Appeal Grows for Bid to End ‘Marriage Tax’

In its political appeal, it ranks right up there with kissing babies.

Ending the Tax Code’s “marriage penalty” appeals to social conservatives as a pro-family measure. Feminists like the idea because it would help working women. Anti-tax activists love it because it would send a huge chunk of money back to taxpayers.

And now, leading Republicans in Congress, including House Speaker Newt Gingrich of Georgia, are clamoring for elimination of the tax penalty that millions of Americans pay simply because of marriage.

“The question is simple: Do Americans feel that it’s right to tax a working couple more just because they live in holy matrimony?” said Rep. Jerry Weller (R-Ill.), who with Rep. David M. McIntosh (R-Ind.) has gotten more than half the House to co-sponsor legislation to end the marriage penalty.

But it is not as simple as it looks. Ending the marriage penalty for some could end up increasing the tax burden on others. Otherwise, it would cost the government a boatload of money. People who have spent a long time considering the problem wince at the complexity of solving it.

“They are getting into a morass,” said Rep. Barbara B. Kennelly (D-Conn.), a liberal Democrat who has led efforts in the past to reduce the tax burden on married couples.

Republicans included the issue in their 1994 legislative action plan, the “contract with America,” but have made little headway. Now, with the support of conservative groups from the Christian Coalition to the National Taxpayers Union, they are talking about making it the cornerstone of the next major tax bill.

Some Democrats dismiss the latest burst of GOP interest in the issue as political opportunism, noting that Republicans have moved far more quickly to enact corporate tax breaks than to end the marriage penalty.

This year’s tax legislation actually expanded the penalty by making many tax breaks more generous for single people than for married couples.

“As we approach the 1998 election, Republicans are trying to court middle-class married couples by talking up eliminating the marriage tax penalty, after they refused to relieve married couples’ tax burden during the last round of budget negotiations,” said a memo on the subject by the Democratic Congressional Campaign Committee.

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Many politicians talk blithely about the marriage penalty as if it were a discrete feature of the Tax Code. But the situation is complex, with roots extending into the structure of the code’s progressive tax rates, deductions and other breaks.

Many married couples pay more in taxes filing jointly than they would if each spouse filed as an unmarried individual, primarily because joint filing pushes them into higher tax brackets more quickly.

But many other couples pay less in taxes--they get, in essence, a marriage bonus--than if they had filed as individuals.

According to a recent report by the Congressional Budget Office, 42% of all joint filers in 1996 paid a marriage penalty averaging $1,400, but 51% of joint filers received a bonus averaging $1,300.

Whether a couple gets a penalty or bonus hinges on a variety of factors, but it rests principally on their total income and on how much is earned by each spouse. Generally, the bigger the difference between the spouses’ income, the more likely they are to receive a marriage bonus. The couples most likely to be hit by the marriage penalty are those in which husband and wife make about the same amount.

That helps explain why political pressure to address the problem has increased in recent years. As more women have entered the work force and their wages have increased in relation to men, more couples have been hit by the marriage penalty.

The principal source of the marriage penalty is the progressive structure of the income tax, the factor that pushes couples into higher tax brackets faster than it does individuals.

For example, if a husband and wife each has $23,950 a year in taxable income, they would be taxed at a 28% marginal rate for a total tax bill of $8,563. But if they were not married and filed as individuals, each would be taxed at 15%, and pay $3,592 in taxes, for a combined tax bill of $7,184.

What’s more, many couples are at a disadvantage because the standard deduction and personal exemptions for a couple are less than twice the amount they are for individuals. So, for example, if a couple earning $30,500 a year each filed jointly, their personal exemption and standard deduction would be worth $11,800. If they filed separately, each would have a $6,550 deduction, for a total of $13,100.

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New inequities were introduced into the Tax Code this year because the 1997 tax legislation set more restrictive income limits for couples than for individuals on several new tax breaks.

One of these, the income cap on participating in new tax-preferred retirement and education savings accounts, was set at $150,000 a year for couples, which is less than twice the $95,000 cap for individuals. This means that two people earning $90,000 each could set up one of the new accounts if they were single, but not if they were married to each other.

The couples most likely to get a marriage bonus are those with a stay-at-home spouse or with vastly different earnings. Such couples often pay less in taxes after marriage because the higher earner is pulled down into a lower tax bracket when they file jointly.

So, for example, a couple with $75,000 a year in income, all earned by one spouse, would be taxed at a marginal rate of 28% and pay $12,483 in federal taxes. If a single woman earned $75,000 a year, she would pay a 31% marginal rate and owe $16,355 in taxes.

Eliminating, or reducing, the marriage penalty would give its greatest benefits to middle- and upper-income couples because most of the lowest-income taxpayers receive marriage bonuses. According to the Congressional Budget Office, only 12% of joint filers earning less than $20,000 a year pay a marriage penalty.

So, for example, if Congress adjusted the tax brackets and standard deduction to eliminate the marriage penalty, 90% of the benefits would go to families earning $50,000 a year or more, according to the CBO.

Another option is to restore a tax deduction, which was eliminated in the 1986 tax simplification law, allowing couples to exempt from taxation 10% of the earnings of the lower-paid spouse. The principal beneficiaries of that approach, the CBO said, would be couples earning $50,000 to $100,000 a year.

Weller and McIntosh are taking a different tack. Their legislation would allow married people to choose to file either jointly or individually.

The biggest problem with that proposal is its cost: The CBO estimates that it would reduce government revenues by $18 billion a year, or $90 billion over five years. If Congress had approved that bill this year, it would have eaten up two-thirds of the $135 billion the budget set aside for tax cuts over the next five years.

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Gingrich brushes aside concerns about the cost of eliminating the marriage penalty, saying that the cost to the Treasury could be made up from the surplus expected to be produced by this year’s balanced-budget agreement. But budget analysts do not expect those surpluses before 2002, and there is no consensus on what to do with the windfall. Other Republicans favor cutting payroll taxes, spending more for roads and bridges or using the surplus to pay down the national debt.

Democrats argue that it is irresponsible for Republicans to promise to eliminate the marriage penalty without saying specifically how they would offset the revenue loss. The Democratic Congressional Campaign Committee memo on the subject noted that last summer the Republican-led House Ways and Means Committee rejected an amendment that would have eased the marriage penalty and offset the revenue loss by dropping proposed cuts in capital gains taxes and the corporate minimum tax.

“Either the Republicans have no intention of paying for this proposal or they are merely using popular rhetoric to court a constituency group with the perception of trying to assist hard-working married couples,” the Democratic group said.

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How Marriage Penalty Works

Some married couples--mostly dual-income households where the spouses earn roughly the same amount--pay more in taxes filing jointly than if each was single and filed individually. But other couples--mostly those with one wage-earner or spouses who earn widely disparate amounts--pay less because they are married than if they filed as individuals. Here are two examples:

INCOMES SIMILAR--COUPLE PAYS MORE

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Husband Wife Couple Adjust gross income $30,500 $30,500 $61,000 Personal exemption & standard deduction -6,550 -6,550 -11,850 Taxable income 23,950 23,950 49,200 Tax liability 3,592 3,592 8,563 TOTAL PENALTY 1,379

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INCOMES FAR DIFFERENT--COUPLE PAYS LESS

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Husband Wife Couple Adjust gross income $0 $75,000 $75,000 Personal exemption & standard deduction -6,550 -6,550 -11,800 Taxable income 0 68,450 63,200 Tax liability 0 16,355 12,483 TOTAL BONUS 3,872

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Sources: Congressional Budget Office; Rep. David M. McIntosh (R-Ind.)