Our nation's capital is brimming with bad news for anyone who blieves in starting and raising a family in the context of marriage. First of all, the IRS penalizes middle and upper-come couples who get married. Even worse, the government is actually paying low-income women not to get married. And worst of all, our political leaders can't figure out how to fix it.
On October 6th, an $80 billion Republican tax-cut bill--including provisions that would have reduced or eliminated the so-called marriage penalty--died when Senate GOP leader Trent Lott, in the face of a near certain Clinton veto, decided to pull the bill from further consideration. Most conservatives viewed this as a great defeat for pro-family policy-making. Well, not really.
If part of the agenda of this tax cut bill was to strengthen marriage, it would have done so only marginally. Even worse, it would have left the most anti-marriage policy in America untouched: the Earned Income Tax Credit (EITC).
The marriage penalty in the tax code reflects the fact that married couples who both work for wages frequently pay more in taxes then if they earned the same amount of income but weren't married. And the more equal the incomes of the couple, the steeper the marriage tax penalty.
Take, for example, two people earning $30,000 each. If they were single, and claiming the standard deduction, each would pay $5,189 in taxes or $10,378 in total. If they got married, they would have to combine their income for purposes of taxation for a total of $60,000 in which case they would pay $11,437 in taxes. The difference between $11,437 and $10,378 ($1,059) is their marriage penalty, courtesy of the federal government.
This sounds unfair which, of course, it is. What the Republican bill would have done is allow married couples the option of filing as individuals. This would have eliminated the marriage penalty.
So why shouldn't we consider the derailment of a bill that would end the marriage penalty a defeat for pro-marriage forces in Washington? Because as onerous as the tax penalty is for married couples, the marriage penalty is even worse for lower-income couples who are eligible for the EITC.
The EITC is a Reagan-inspired incentive for work. Essentially, the EITC is a wage supplement for low-income workers. If you work at low wages, rather than relying on welfare, you are eligible to receive some additional cash from the federal government through the EITC. The maximum benefit is $3,756 for a worker with two children and an income of roughly $10,000. So far so good.
The problem is that the EITC is pegged to wages, not to family structure. If you get married, the couple must combine their wages for the purposes of the EITC. This is what leads to the EITC marriage penalty ' in essence, paying low-income couples not to marry.
According to calculations by Eugene Stuerle of the Urban Institute, if a single mother with two children working half-time at minimum wage marries a man working full-time at minimum wage, the couple would lose $2,149 in EITC benefits. Even worse, if that same single mother working full-time at minimum wage marries a man working full-time at $8 an hour, the couple would lose $3,026 in EITC benefits. In both examples, the family loses thousands of dollars in cold, hard cash if they get married. If instead they cohabit, they lose nothing.
In fact, the typical EITC marriage penalties are actually greater than the typical marriage penalty that higher income workers experience through the tax code. Little wonder marriage is dying in low-income communities. The federal government, through the EITC, says, "If you get married, it'll cost you. And it'll cost you big time."
This is a travesty. At the same time that we are all wringing our hands lamenting the fact that one out of every three babies is now born out-of-wedlock, official government policy says if you do get married, it'll cost you thousands of dollars. But if you merely cohabit, well then, that won't cost you anything.
The problem is cohabitation is a lousy way to raise children. Cohabitors are far more likely to break-up and engage in more violence toward each other than married couples. And when it comes to children, there is scant evidence that cohabitation yields the same benefits as does marriage. In fact, the opposite is true. Cohabitation places children at increased risk for child abuse, abandonment, and emotional and behavioral problems compared to marriage.
Fortunately, there is a solution to the EITC problem. Simply increase the amount of income a couple can earn before the EITC begins phasing out. And fixing the EITC marriage penalty is far less expensive than solving the marriage penalty for higher income couples -- $3 billion a year as opposed to $20 billion to completely rid the tax code of marriage penalties for higher income couples.
Why not fix both the marriage tax penalty and the EITC marriage penalty? In a perfect world you would do both. No couple -- whether of high or low income -- should be faced with an economic penalty simply because they choose to get married. But we don't operate in a perfect world. Sometimes we have to make choices.
This is an easy choice. Where is marriage disappearing the fastest? In low-income communities, that's where. The biggest problem with higher income couples is not getting married, but staying married. But among low-income earners, the problem is never getting married in the first place. It's a crime that the federal government imposes financial penalties on those that choose to do so.
That's why we shouldn't shed too many tears for the loss of the $80 billion tax cut proposal, for it gives us an opportunity to reconsider who needs the most protection from federally- imposed marriage penalties: low-income or higher-income couples. Seems like a pretty easy decision to me. It's a shame our political leaders can't figure it out.
Back to Top | Previous | Next
Institute for American Values