As George W. Bush steps into the job as President, tax reductions will be one of the issues at the top of the legislative agenda.  With these tax reductions, issues are sure to arise about the elimination of the marriage penalty.  What treatment should be applied to the marriage penalty will be created by numerous political discussions.  The issues surrounding the marriage penalty are far more complex and widespread than a majority of the American population understands.  This article provides an overview of the issues surrounding the marriage penalty and some of the proposed solutions for this problem.  A public, armed with a greater understanding, will make more informed decisions in guiding their representatives to optimal legislation related to the marriage penalty.

Introduction

On September 13, 2000, the U. S. Congress voted 270-158 to pass a law reducing the “marriage penalty” in the federal income tax. This outcome was 16 votes short of the two-thirds necessary to override President Bill Clinton’s veto (Mollison, 2000). The marriage penalty issue will certainly be center stage in any tax cut proposals that arise in future years. American voters and taxpayers need to arm themselves with accurate information to formulate their position on this important issue. This article is intended to flesh out the facts and issues associated with the marriage penalty. The article starts by defining the marriage penalty and discussing how it is caused by the tax code. Next, the article explains the controversy surrounding the marriage penalty.  After clarifying an assumption underlying the marriage penalty, the article presents a structure with which to organize information relating to the “fairness” of the marriage penalty. Finally, the article presents some alternatives to relieve the marriage penalty.

The marriage penalty- what’s it all about?

A married couple whose joint return creates a greater tax liability than the combined tax liabilities of an unmarried couple filing separately experiences a marriage penalty (The Concord Coalition, 1999).  This phenomenon is caused by several efforts to obtain equity in taxation: prior efforts to create tax brackets for single individuals that are equitable with those of married couples, prior efforts to create standard deductions for single individuals that are equitable with those of married couples, and the implementation of the Earned Income Tax Credit.

A progressive tax rate structure is used for the federal income tax, as well as most states’ income taxes. As taxpayers’ incomes increase, they are subject to increasingly higher marginal tax rates. When couples marry and subsequently combine two incomes into one, the combined income, larger than the incomes of either partner alone, can face a higher marginal tax bracket, and therefore a higher tax liability than the combined taxes of the two incomes taxed separately. The additional tax created by combining the two incomes is “a marriage penalty.”  To observe the marriage penalty derived from the differing marginal tax brackets is provided.

The existence of a majority of the marriage penalty depends on two factors: the couple’s total income, and the division of that total income between the partners (Joint Economic Committee (JEC), 1997; The Concord Coalition, 1999).  The severity of the marriage penalty increases as the gap between the partners’ incomes decreases.  Historically, as more women entered the workplace, the difference between spouses’ incomes is decreasing rapidly, expanding the scope of the penalty (JEC, 1997). Table-2 exhibits the maximum marriage penalties for different marginal tax brackets.

Additional marriage penalties were created by the 1969 tax relief package in the form of changes in standard personal deductions.  The standard personal deductions for single taxpayers were increased substantially beyond one-half of the deductions for married couples. After this change, the combined standard personal deductions for two single individuals was higher than the standard personal deduction for a married couple, adding to the phenomenon now called the marriage penalty (McIntyre, 2000b).  For example, in 1998, the standard deduction for single filers was $4,400, but the deduction for joint filers was $7,350, only 167 % that of the single filers (The Concord Coalition, 1999). The lower deduction gives the couple an additional $1,450 of taxable income and a significantly higher tax.  Table-3 displays the marriage penalty created by the standard deductions within the different tax brackets.

There is a marriage penalty associated with itemized deductions as well.  This penalty is incurred by couples with combined incomes in excess of $128,950.  Itemized deductions begin to phase out at $128,950 regardless of whether the deductions are for a married couple or an individual.   This dramatically reduces the deductions for a married couple as opposed to a single couple.  During a deduction phase-out, the deduction decreases in value based on some other monetary measure.  The itemized deductions phase out at 3% of adjusted gross income in excess of $128,950, up to 80% of all deduction excluding medical, investment interest, and gambling and casualty or theft losses.  For example, Dick and Jane have an adjusted gross income of $250,000 (each earned $125,000) with itemized deductions of $45,000 (excluding  medical, investment interest, and gambling and casualty or theft losses). Their deduction phase-out could be as much as 3% of $121,050 ($250,000 – $128,950) up to $36,000 (80% of the $45,000).  Dick and Jane would have an itemized deduction phase-out (reduction) of approximately $3,631.50 as a married couple, but none as two single individuals.

The tax codes are fraught with phase-outs where the combined married couple’s phase-out base is not double that of a single’s phase-out level.  Each phase-out applying to a couple creates a marriage penalty of some sort.  One such phase-outs affecting lower income taxpayers is examined next.

Another aspect of the  marriage penalty, involving lower income taxpayers, was inadvertently created by the enactment of the Earned Income Tax Credit (EITC). The EITC is a refundable tax credit designed to provide financial incentives to low-income wage earners willing to work, rather than receive welfare. These taxpayers receive payments of up to 40% of their earned incomes from the IRS, even if they pay no taxes. Through EITC, taxpayers with two or more qualified children receive payments of 40% of their earnings, taxpayers with one child receive payments of 34% of their earnings, and taxpayers with no children receive payments of 7.65% of their earnings. To limit these benefits to the lowest income levels of working citizens, the credits are calculated on only earned income and are phased out as higher income is earned.  Married couples must combine their earned incomes, which makes their combined incomes exceed these phase-out levels very quickly.  Facing the phase-out of EITCs, unmarried couples can gain monetary advantages over married couples by claiming two EITCs and distributing their children in a credit-maximizing manner (Bull, Holtzblatt, Nunns, and Rebelein, 1999, Concord Coalition, 1999). The differences between the EITC create marriage penalties.   The marriage penalty for various combined income levels can be seen in Table-4.

The marriage penalty – why the controversy?

From the first modern income tax in 1913 until the tax reform of 1969, no marriage penalty existed. In fact, many married couples actually enjoyed a marriage bonus, that is, lower tax liabilities than unmarried couples. From 1913 until 1969, a husband and wife were allowed to file taxes separately if both parties had income (Bull, et al., 1999).  However, they were allowed to split their total income evenly, minimizing the amount of their combined income facing higher marginal tax rates, often creating lower tax liabilities referred to as marriage bonuses. (JEC, 1997)

However, the population of single tax payers perceived this preferential tax treatment for married couples as unfair.  In 1969, the rapidly growing single population lobbied for change, arguing that they were facing discrimination in the tax code for their single status. The institution of a variable rate “tax on marriage” was a byproduct of the 1969 tax relief package for higher-income single individuals. That same body of  “baby boomer” voters is now married with children and asking for relief from the marriage penalty resulting from the tax structure created with their votes.

It is a perception of unfairness that created the marriage penalty and, now, calls for relief.  What is behind this perceived unfairness related to the marriage penalty?  It is the difficulty in comparing incomes of married taxpayers with incomes of single taxpayers.  A single wage earner feels fair tax treatment requires him/her a comparable tax with a married taxpayer earning a similar income.  Yet, a married wage earner may be supporting a non- or low-income earning spouse and feels that fair tax treatment requires a lower tax comparable with two single wage earners whose similar combined income is used to support the family unit.   A married couple, with two major earners, feels that fair tax treatment requires taxes similar to two single individuals with their level of incomes (Williams & Weiner, 1997).   Solutions are available, but they will require losses in future tax collections.   The political issues associated with the loss of tax revenues and who should receive the benefits are immersed in controversy.

In an attempt to make taxes as fair as possible, the government must make assumptions about the financial practices of its taxpayers. A basic assumption pertaining to the marriage penalty is that married couples, who file joint tax returns, equally share in their combined income (i.e., income and expenses are shared equally).  The breakdown of who earns the income between joint filers is immaterial, since the couple shares in it equally, and the couple is taxed as a unit.  Therefore, married couples with similar combined incomes are taxed the same, regardless of the earned income split between husband and wife.  Unmarried couples must file separately, and how they share each other’s finances are not addressed in the tax codes.  When determining total tax liabilities, the combined taxable income taxed at the married rates can differ significantly from the separate incomes taxed at the single rates and then combined. If there is a single breadwinner, the married couple could enjoy a significant tax bonus. The couple’s combined income is no larger than the income of the breadwinner alone and a married couple enjoys the benefits of a lower marginal tax rate.   The effects of the different income splits can be observed in each combined income grouping in Table-1.

For example, assume that John makes $80,000 a year and his wife, Jennifer, makes $45,000. Their combined income of $125,000 creates a total tax liability of $29,871. If they filed separately, John’s liability would be $19,481 and Jennifer’s would be $9,187.50, a total of $28,668.50, turning out to be more than $1,200 more than married filing jointly.

The assumption of income sharing by married couples becomes more valid under the conditions of joint and several liability.  Joint and several liability requires either member of a married couple to incur the tax liabilities of both (Jones, 2001).  If one partner cannot pay his/her taxes, the other partner must pay those taxes.  If both partners are considered responsible for the combined tax liabilities, they also should be considered to share the income, for tax purposes.

The marriage penalty – organizing the issues

Does the marriage penalty have an impact on your life? If you are married, the marriage penalty may directly affect your family’s quality of life without your knowledge. However, the politics behind the marriage penalty complicates an issue that is, on its own, complex enough. In an attempt to separate the real equation from political controversy, the story of the marriage penalty will be couched in the standards for a “good tax” (Jones, 2001): sufficiency, convenience, efficiency, and equity of tax laws.

The first standard of a good tax is that it must be sufficient; a tax must raise enough funds to fulfill the needs of the government. Debates as to how much the government should spend is outside this standard. Sufficiency is about collecting enough and only enough to match governmental spending.  Abolishment of the marriage penalty will require replacing lost tax revenues from married couples, possibly with revenues from single individuals (McIntyre, 2000a).

The second standard of a good tax is that it must be convenient. Methods for tax collection must be understandable and easy. Incomprehensible tax codes and complex collection procedures lead to additional costs to the taxpayers and the tax collection agency.  Solutions to eliminate the marriage penalty may present difficulties with convenience. The solutions also must be convenient for the IRS.  New tax code that requires high monitoring costs will need to be paid for with additional tax revenues.

The third standard for a good tax is that a tax be efficient, economically. Classical efficiency is a tax that has no impact on consumer behavior, resource allocation is unaffected by the presence of the tax. More recent interpretations of efficiency denote the government’s ability to modify the actions of taxpayers. Tax preferences are placed to influence social behavior and stimulate economic activities, for example, issues such as environmental protection and capital investment. Classical efficiency demands that the tax code does not put monetary penalties on socially desirable behaviors such as becoming married when living together.   Contemporary efficiency would suggest that the tax code actually reward the maintenance of family units.

The final standard of a good tax is fairness, based on a taxpayer’s ability to pay. Ability to pay refers to the economic resources available to a taxpayer; those with greater wealth pay more taxes. This idea is similar to Robin Hooding, where more money is taken from the wealthy and given back to the less fortunate. Essentially, it is a redistribution of wealth. Achieving fairness requires equity of two types, horizontal and vertical.

A tax is considered horizontally equitable if people with the same tax base owe the same amount of taxes (Jones, 2001). For example, if taxpayer A has a tax base of $100, he/she will pay the same 5% tax as taxpayer B who has a $100 tax base. In regards to income tax, people with similar incomes pay similar amounts of taxes. However, complete horizontal equity can not be achieved because of the width of the tax brackets and different deductions. The brackets do place people of a somewhat similar ability to pay together and they pay similar amounts of tax.

Vertical equity means that people with greater abilities to pay incur greater tax liabilities than people with lower abilities to pay (Jones, 20001). There are three possible income tax rate structures: regressive, progressive, and proportional.  When a regressive structure is instituted, the tax rate decreases as the taxable base increases. To put it simply, taxpayers pay a smaller percentage on their income as it increases. This structure of vertical equity places a larger tax burden on taxpayers with a smaller base, and is often viewed as less fair by tax policy makers.

Proportional rate structures are the simplest to both institute and understand. For example, many taxpayers have been enamored with the “flat tax” proposals presented in the last few presidential elections. The same tax rate is placed on all levels of income, resulting in vertical equity; higher incomes pay higher taxes. However, many believe that this structure violates the premises of the theory of declining marginal utility of income; the more money you have, the less value you place on each dollar. For example, during lunch break an individual with only $2.00 might think hard about spending 50 cents for a soft drink, but an individual with $100 would probably not think long about spending one dollar for the same beverage. Although taxpayers with higher bases pay more in taxes, the economic sacrifices are less painful than for taxpayers with smaller bases.

The progressive tax rate structure increases tax rates as the tax base increases, resulting in vertical equity with attention to relative equality of economic sacrifices. The progressive structure does not share any of the disadvantages of the proportional or the regressive structures.  For example, Person A owns assets worth $15,000 and pays a 2% tax on this property. Person B owns assets worth $100,000 and pays a 4% tax on this property. This tax is vertically equitable because the individual with a greater ability to pay, pays a higher rate. The current federal income tax system in the United States shows vertical equity with progressive marginal tax rates because taxpayers with more income confront higher marginal rates as opposed to those with lesser income who pay lower tax rates.

A perceived unfairness may lead taxpayers into behaviors to evade income taxes. If a tax is not “fair”, it is more justifiable to find ways to reduce the tax liability, legal or otherwise.  For example, newly married couples may resort to tax evasion behaviors by continuing to file as single individuals; after all, “it’s not fair.”

The marriage penalty – what to do?

Taxes exist to fund governmental spending and, as stated by the first standard of a good tax, taxes should be sufficient. Elimination of the marriage penalty can come from two sources—reducing the taxes of married taxpayers or increasing the taxes of unmarried taxpayers, or some combination of the two. So, how can the factors that cause the marriage penalty be successfully written out of the tax code while insuring the generation of sufficient revenues to cover governmental expenditures?

Until recently, spending by the federal government far outweighed its tax revenue. Deficits worried Congress, so little or no effort was made to address excess burdens placed on the nation’s taxpayers (The Concord Coalition, 1999). Any reduction in married couples’ taxes to relieve marriage penalties needed to be paid for by increases in taxes on single taxpayers (McIntyre, 2000a).  However, today’s strong economy has led to budget surpluses, tax revenues that exceed government spending. Consequently, the government could return a portion of those surpluses back to the taxpayers to abolish the marriage penalty (The Concord Coalition, 1999).

A record $237 billion surplus for the budgeted year which ended in September 2000, $150 billion of which is Social Security surplus, was announced (Aversa, 2000).   With these current claims by the government that tax excesses now exist, the issue of sufficiency is not as critical. However, care is warranted if reliance on the excesses is considered. While these paper excesses are useful in political arenas, real dollars are needed to reduce taxes without running deficits.  In 1999, the federal government reported an excess of $123 billion. Upon closer inspection, $124 billion of that was excess social security, giving an actual deficit of one billion dollars (Jones, 2001).

Many possible solutions concerning ways to resolve the marriage penalty have been proposed.  A variety of interested groups have identified several common recommendations for eliminating the marriage penalty.  Many of the solutions address a single cause of the marriage penalty, while others address several causes.  A common proposal is to widen the marginal tax brackets and the standard deduction brackets for joint filers (Bull, et al., 1999; The Concord Coalition, 1999; JEC, 1997; Williams & Weiner, 1997).  Currently, the tax brackets for joint filers are less than twice the level for single filers, resulting in marriage penalties.  By raising the married couple tax brackets to twice the level of single filers, the marriage penalties would be reduced by 44%.  This solution would require tax relief of $25 million per year, with 43% of that relief going to the reduction of marriage penalties (JEC, 2000).  Of course, married couples with children may continue to have marriage penalties relative to those filing head of household.

While widening the tax brackets to make the levels more comparable with two single individuals is attractive because of its simplicity, it amounts to a tax reduction for all wealthy married couples (McIntyre, 2000a).  If all married couples receive tax relief from higher bracket levels, even those couples with a single or primary income, who currently receive marriage bonuses, receive the same tax reductions as those couples who actually suffer from marriage penalties.  This solution would exacerbate those inequities perceived by the single taxpayers (The Concord Coalition, 1999).

A possible solution to reduce the portion of a marriage penalty created by marginal tax brackets levels would be to include some type of surtax.  A surtax is a narrow marginal tax bracket that increases the tax liability from lower rates up to an average for the marginal rate of the next bracket. In other words, a surtax creates equality between average and marginal rates (Jones, 2001).  This would remove most of the marriage penalty created by differences in tax brackets; wealthier taxpayer would not accumulate marriage penalties from lower marginal tax brackets.  A simple example of a surtax is if a taxpayer must pay 10% on the first $100 and a 20% rate on the next $400.  A surtax of 30% is placed on the base of $101 to $200. This surtax incurs a tax on the first $200 of $40, which has an average rate of 20%. At $200, the marginal rate becomes 20%, thereby eliminating a 10% portion of tax.

A proposed solution is to make part of the income of the lower-earning spouse tax exempt (The Concord Coalition, 1999; JEC, 1997; Williams & Weiner, 1997).  This solution would allow for 10% of up to $30,000 of earnings of the lower-earning spouse to be tax exempt.  This option existed on tax policies from 1983 to 1986.  Reintroducing it would reduce marriage penalties by about one-third.  This change in tax policy would be a simple change to the current tax system (JEC, 1997).  This solution would be most helpful for couples that have incomes between $50,000 and $100,000, reducing their penalties by almost a half (The Concord Coalition, 1999).  This solution would only partially reduce the marriage penalties, while creating penalties for married couples with single income earners.  These penalties would be imposed against a family structure with a stay at home parent, which seems to be problematic in a society searching to resolve the decay of the family structure.

Another proposal is to require every taxpayer to file as single individuals, or possibly, heads of households (The Concord Coalition, 1999; Williams & Weiner, 1997).  This solution would eliminate all sources of marriage penalties and bonuses.  Statistics show 25 million couples receiving bonuses would pay an average of $1,300 in added taxes, and 21 million couples now incurring penalties would find their taxes decreased an average of nearly $1,400 (Williams and Weiner, 1997).  This solution would basically redistribute almost $30 million in tax liabilities among couples (The Concord Coalition, 1999).  While this solution would eliminate the marriage penalty, it would dramatically increase the taxes, possibly place a penalty, on single income families.

A slight adaptation of the prior proposal is to allow couples to choose their filing status (Bull, et al., 1999; The Concord Coalition, 1999; JEC, 1997; Williams & Weiner, 1997).  This proposal would eliminate 100% of marriage penalties.    However, the current marriage bonuses would continue—not a problem if the underlying assumption of shared income is reasonable.  A version of this approach allows couples to have a tax credit based on the marriage penalty they currently incur (The Concord Coalition, 1999).

A more aggressive version, involving filing status choice, is a proposal to revert back to the pre-1969 tax code, before the marriage penalty (Bull, et al., 1999; Williams & Weiner, 1997)).  Prior to 1969, a married couple had the option of filing as two singles, but split income equally between spouses.  A singles filing status with split income also could be required rather than optional.  This solution would eliminate the marriage penalty completely  (JEC, 1997) and allow, not increase, the existing marriage bonus.  This option, like the other single filing status options, addresses all marriage penalty issues including all the phase-out brackets.

A further proposed solution for eliminating marriage penalties is through tax reform.  This possibility includes ideas such as moving to a flat tax or a tax based on consumption, with side effects that would help eliminate the marriage penalty (The Concord Coalition, 1999; Williams & Weiner, 1997).

Reforming the EITC to some degree will most likely be a necessity when addressing the marriage penalty. The EITC has been an easy target for fraud (The Concord Coalition, 1999; Williams & Weiner, 1997). Application for the credit should reflect the number of adult earners in a household, preventing two single adults living in the same household from receiving a larger tax credit than married couples. Reform of the EITC also addresses morality issues, as the current system encourages low income earners to become and/or remain unmarried parents to reap the financial benefits.

A proposal to modify the EITC reflects on the number of adult earners (The Concord Coalition, 1999; JEC, 1997; Williams & Weiner, 1997).  This solution would prevent low-income couples from incurring marriage penalties because of combining incomes.  Providing two-earner couples with EITC parameters twice those for single-earner tax units would reduce marriage penalties for low-income couples by about 25%.  This solution would benefit couple with income levels below $50,000 (The Concord Coalition, 1999).

During the summer of 2000, the Marriage Penalty Relief Reconciliation Act was proposed. The Republican tax proposal addressed the three major causes of the marriage penalty, marginal tax brackets, standard deduction brackets, and Earned Income Tax phase-out brackets (Joint Committee on Taxation, 2000, Citizens for Tax Justice, 2000). The proposal called for an increase in the married couple’s taxable income to twice that of a single individual for the 15% tax bracket.  It increased the standard deduction for a married couple to twice that of a single person.  It also added $2000 to the bracket for EITC phase-out. But, total elimination of the marriage penalty was not addressed, only moderate to little relief was offered.  However, it was vetoed by President Clinton, and just missed the number of votes for a two-thirds override, 271 to 156 (Mollison, 2000).  While Clinton stated that the bill would have given the wealthy too much money back, middle-class families would have received larger tax breaks than the wealthy (Carney, 2000).

How does this legislation apply to our individual tax liabilities? Congress is, at this point, driven to solve the marriage penalty issue, but is divided along party lines. Once this issue is solved, some individuals will see a substantial difference in their taxes. Currently, the vertical equity controversy is preventing horizontal equity from being obtained. The marriage penalty is a horizontal equity issue—married taxpayers should be taxed similarly to single taxpayers. Elimination of the penalty is a vertical equity issue because it will require a redistribution of wealth. The liberal politicians are unwilling to reduce taxes on wealthy taxpayers. Conversely, the conservative politicians affirm those solutions that confound marriage penalty relief with tax reduction (Citizens for Tax Justice, 2000), thereby dramatically lowering revenues accessible for governmental programs. There is a desire to eliminate the marriage penalty. There are solutions that will eliminate the marriage penalty in its entirety. However, until politicians realize the necessity of a compromise along vertical equity issues, the marriage penalty problem will never be effectively solved. Although horizontal and vertical equity issues encompass different scopes, they are intertwined regarding the marriage penalty.

Table 1            Marriage Penalty Resulting from Progressive Marginal Tax Rates

The marriage penalty is the difference between a married couple’s tax liability and an unmarried couple’s tax liability.  This table gives marriage penalties based on given taxable income levels.  Explanations of columns and rows are below the table.

• Three rows represent different combined taxable income levels.  Each of these is presented as three possible combinations of the two income earners. The first row is a 100% : 0% split;  the second row is a 75% : 25% split; and the third row.

How combined taxable income is split between income earners for each combined income level.

• Column one (Combined) is the combined taxable income of the two partners.
• Columns two and three (Income Split) are the separate incomes of partners A and partner B, respectively.
• Column four  (Without Dependents) is the marriage penalty created by the differences between a married couple filing jointly verses an unmarried couple filing as two singles.
• Column five (With Dependents) is the marriage penalty for married couples with dependents, a couple filing jointly compared to an unmarried couple with one head of household and one single.  Greater marriage penalties are created by each of two partners filing as head of household, if the distribution of dependents allows such filings.  These marriage penalties are not presented in Table 1, but the maximum penalties are presented in Table 2.

Table 2 Maximum Marriage Penalty for Marginal Each Tax Bracket

The following table presents the marriage penalties associated with a married couple relative to:

• Rows 2-5, an unmarried couple filing as two single tax payers
• Rows 6-10, an unmarried couple filing as one single tax payer and one head of household tax payer
• Rows 11-15, an unmarried couple filing as two head of household tax payers.
• Column one lists the which marginal rate is changing into the new marginal rate.
• Column two gives the maximum combined taxable income that two single taxpayers can report to receive the lower rate in column one.
• Column three reports the difference between  lower tax’s maximum taxable income for the married couple compared to the unmarried couple.
• Column four reports the cumulative marriage penalty associated with the difference in column three.

Based on the following year 2000 tax brackets

Table 3                        Marriage Penalty Resulting from Standard Deductions

The magnitude of the standard deduction can vary depending upon whether a couple is married or unmarried.  The tax year 2000 standard deduction for a married couple is $7350.  The combined standard deduction for an unmarried couple is $8,800; $4,400 each.  If dependents are involved, the married couple has the same $7,350 standard deduction.  An unmarried couple can reclassify one individual as the head of household and increase the combined deductions to $10,850; one deduction increased from $4,400 to $6,450.  Further marriage penalty would be created if an unmarried couple filed as two heads of household, which would require dependents legally traceable to both taxpayers. Standard deductions for tax year 2000 are listed below.

To comprehend this table:

• Each row represents a different marginal tax bracket.  An assumption is made that all the deduction is at the highest marginal tax rate.
• Column one is the tax rates brackets within which taxpayers may be operating.
• Column two is the marriage penalty created by the differences between tax savings from standard deductions for married couples without dependents verses unmarried couples without dependents.
• Column three is the marriage penalty created by the differences between tax savings from standard deductions for married couples with dependents verses unmarried couples with dependents filing with one head of household and one single.
• Column four is the marriage penalty created by the differences between tax savings from standard deductions for married couples with dependents verses unmarried couples with dependents filing with two heads of households.

Table 4                        Marriage Penalty Resulting from Earned Income Tax Credits

The marriage penalty is the difference between a married couple’s Earned Income Tax Credit and unmarried couple’s combined Earned Income Tax Credit.  The table presents the marriage penalties derived from the differences in Earned Income Tax Credits.   Table-5 presents the Earned Income Tax Credits for each couple.

The Earned Income Tax Credit (EITC) is a tax credit as opposed to a tax deduction.  The EITC is a dollar amount paid to the taxpayer.  This is paid even if the taxpayer pays no taxes.  The EITC requires  a moderately complex calculation which increases as earned income increases from zero and then phases out to zero starting at given earned income levels.  The rates of credit and phase-out points are different depending upon the number of dependents of the taxpayer.  The different rates and phase-out levels are presented in the table immediately below.  The magnitude of the Earned Income Tax Credit can vary depending upon whether a couple is married or unmarried. The EITC requires a married couple to file jointly and treats them a single taxpayer.  Therefore, a married couple’s combined income faces the phase-out more rapidly than two single taxpayers who are not required to combine their incomes.

· Column one is the combined earned income for the couple.   Each level of combined earned income is presented as three different partners’ contribution levels: first row is a 100% : 0% split, second row is a 75% : 25% split, and third row is a 50% : 50% split.

· Columns two and three are each partner’s separate earned income.

· Columns four through eight are the tax penalties associated with each married couple compared to the corresponding unmarried couple filing as two single taxpayers.  The penalties presented assume that the unmarried couple has distributed the dependents to the taxpayer who derives the highest Earned Income Tax Credit. This assumption is not valid in all cases of unmarried couples.  The number at the top of the column is the number of combined dependents for the couple.

Table 5 Earned Income Tax Credits

The table presents the information using the following format:

· Column one is the combined earned income for the couple.   Each level of combined earned income is presented as three different partners’ contribution levels: first row is a 100% : 0% split, second row is a 75% : 25% split, and third row is a 50% : 50% split.

· Columns two and three are each partner’s separate earned income.

· Columns four through eight are the Earned Income Tax Credits for a married couple with the number of dependents stated at the top of the column.

· Columns nine through thirteen are the Earned Income Tax Credits for a unmarried couple with the number of dependents stated at the top of the column.  The unmarried couple is assumed to distribute the dependents to the partner who derives the highest Earned Income Tax Credit. This assumption is not valid in all cases of unmarried couples.

References

Aversa, Jeannine. (2000, October 25). U.S. sees Record Surpluses—Again. The Atlanta Constitution, pp. A1

Bull, N., Holtzblatt, J.R. Nunns, and R. Rebelein (1999). Defining and Measuring Marriage Penalties and Bonuses Office of Tax Analysis. (Issue Brief No. 82-Revised).

Carney, Timothy P. (2000). The Power to Destroy: Clinton Veto Cost Middle Class Most [On-line]. Available: http://www.worldnetdaily.com_exnews/20000911_xex_clinton_veto.shtml

Citizens for Tax Justice. (2000, February). CTJ Releases Distributional Analysis of GOP/Dems Marriage Penalty Bills [On-line]. Available: http://www.ctj.org/html/archmp.htm

The Concord Coalition. (1999, May). The Marriage Penalty [On-line]. Available: http://www.concordcoalition.org/federal_budget/000303issuebriefmarriagepenalty(rev).htm

Joint Committee on Taxation (2000, January). Description of the Marriage Penalty Relief Act of 2000 (Issue Brief No. JCX-3-00)

Joint Economic Committee (1997, October). The Marriage Penalty: A Hidden Tax on Traditional Families [On-line]. Available: http://senate.gov/~jec/marriage.htm

Jones, Sally M. (2001). Principles of Taxation for Business and Investment Planning (Rev. ed.). New York: McGraw Hill

McIntyre, Robert S. (2000a). The “Tax on Marriage”: We can get rid of it without giveaways to the rich Citizens for Tax Justice [On-line]. Available: http://www.ctj.org/html/marplong.htm

McIntyre, Robert S. (2000b). What Marriage Penalty? Phony figures in the tax debate Citizens for Tax Justice [On-line]. Available: http://www.ctj.org/html/marrpmay.htm

Mollison, Andrew. (2000, September 14). House override fails on marriage tax veto: Clinton wins again in dispute with GOP. The Atlanta Constitution, pp. A3

Williams, R. and D. Weiner. (1997). For Better for Worse: Marriage and the Federal Income Tax Congressional Budget Office [On-line]. Available: http://www.cbo.gov/showdoc.cfm?index=7&sequence=0&from=1

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