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For politicians seeking to reduce or eliminate the ``marriage penalty" in the federal tax code, in which some married couples jointly pay more in taxes than they would have paid as unmarried individuals, there are two ways to proceed. The first is to treat maried couples as joint economic partnerships, similar to other legally recognzied joint partnerships, from law firms to Mom-and-Pop grocery stores. That would mean treating the married couple as a single tax-paying unit, permitting the spouses to share ther income for purposes of taxation. For example, if one spouse earns $50,000 and the other stays at home with the baby, they earn, for tax purposes, $25,000 each. Economically, this policy favors all married couples, since it would maximize the amount of family income taxed at lower rates. Socially, this policy both favors marriage as an institution and recognizes the legitimacy of at-home parenting. Philosophically, the policy beholds marriage for what it is: a genuine partnership in which, as our traditions say, the two become one. Politically, this way of proceeding is either dangerous or visionary, depending on how you look at it, since it departs dramatically from our current approach and since it amount to a significant – not just symbolic – tax cut for married couples. The second approach is to tax married couples as individuals. This approach requires policy makers – or in some versions of the idea the spouses themselves – to engage in an exercise of what historians call counter-factual history. The goal is to figure out what each spouse's tax burden would have been if the spouses had never married, then, in real life, tax the couple on this individualized, non-marital basis. Economically, this policy benefits two-earner couples, who are, almost by definition, the main victims of the marriage penalty as currently defined. Why? Usually, the combined income of the two earners pushes them, as a joint-filing couple, into a higher tax bracket. Consequently, effectively taxing these particular couples as individuals would, in most cases, significantly reduce their tax burden. Socially, this policy's main effect is to reward paid employment – if both spouses work, they get a tax cut – and thereby create further disincentives for at-home parenting and all other non-market labor. In this sense, the policy stems from what economists call ``supply side" thinking, since one if the policy's main effects is to increase the size of the paid labor force and therefore stimulate economic growth. Philosophically, the policy is radically individualist. Marriage, in this view, is a private lifestyle option no more deserving of political special treatment – that is, recognizing it as a joint partnership – than would be, say, college roommates living together. Politically, this policy is thrice-blessed. First, it permits politicians to ``do something" about the marriage penalty. Second, it doesn't cost nearly as much in lost tax revenue as the alternative, since only about half of the married couples in the country would benefit from it. Finally, it would stimulate economic growth and therefore might, over the long run, even help to increase total tax revenues. For me, the most disappointing tax policy development of the current presidential campaign in that George W. Bush has decidedly embraced this second, tax-them-as-individuals approach to reducing the marriage penalty. His plan would create a special tax break of about $450 to $750 per year – to simplify, let's call it $600 per year – for most middle-come, two-earner couples. The proposed mechanism is that two-earner couples would be permitted to deduct 10 percent of up to $30,000 of the income of the lower-earning spouse. The Bush plan would shift a greater share of the overall tax burden onto one-earner couples with children. Moreover, by creating a $600 per year incentive for the second parent to enter the paid labor force, his proposal would end up reducing the amount of time that U.S. parents spend with their children. Some features of the Bush tax plan, such as his proposal to double the size of the child tax credit, strike me as terrific. But this proposal on marrriage is a step in the wrong direction. It would be better to do nothing about the current tax code's mistreatement of marriage than to do what Governor Bush is proposing. Consider the ironies. A policy idea that originated on the feminist-labor left in the 1970s is now being proposed by a presidential candidate of the right. And a classic proposition of 1980s supply-side economic thinking – reduce marginal rates for upper-income couples in order to encourage more college-educated mothers to enter the labor force and thereby boost the economy – has now re-entered the national policy debate under the guise, of all things, of strengthening marriage. What a funny joke. Back to Top | Previous | Next
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Institute for American Values |
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