Senate OKs ‘Marriage Penalty’ Tax Cut


In an effort to forge ahead on the massive tobacco control legislation, the Senate Wednesday embraced a major reduction in the “marriage penalty” tax.

The tax cut, added to the bill as an amendment, would be funded with some of the money raised by the measure’s proposal to raise taxes on cigarettes by $1.10 a pack over five years. These tax revenues had been targeted for other purposes, including anti-smoking public health programs.

But the addition of a significant tax cut was considered crucial to passage of the legislation since, without such a provision, backers of the effort to crack down on the tobacco industry feared that opponents would be able to block the bill indefinitely.

“Clearly, people wanted a tax cut in the bill,” said Sen. John McCain (R-Ariz.), who authored the overall legislation. “But [approval of the tax cut] also was [a vote] to move the process forward.”


The tax-reduction plan would take effect over 10 years, gradually increasing to $3,300 the deduction for married couples with incomes of less than $50,000 a year. When the deduction is fully in effect, it would wipe out the existing marriage penalty for couples who meet the income qualification.

The amendment, co-sponsored by Sens. Phil Gramm (R-Texas) and William V. Roth Jr. (R-Del.), also would permit self-employed workers to deduct the full cost of their health insurance immediately.

The marriage penalty tax refers to the fact that many married couples end up paying more in taxes when they file jointly than if each had each filed separately. Whether this occurs depends in large part on the disparity between the two incomes. The bigger the difference in income, the less likely a couple is to pay higher taxes. Those most likely to be hit are two-earner families where the husband and wife earn about the same income. In these cases, the tax code’s progressive rate structure pushes couples into higher tax brackets faster than it does individuals.

However, many married couples--especially those with a large difference between the incomes of the husband and wife--receive a marriage bonus: they pay less in taxes as a couple than if they were single. The deduction added to the tobacco bill also would be available to those couples.


The tax-cut amendment was adopted by voice vote.

The bill still faces a number of hurdles. For instance, contentious votes on a measure that would cap at $1,000-an-hour the fees paid to plaintiffs lawyers in lawsuits against the tobacco industry are expected today.

“We’re going in circles,” complained Sen. John B. Breaux of Louisiana, a moderate Democrat who is often a bellwether of lawmakers’ sentiments on major policy matters.

To fund the marriage penalty tax reductions, revenue earmarked for an array programs would be reduced by one-third. These include anti-smoking programs, reimbursing states for the cost of treating people with tobacco-related diseases and providing aid to farmers whose livelihoods would be threatened by a reduction in tobacco use.


A Democratic alternative that took less money out of public health and other programs in the bill was shelved.

The White House made clear that it was not comfortable with the bite the tax cuts would take. Administration officials are fearful that, if the measure gets to the House, hunger for tax cuts in an election year could consume the money for anti-smoking programs.

“We prefer the [proposed] Democratic tax cut to the Republican tax cut and we preferred no tax cut at all in the bill,” said Bruce Reed, director of the White House Domestic Policy Council.

Public health groups were deeply disturbed by the new moves. “The burden is on Sen. McCain and the White House to ensure that at the end of the day there is enough money in the bill for the public health programs,” said Matthew Myers, general counsel for the National Center for Tobacco-Free kids.