married couple than the two of them together would have paid as
unmarried individuals.

The needed reform, then, is to make the rates fair for married couples,
not just the standard deduction. Even for a
middle-class couple (with a joint annual income of between $50,000 and
$100,000) claiming the standard
deduction, equalizing the rates affecting marriage would be about five
times as beneficial as equalizing the
standard deduction. And for exactly this reason, of course, the House,
wary of spending "too much" on marriage,
declined to embrace this more basic reform. Ever since their 1994
"Contract with America," House Republicans
have roared like a lion about the marriage penalty. But when it mattered,
they squeaked like a mouse.

Now for the truly bad news. While the Senate bill would also (by 2008)
equalize the standard deduction for
married-couple joint filers, the marriage centerpiece of the Senate plan
would permit married couples to calculate
their taxable income as if they were two unrelated individuals. Each
couple could choose to file their returns either
"singly," as it were, or jointly, whichever would result in the lower tax
burden. By this device, the Senate bill would
deliver significant financial relief to that 40 percent of (mostly
two-earner, upper-income) married couples who
currently pay higher taxes as a couple than they would have paid together
had they remained single. But for
marriage buffs – defined as people who want to strengthen marriage
as an institution and who therefore
want the tax code to recognize marriage as a joint economic partnership
between the two spouses – this
provision of Senate bill is a disaster.

To understand why, we have to distinguish between two competing views of
marriage, which in turn correspond to
two conflicting definitions of the marriage penalty. In the Senate bill,
the age-old philosophy that, in marriage, two
people become one – economically as well as sexually and socially
– is essentially abandoned.
Marriage as an institution vaporizes; we are all individuals now.
Consequently, as regards taxation, individual filing
becomes the ultimate criterion for fairness. The new premise is: The tax
code should treat a married individual no
worse than it would treat the same individual if her or she were
unmarried. From this underlying philosophy flows
naturally the otherwise quite peculiar notion that federal tax policy
should annually encourage married couples to
pretend that they are not married.

Should Congress subject other cooperative economic endeavors to this same
treatment? Two dentists, for example,
decide to open a joint practice. But instead of taxing their business
partnership as one unit, as would be the case
today, should we ask them to pretend that they had never formed the
partnership, and to prepare separate profit
reports and tax returns based on what would have happened if they had
never met? Of course not. The idea is
preposterous. But that is exactly how the Senate proposes to treat the
economic partnership of marriage.

Much of this lunacy is traceable to a 1997 report from the Congressional
Budget Office, For Better or Worse:
Marriage and the Federal Income Tax. The report’s main conclusion
is that, for purposes of analysis, we
should divide married couples into two categories: those who pay more
taxes as a married couple than they would
have paid together as unrelated individuals, thus suffering from a
"marriage penalty," and those couples who pay
less than they would have paid as single people, thus benefiting from a
"marriage bonus." It would be hard to
overstate the influence of this report on the current debate in general
and on the Senate proposal in particular.

But the CBO report is fundamentally flawed. Its core premise is that
individual treatment is the ultimate normative
standard. The report addresses the meaning of marriage by assuming that
marriage has no meaning. Conceptually,
the rest is detail. Once any understanding of marriage as a union of
persons is methodologically swept under the
rug, it makes perfect sense, as the Senate bill demonstrates, to pretend
that marriage doesn’t even exist and
to reach the holy ground of individual treatment by…treating
married people as unrelated individuals.

This way of thinking has enormous practical implications. By lowering
taxes for comparatively affluent couples,
the Senate’s odd method of eliminating the marriage penalty would
increase regressivity in the tax code. By
delivering special relief to two-earner couples, while delivering nothing
comparable to one-earner couples, the
Senate plan would create new economic obstacles – there are already
plenty – for parents wishing to
leave the labor force to be at home with children. And by pushing the tax
code further toward a strict,
Swedish-style model of individual taxation, the Senate plan would
generally increase the rewards for all endeavors
that are mediated by money and based in the market, just as it would
generally discourage all of the unpaid work of
civil society, from nursing a sick parent to volunteering at your
child’s school, that takes place in homes
and communities.

So here is the irony. The House bill does very little to eliminate the
marriage penalty, but what it does, it does right.
The Senate bill virtually eliminates what the Congressional Budget Office
(incorrectly) describes as the marriage
penalty, but what it does, it does in exactly the wrong way. With friends
such as the U.S. Senate, marriage does not
need enemies.

Allan Carlson is president of the Howard Center for Family, Religion, &
Society in Rockford, Illinios. David
Blankenhorn is president of the Institute for American Values in New
York.

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