For my fellow U.S posters: Why did we ever have a marriage penalty? What purpose was it trying to achieve?
Simple: the bliss of marriage outweighs its financial cost.
The OP assumes that the marriage penalty is by design; given the intelligence of the average Congresscreature, that seems unlikely.
Back in the 50’s and 60’s, the federal tax code gave a huge break to married couples. In short, the total income of a married couple was viewed as being two people each earning half that income, so they usually fell into a lower bracket than a single person who earned the same amount. The “marriage penalty”, which is actually a larger deduction for single people, was intended to correct for this unfairness. In fact, it was only a “penalty” for some married couples; other still earned more being married than they would if they were single.
I remember when there was a credit of 10% of the lower salary on a two-wage-earner family. You also were able to deduct sales tax paid using a table to guide you by state and income level if you didn’t save receipts all year. You even got to add on to that amount the sales tax on large ticket items like cars, boats, furniture, etc. In addition, all interest charges on loans & credit cards were deductable, too.
Then they got greedy and needed more money for all the programs, etc., they felt compelled to pay for. Out went all those deductions except home mortages for the most part.
I recall hearing the argument at that time that two-wage-earning families had more money to live on than a single person, so that’s how it was justified.
But, take heart, they promise to phase in a little additional credit over a ten year period. :rolleyes:
I paid that awful marriage penalty for years. Let me tell you how to turn it around and get a refund:
- Have a child.
- Buy a house.
We did both of these in one year, and poof, no more marriage penalty. It seems to really only penalize couples in dual wage earning families with no children and who rent.
In other words, basically every newly married couple in the US today. Third way to avoid the marriage penalty:
- One of you needs to quit working and stay at home.
Hmmm…hidden Republican agenda, or outdated tax code? You decide.
Edlyn wrote:
You neglect to mention the fact that, during the time all those deductions were available, the top Federal income tax bracket was 70%. When the deductions were removed, the top Federal tax bracket got reduced to 31% at the same time.
As far as I know, Federal revenue did not increase as a result of the elimination of the deductions you mentioned, due to the elimination of the higher tax brackets that coincided with it. And this was by design, at least according to the Reagan administration (who authored it).
Morgainelf wrote:
While both of these activities will indeed reduce a married couples Federal income tax burden, they will also reduce the tax burden of an unmarried individual.
If a married couple without kids or a mortgage pays more tax than if they were single, and they get a kid or a mortgage (but nothing else changes), they will still pay more tax than if they were single.
Good point, tracer.
Why would I mention the top federal tax bracket? I’ve never been in it and have no idea what it is. While you say it was not an increase, the result was that I had to add on a second income to cover what I ended up losing in my paychecks. It took four years of raises to regain what I had lost. The middle income two-wage earner families were the ones hit the hardest during those tax changes.
Perhaps your right that the total revenue did not increase. Can you say that it was decreased?
If I remember correctly, the couples who are penalized, relative to single taxpayers with the same incomes, are the ones in which the two incomes are comparable. There’s little or no penalty when one person earns the bulk of the income.
Of course, if you have a child and buy a house, you’ll be spending one hell of a lot more money on raising your kid and paying for your house than you ever did for paying income tax.
But that’s a choice. You are spending money and getting perceived value in return. The role of government isn’t to make everybody equal at the end.
The exercise in getting a house and having a child is to allow yourself to keep more of what you earn and spend it on something you like-a house and child.
Actually, Oblong, if that wasn’t one of the government’s roles, we wouldn’t have a graduated income tax and social programs for the underprivileged. Our tax code is designed so that people who can afford to pay more, do. Married people are taxed more because they can afford it, just like those with high incomes are taxed more.
Before I went back to school and quit my “good” job, I would have been much better off financially if I had been married to someone making the same amount of money as me.
Now, I’m sure there are those of out there who are saying “Hey, I’m married, and my spouse and I are barely making ends meet!”
Well, how well off would you be if you two each kept a separate residence and paid two utility bills? That’s how single people live.
This, in my experience, is true. My husband works full time and I go to school full time and all of my (miniscule) income comes from work study and campus jobs, we actually paid fewer taxes for 2001 than my husband paid as a single person in 2000.
No, that’s how some single people live. And in NY it doesn’t seem to be all that many.Nearly all of the unmarried people I know are living with their parents (usually the young ones), SO’s, or roommates.
Actually, with the high cost of rent here in lovely Taxachusetts, we’re actually paying less for the house than we did for the apartment each month. Then with tax breaks on top of it, it’s much cheaper to buy a small two bedroom house than to rent a nice two bedroom apartment.
Granted, the bambino is a large expense. But hey, you get a whole $600 tax credit. That pays for about 1 month of daycare! 
Under a progressive tax system, you will have either a “marriage penalty” or a “singles penalty” - there is no way around it.
In a nutshell, the problem is that there are only two options in dealing with the income of a married couple - treat the couple as individuals, or treat them as a unit. Both approaches cause inequities, either to the couple or to single persons.
If you treat a couple as a unit - that is, lump all their income together and tax that income, there are two scenarios.
The first is where both couples work. Say Mrs. X makes $60K and Mr. X makes $40K. They are taxed on $100K of income, and therefore a larger percentage of their income is taxed at higher marginal rates than if they were not married and were paying taxes separately. And thus, they pay more tax.
Well, then, why not simply treat them as singles for tax purposes? Because then, Mr. and Mrs. X would pay less in tax then Mr. and Mrs. Y, in which situation Mr. Y makes $100K and Mrs. Y doesn’t work. Huh, you say? There are two reasons for this. First, Mrs. Y has no income to apply her deductions to, and therefore her deduction is lost. Second, under a progressive tax system, marginal tax rates - each progressive band of rate of tax - are applied to the chunk of income that falls within the particular tax rate band. If marrieds were treated as singles, then more of Mr. and Mrs. X’s combined income would be taxed at lower marginal rates than Mr. and Mrs. Y’s, and the X’s would pay less in taxes, even though both are in the same financial situation.
And that’s the problem in a nutshell. The problem is insuperable - even if there were a way to balance the tax the X’s and the Y’s pay at $100K, that same solution would not apply to the A’s and the B’s, who both make a combined $60K, but whose earnings are split differently between the couple.
Differing tax rates and deductions for married couples as opposed to singles raise other inequities. There are many, but one example for now - should a married couple, earning $100K a year total, with one of the spouses not working, pay a lower amount of tax than a single parent, also earning $100K a year?
Sua
Actually, there is a way around the problem isn’t there? Have a single tax rate schedule for married & single, but allow a married couple to take the total household income and divide it, giving each eactly half. They can then divide the deductions, if any, as they wish between them.
Flex, no, for two reasons. First your solution could be massively inequitable to singles.[sup]1[/sup] (I would have gotten into this in my earlier post, but, quite frankly, I was tired of typing. :D)
Mr. and Mrs. X make $100K. Mrs. X makes $75K and Mr. X makes $25K. Under your plan, we attribute $50K to each. Each gets deductions (itemized or standard) and then the marginal tax rates are applied to the remainder of taxable income. Their total tax bill will (say) $20K.
Now compare them to Mr. D and Ms. E. They live together, but aren’t married. Mr. D makes $75K and Ms. E makes $25K. After deductions and the application of tax rates, their tax bill will be considerably higher than the X’s, because $25,000 (of Mr. D’s income) will be exposed to higher marginal rates.
But that’s Mr. D’s and Ms. E’s choice not to get married, right? That gets into a debate on whether it is government’s role to encourage marriage. Let’s avoid that, shall we? :eek: Let’s go to a more neutral counterexample.
Mr. F is a single father of one child and earns $100K. (To avoid the taxation issues of child support and alimony, let’s make him a widow or an adoptive father). He can’t split his income with his daughter for tax purposes, and therefore a larger proportion of his income is exposed to the higher marginal rates. He probably ends up paying more taxes than either the X’s or the D’s and E’s.
Basically, it is impossible to design a progressive tax scheme with deductions and marginal tax rates that will result in a equivalent rate of taxation amongst (1) married two-income familes, (2) marries one-income families, (3) singles living together, and (4) single parents, where in each case the groupings have the same total income and the same (presumed) basic living costs (the purpose of the standard deduction), where the equivalent taxation will result at all levels of income.
Given that, it becomes a political question as to which grouping should a tax advantage, and which should grouping should be penalized. And, as with all political questions, the answer depends on who is screaming the loudest at any point. This issue has been on a pendulum for the past 40-odd years. Through the 50’s and early 60’s, marrieds, particularly married one-incomes, had the advantage, and the other groups were “penalized”. In the late 60s the singles screamed loud enough, and the tax rates were changed. This resulted in the first screams of “marriage tax,” in the 70s,[sup]2[/sup] and the rates were adjusted again, so the issue quieted for a while. With the tax changes in the 90s, the pendulum shifted again, so the marriage penalty is once again a political issue.
Sua
[sup]1[/sup] I say “could be,” because the marginal rates and at what income level marginal rates apply determine who is screwed. All may hypotheticals below assume that the marginal tax rates and the size of income bands are such that having more money exposed to the higer marginal rates will result in higer total tax for the two-person unit in each grouping. However, the rates and bands can be set that the evening of income between a high and low earner will result in a higer tax burden for the couple.
[sup]2[/sup] Embarrasingly, I vividly remember a Love Boat episode from back then with a sub-plot that revolved around the marriage tax. :o