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The number of children born out of wedlock has reached an all-time high--1.3 million children in 1998 (the latest year for which this statistic is available), up from 1.2 million just one year earlier. Cohabitation is increasing rapidly as well. More than 4 million couples are cohabiting, compared to fewer than half a million in 1960. About one-third of cohabiting households include children younger than 18. This is not good news, especially for children. The evidence is overwhleming that children who grow up in non-married households, compared to those reared by two married parents, are at greater risk of poor outcomes on almost any measure of child well-being imaginable. Cohabitation does little to decrease the risk of poorer outcomes for children associated with living in a single parent households. It may even make things worse. It is, therefore, sheer lunacy that the U.S. tax code punishes many couples who decide to get married rather than cohabit. You would think that anybody with half a brain would agree the tax code should encourage, not discourage, marriage. Thankfully, there seems to be a lot of people with at least half a brain in Congress these days. The U.S. House of Representatives has already passed, and the U.S. Senate is considering, legislation that would take great strides toward eliminating the marriage tax penalty by providing broad-based tax relief to all married households. It's about time. But wait. There is a fly in the ointment. Liberal think tanks like the Center on Budget and Policy Priorities as well as the Clinton Administration and at least some Democrats in Congress are suddenly fretting over the fact that some couples receive marriage "bonuses." Indeed, a leading Democrat Senator recently asserted, "We ought to address the marriage penalty, but we shouldn't be giving additional benefits to those who already enjoy the marriage bonus." Let's see how these so-called marriage "bonuses" work. Be forewarned. I am about to throw a lot of numbers around, so hang on. Suppose a young couple of child-bearing age is contemplating marriage. Suppose further that each person is earning $40,000 in wages. According to calculations by CPA Joe Kilner of the accounting firm Kilner and Austin in Gaithersburg, Maryland, if this couple remains unmarried, each would owe $5886 in taxes, for a combined tax burden of $11,772. If this couple were to get married, they would have to combine their individual earnings ($40,000 plus $40,000 equals $80,000) for income tax purposes. Because of the progressivity built into the tax code (you pay a higher percentage of your income in taxes the more money you make), after marriage this couple would owe $13,255 in taxes. The difference between $13,255 (what they would pay as a married couple) and $11,772 (what they would pay as cohabitors) is $1,483, a very real marriage penalty. So where do the so-called marriage "bonuses" come in? Let's suppose that this same couple has a child. If they are unmarried, only the mother gets to deduct the child as a dependent. This causes the tax burden on her $40,000 income to decline to $3,726. The man's tax burden of $5886 remains the same. Hence, their overall tax burden as an unmarried couple would be $3,726 (hers) plus $5886 (his) or $9612. If this couple gets married, they would again have to combine their incomes and would now owe $11,985 in taxes, for a marriage penalty of $2,373. Notice that the tax penalty is worse when you have a child. Little wonder the number of couples with children who cohabit instead of getting married is on the rise. But what about those pesky marriage bonuses? They come into play if and only if this couple decides to sacrifice most or all of the earnings of one parent in order for that parent to stay home and raise their child. How's that, you say? How could giving up $40,000 in income deliver a marriage "bonus?" Here's their reasoning. If one parent drops out of the paid labor force, the couple's combined income drops from $80,000 to $40,000 and their total tax burden drops to $3,186 (they pay less in taxes because they earn less). Subtract this couple's tax burden of $3,186 from the $5,886 in taxes an unmarried individual would pay and -- hocus pocus -- you get a marriage "bonus" of $2,700! This, of course, is a ludicrous comparison. The better comparison is what this couple would have made in household income less taxes owed if both had continued working. Sure, if one parent leaves the paid labor force to become an at-home mom or dad, the couple's total tax burden would be reduced to $3,186 -- but at the expense of forgoing $40,000 in income. As such, the so-called marriage "bonus" is really an at-home parent tax. That's because the economic cost of having one parent stay home with the kids far outweighs any tax benefit that may accrue because of marriage. You would have to be a lunkhead to forgo $40,000 in extra income to get a $2,700 marriage "bonus" -- unless, of course, you're one of those old-fashioned parents who care more about your children than a second income. The extraordinary thing is that this issue puts the Clinton Administration and many Democrats on the side of promoting tax relief for wealthier, two-earner households at the expense of families who sacrifice one income for their children. When was the last time you heard liberals advocating tax breaks for the rich? Besides, is the point of taxes really to make the tax code neutral when it comes to marriage? When 1.3 million babies are being born out-of-wedlock each year, we are worried that the tax code might provide a little incentive for couples to get married? Funny, I don't hear the same concern when the tax code provides "bonuses" (in the form of tax deductions) for home mortgage interest payments or charitable giving. Marriage is in deep trouble. Revitalizing it can not be done at the margins. It will require a sustained and very public effort. Pretending that couples who forgo a second income in order to be home with their children somehow enjoy marriage bonuses doesn't help. Not even a little bit. Back to Top | Previous | Next
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