GOP Seeks to Put ‘Marriage Tax’ on Rocks

Responding to an election-year clamor from conservatives and the tantalizing appeal of a burgeoning budget surplus, congressional Republicans are stampeding to reduce the “marriage penalty”--a peculiarity of the tax code that forces millions of Americans to pay more in taxes simply because they have tied the knot.

Even Democrats, who have generally been cool to tax cuts this year, are finding it hard to resist this one.

“I can count votes,” said Senate Minority Leader Tom Daschle (D-S.D.), who is devising his own plan to curb the marriage penalty.

The idea will face its first legislative test as early as today, when the Senate is expected to approve using some of the revenues from a pending anti-tobacco bill to reduce the marriage penalty. And the House is expected to vote Friday on a budget that calls for reducing the marriage penalty by as much as $100 billion over the next five years.

But for all its irresistible political appeal, really wiping out the marriage penalty is a very costly proposition--$30 billion a year or more. Even in this post-deficit era, it is not clear how Congress could afford more than a token reduction this year.

Some Analysts Question Priority

And while the idea of doing away with the tax is as unassailable in the political arena as motherhood and apple pie, some tax analysts question the wisdom of making it a priority and say that some of the “solutions” Congress is considering would create new inequities.

“If you ask someone whether the tax system should penalize marriage, no one would say, ‘Yes,’ ” said William G. Gale, a senior fellow at the Brookings Institution. “But it’s a very complex and subtle issue and it’s not getting the treatment it deserves on [Capitol] Hill.”

Here’s the rub: Many married couples end up paying more in taxes when they file jointly than if they had each filed as single individuals. However, what is often obscured by the current debate is the fact that even more married couples receive a marriage bonus: they pay less in taxes as a couple than they would if they were single.

According to the Congressional Budget Office, 42% of all joint filers in 1996 paid a marriage penalty, which averaged $1,400, but 51% of joint filers received a bonus, averaging $1,300. The remainder were unaffected.

Income Disparity Key to Penalty

Whether a family is hit by the marriage penalty hinges in large part on the disparity between the incomes of the wife and husband. The bigger the difference in income, the less likely a couple is to be penalized. The people most likely to be hit by the penalty are two-earner families where the husband and wife earn about the same income.

The main reason married people pay more is because the code’s progressive rate structure pushes couples into higher tax brackets faster than it does individuals. If, for example, both a husband and wife have $23,950 a year in income, they would be taxed at a 28% marginal rate. But if they were not married and filed as individuals, they would be taxed at 15%.

Married couples also may suffer from the fact that the standard deduction and personal exemptions for joint filers are less than twice the amount they are for individuals.

One of the most ambitious efforts to reduce the marriage penalty, a bill introduced by Reps. David M. McIntosh (R-Ind.) and Jerry Weller (R-Ill.), would adjust the tax brackets and the standard deduction to make them double for couples what they are for single filers. That would cost about $150 billion over five years.

With a price tag like that, prospects for congressional action were dim earlier this year, when the Senate passed a budget that called for only $30 billion in tax cuts over five years.

Prospects have improved since then, however, as each new estimate of projected budget surpluses produces a higher figure (the latest is $39 billion). What’s more, GOP leaders have come under heavy pressure from disgruntled conservatives to push for a bigger tax cut and to pay more attention to social issues.

Part of the GOP leaders’ response has been to make their top tax-cut priority the elimination of the marriage penalty, which has been a central legislative goal of the Christian Coalition and other pro-family groups.

Tax Code Favors Traditional Families

Ironically, the current tax code tends to benefit the traditional family that social conservatives champion, where the mother stays at home with the children. The families most likely to receive a marriage bonus are one-earner families. Such couples often pay less in taxes after marriage because the earner is pulled down into a lower tax bracket when they file jointly.

But conservatives portray the marriage penalty as an attack on the institution of the family.

“It is unfair, it is anti-family and it must be changed,” said Randy Tate, executive director of the Christian Coalition. The group is spending $300,000 on a radio, phone and mail campaign to eliminate the marriage penalty.

Some critics argue that if Congress eases the burden on married people, it runs the risk of creating a tax penalty for single filers. Some skeptics also argue that getting rid of the marriage penalty is a tax cut for the well-off masquerading as tax relief for families. An analysis by Democrats on the House Budget Committee calculates that one version of McIntosh’s bill would channel 80% of its tax benefits to couples with incomes over $50,000.

Senate Republicans have blunted that criticism in the proposal offered as an amendment to the anti-tobacco bill. Sen. Phil Gramm (R-Texas) has proposed a new $3,300 deduction for married couples--but only if their income is under $50,000.

Gramm is looking for ways to trim the price tag on his proposal. In its current form, it would cost $45 billion over five years. President Clinton has been cool to the idea of eliminating the marriage penalty. He opposes the Gramm amendment, arguing that the proceeds of the tobacco bill should be used for public health programs.

Democrats Plan an Alternative

Daschle is planning to offer a Democratic alternative to Gramm’s amendment--in part to give political cover to Democrats up for reelection in 1998.

“They don’t want to be up for reelection and be perceived as against eliminating the marriage penalty,” said a senior Democratic aide.

In the House, the annual budget resolution calls for cutting spending by $100 billion over five years and using that money to eliminate the marriage penalty.

However, many moderate Republicans--including budget leaders in the Senate--are loath to cutting spending by that much. That could force Republicans to settle for a smaller tax cut--or to finance it from other sources, such as revenues from the tobacco bill.

Whatever the financing, some critics question whether this is the best use of federal resources, especially in light of the fact that last year’s tax bill gave several new breaks to families with children.

“Is this more important than the health of Medicare and Social Security?” said Iris Lav, associate director of the Center for Budget and Policy Priorities. “I don’t think this is a national priority.”

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For Better or For Worse

Some two-earner couples pay a tax penalty, but others get a bonus. A hypothetical married couple with income of $75,000 in 1996 owed $12,483 in federal income taxes:

Adjusted gross income: $75,000

Personal exemption: $5,100

Standard deduction: $6,700

Taxable income: $63,200

Taxes owed: $12,483

****

PAYING THE MARRIAGE PENALTY

If the husband and wife had remained single, the tax code would treat them differently. If each had earned $37,500, they would pay less than as a married couple, hence, a marriage penalty:

*--*

Man Woman Adjusted gross income $37,500 $37,500 Personal exemption $2,550 $2,550 Standard deduction $4,000 $4,000 Taxable income $30,950 $30,950 Taxes owed $5,546 $5,546

*--*

****

Total taxes owed as individuals: $11,092

Total taxes owed as couple: $12,483

Marriage penalty: $1,391

****

REAPING THE MARRIAGE BONUS

If one of them had earned all the family income, they would pay less as a married couple than as individuals, hence, a marriage bonus:

Adjusted gross income: $75,000

Personal exemption: $5,100

Standard deduction: $6,700

Taxable income: $63,200

Total taxes if earner were single: $16,355

Total taxes owed as couple: $12,483

Marriage bonus: $3,872

Source: Congressional Budget Office