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Tuesday, November 14, 2017

Fixing the Marriage Penalty

Both the House and Senate tax reform bills eliminated the marriage tax penalty for more taxpayers by doubling the brackets for them upon their marriage.  In both bills, however, only the bottom and top tax brackets are doubled upon marriage.  As a result, the middle and particularly the upper-middle classes are still left with the marriage penalty.

I’m not sure why the middle is left out of marriage penalty relief.  Maybe budgetary issues are at play.  That is why I have previously highlighted that there is an unnecessary marriage bonus when 1-income-earner married couples take advantage of double brackets, meaning foregone tax revenue.  I thus have argued that double brackets should only be available for married couples with 2-income earners.  But alas, the idea has not yet caught on (yet?).

Posted by Margaret Ryznar on November 14, 2017 at 02:00 AM | Permalink

Comments

I'm not a tax person, but is there also a middle class marriage penalty built in to the increased standard deductions? For example, if a single person's mortgage interest and property tax deduction is twice their standard deduction, they would itemize and still see a significant benefit. Meanwhile, their live-in partner can take the full single standard deduction, increasing the total deduction for the household to $36,000. But once they get married, the household total deduction would be reduced to $24,000. Am I correct in thinking this is also a marriage penalty?

Posted by: Anon | Nov 14, 2017 8:52:11 AM

"I’m not sure why the middle is left out of marriage penalty relief."

Because one of the major goals of the GOP tax bill is to punish two income families in blue states for voting Democratic. Seriously, if you approach consideration of the tax plan with the assumption that they were trying to sock it to teacher-and-government-lawyer couples (or whatever combination of occupations ends up with a combined income in the $150k +/- $25k range) with two-plus children in major urban areas, the tax plan makes a lot more sense.

Posted by: My $0.02 | Nov 14, 2017 1:21:51 PM

The rhetorical framing that this affects "the middle" is unnecessary and misleading. Maintaining the marriage penalty is partly about budgetary issues. Mostly it is part and parcel of a patchwork tax scheme where mathematical consistency is a mere hobgoblin. Lastly the fact that those affected are very well to do, if not categorically rich, means there is less political impetus to act on this particular inconsistency.

Posted by: Joe Simmons | Nov 14, 2017 2:19:14 PM

Anon--yes, indeed, that is another type of marriage penalty in the tax code. And there are more examples too, such as phase-out amounts for certain deductions that do not double for married couples compared to single individuals.

My $0.02--yes, that is exactly who gets hit with the marriage penalty--often urban couples with 2 spouses working in some combination of white- and pink-collar jobs. However, some of the tax reform affecting the middle-/upper middle-class also hits many Republican suburban couples, and I think we have already seen some backlash from this groups of voters, such as the recent Democrat victories delivered by the Virginia suburbs.

Joe--yes, I agree that it's probably a budget issue at the end of the day. However, perhaps that is enough reason to eliminate the marriage bonus that 1-income married couples receive. Why should the tax brackets enlarge or double for ALL married couples--specifically, why should they enlarge or double for married couples in which there is only 1-income earner? Perhaps the tax brackets should only enlarge or double for married couples that have 2-income earners because only then are we trying to accommodate 2 incomes.

Posted by: Margaret Ryznar | Nov 15, 2017 3:27:45 AM

Prof. Ryznar, as the patchwork tax scheme aims to achieve various social goals, the marriage bonus gives a boost to low and middle income families. Maybe at the margins it incentivizes marriage; I'm not sure about that but I wager some would argue it. I agree with you that this system is far from ideal.

And to be fair to Congress (as we should be), the budgetary concerns have a political angle. The current bill cannot exceed a cost of ~$1.5 trillion in order to pass the bill under reconciliation. The other big political worry is making sure the changes don't have a negative net impact on most taxpayers. If the standard deduction is ended and mortgage deductions are capped, among myriad changes, the doubling of the standard deduction is a rough way of making sure any negative impact on low and middle income people is not negative.

I agree with you as a matter of policy-making and sensible accounting there is a better way, but I don't know that it is politically feasible.

Posted by: Joe Simmons | Nov 15, 2017 11:04:52 AM

Another way to eliminate the marriage penalty is to tax all persons, married or single, as if they were single. That's what I understand happens in Europe for all practical purposes.

Singles have long suffered a penalty in taxes, inheritance and immigration policies, to name a few. Now that we are in the majority in the country, we really ought to show the married and the breeders what real penalties for their anti-social behaviors would look like.

It's long been scandalous that a man, for example, can marry up to 5 women in succession for 10 years each and at 65 leave all of them, even though life-long indigents, as well as their minor children, with the right to cash in on his social security contributions alone. Ditto if he dies.

When a single person dies, before or after retirement, it's the married and breeders who mostly benefit from all his forced FICA contributions.

Posted by: jimbino | Nov 15, 2017 12:16:45 PM

Another way to eliminate the marriage penalty is to tax all persons, married or single, as if they were single. That's what I understand happens in Europe for all practical purposes.

Singles have long suffered a penalty in taxes, inheritance and immigration policies, to name a few. Now that we are in the majority in the country, we really ought to show the married and the breeders what real penalties for their anti-social behaviors would look like.

It's long been scandalous that a man, for example, can marry up to 5 women in succession for 10 years each and at 65 leave all of them, even though life-long indigents, as well as their minor children, with the right to cash in on his social security contributions alone. Ditto if he dies.

When a single person dies, before or after retirement, it's the married and breeders who mostly benefit from all his forced FICA contributions.

Posted by: jimbino | Nov 15, 2017 12:16:46 PM

Joe--indeed, you might very well be right that it is not politically feasible. Even though both parties have expressed a desire to get rid of the marriage penalty--that's just clearly not enough to get it done.

Jimbino--yes, another option is to abandon taxation based on marital status. But, that is such a big departure from the current system that it seems even less likely to happen soon than doubling brackets for only 2-income earners.

Posted by: Margaret Ryznar | Nov 15, 2017 11:29:36 PM

They will never, ever get rid of taxation by marital status because that would have the effect of drastically increasing taxes on one-income families, which would disproportionately benefit red state residents (where it is a lot more feasible for a family to live on a single income due to a lower COL).

Posted by: My $0.02 | Nov 16, 2017 2:33:31 PM

I suppose we singles will have to rely on the Supreme Court to find discrimination against singles to be a violation of their 5th and 14th amendment rights, as is routinely done now for discrimination against blacks, gays, non-believers, seniors, Muslims, women and even illegal aliens.

I think it quite silly to limit one's comment on a political issue to something like "such a measure is unlikely to pass." The same could be said about gay marriage a few years ago!

Posted by: jimbino | Nov 16, 2017 4:46:31 PM

I suppose we singles will have to rely on the Supreme Court to find discrimination against singles to be a violation of their 5th and 14th amendment rights, as is routinely done now for discrimination against blacks, gays, non-believers, seniors, Muslims, women and even illegal aliens.

I think it quite silly to limit one's comment on a political issue to something like "such a measure is unlikely to pass." The same could be said about gay marriage a few years ago!

Posted by: jimbino | Nov 16, 2017 4:46:34 PM

Yes--but I don't think we'll move to a marriage-neutral public policy position for a long time. While most people may be single, many of them still have kids (40% of births are now to unmarried mothers). And, marriage is the preferred public policy when it comes to kids. Meanwhile, all that's needed to withstand judicial review is a rational basis for the distinction in the code between married and singles (much lower standard than for other types of discrimination). So, I don't think we are moving away from supporting marriage soon. Of course, I could be wrong--sometimes a changed understanding of issues does come fast.

Posted by: Margaret Ryznar | Nov 16, 2017 5:14:03 PM

When a kid is born, you get two Singles where there was only one. Loving v. Virginia was a shock. Sex discrimination wasn't even subject to "strict scrutiny." All these silly Supreme Court categories can be overcome by public opinion, as happened in miscegenation and gay-rights litigation.

Furthermore, in those past cases, we were dealing with Minority rights. In the case of singles, we are now dealing with persecution of the Majority!

Posted by: jimbino | Nov 16, 2017 10:52:29 PM

Maybe the majority of singles then will be enough to change it legislatively--and I do think the majority of singles will only grow.

Posted by: Margaret Ryznar | Nov 17, 2017 4:03:09 AM

Yes, but the constant discrimination against singles through over-taxation and denial of SS, Medicare, Medicaid and inheritance and other benefits is now being being exacerbated by tax changes the favor marriage and breeding even more, like eliminating the AMT and doubling of child tax credits.

Our African Americans still haven't recovered from the slavery and Jim Crow discrimination they were subjected to for generations and singles my fare no better, especially if kept second-class citizens by tax, inheritance and immigration policy.

Posted by: jimbino | Nov 17, 2017 1:45:06 PM

Yes, but the constant discrimination against singles through over-taxation and denial of SS, Medicare, Medicaid and inheritance and other benefits is now being being exacerbated by tax changes the favor marriage and breeding even more, like eliminating the AMT and doubling of child tax credits.

Our African Americans still haven't recovered from the slavery and Jim Crow discrimination they were subjected to for generations and singles my fare no better, especially if kept second-class citizens by tax, inheritance and immigration policy.

Posted by: jimbino | Nov 17, 2017 1:45:08 PM

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