House Backs Cut in Marriage Penalty, Amid Veto Threat

The House voted Thursday to cut the taxes of married couples by $182 billion over the next 10 years, defying a veto threat from President Clinton, who views the potential election year windfall for families as excessive.

The bill, approved 268 to 158, would reduce the so-called marriage penalty for millions of couples by increasing their standard deduction and allowing more of them to qualify for the lowest tax rate.

“We are going to end one of the most illogical and unfair aspects of the tax code,” said Rep. David Dreier (R-San Dimas). “Married people should not pay more in taxes simply because they are married.”

Clinton and the House Democratic leadership support the idea of reducing the marriage penalty, but they argue that the Republican-drafted bill is too expensive and too skewed to affluent taxpayers. Compared to Clinton’s proposal to provide $45 billion over 10 years in relief for married couples, the GOP bill is a “two-fisted assault on the U.S. Treasury,” said House Minority Whip David E. Bonior (D-Mich.).

Renewing the line of attack Democrats used on various Republican tax-cut proposals last year, Bonior charged that the new GOP bill “would rob America of the dollars it would take to pay down the debt, to strengthen Social Security and to protect Medicare.”

But in a sign of the strong political appeal of slashing the marriage penalty, 48 Democrats defected and voted with 219 Republicans and one independent to pass the GOP bill. Still, enough Democrats opposed it that they deprived Republicans of the two-thirds majority they would need to override a presidential veto.

Among the California delegation, all 24 Republicans backed the bill, while two of 28 Democrats broke ranks to support it: Reps. Matthew G. Martinez of Monterey Park and Gary A. Condit of Ceres. Reps. Lois Capps (D-Santa Barbara) and Zoe Lofgren (D-San Jose) did not vote.

The bill now goes to the Senate, where Majority Leader Trent Lott (R-Miss.) said that it would be debated by mid-March. Democrats plan to offer amendments to scale back the tax cut and add unrelated initiatives, including Clinton’s proposal to provide a prescription drug benefit through Medicare.

These maneuvers, as well as the core disagreement over the size of the tax cut, cloud the measure’s future. But lawmakers in both parties insisted that tax reduction for married couples presents one of the most promising opportunities for Clinton and Congress to compromise and enact some tax relief this year. The marriage penalty bill is far more narrowly targeted than the sweeping GOP-authored $792-billion tax cut that passed Congress last year on virtual party-line votes and then was vetoed by Clinton.

“We can reach some accommodation,” Senate Minority Leader Tom Daschle (D-S.D.) said Thursday.

At the core of the debate is a quirk in the tax code that forces about 25 million married couples--including 2.8 million in California--to pay more in taxes filing jointly than if they remained single and filed separately.

According to the Congressional Budget Office, about 42% of all joint filers incur a penalty averaging $1,400 a year. However, many other joint filers enjoy a marriage “bonus” and pay less in taxes than they would if they were single.

Whether a couple is hit by the marriage penalty is determined mostly by the disparity between spouses’ income: The bigger the difference in incomes, the less likely a couple is to be penalized. And couples usually do not pay a penalty if only one spouse has an income.

One reason married people pay more is because the tax code contains many breaks that provide married couples less than twice the benefits available to single taxpayers. For example, the standard deduction for a single taxpayer is $4,400; for married couples it is $7,350. In addition, tax brackets are now structured in a way that pushes married couples into higher brackets more quickly than individuals.

The clear support for eliminating tax inequities for married couples represents a reversal of thinking from a generation ago, when alterations to the tax code resulted in the marriage penalty. The changes Congress enacted in 1969 grew out of heavy pressure from single taxpayers, who complained that they were paying an inequitable share of taxes.

The political pendulum has swung back in part because of changing work force trends. From 1969 to 1995, the percentage of working-age couples in which both spouses worked for pay grew from 48% to 72%, and the gap in income between men and women diminished. As a result, a growing number of married couples were hit by the marriage penalty.

Political pressure to eliminate the penalty has mounted as the issue became a top goal for the GOP’s Christian conservative wing.

“The American people want to know who votes thumbs up for marriage and who votes thumbs down,” Janet Parshall, spokeswoman for the Family Research Council, a group of social conservative activists, said Thursday. “We’re going to pay close attention.”

The House bill would provide relief for all married couples, not just those who are penalized by the current system. It would:

* Increase the standard deduction for married couples to make it twice that of single taxpayers. For instance, if the current deduction of $7,350 is in effect for the 2001 tax year, under the bill it would rise to $8,800.

* Expand the 15% tax bracket for couples by gradually raising from $43,850 to $52,500 the limit on the amount of annual income couples can earn before they are bumped into the 28% tax bracket. Republicans said that provision would ensure that some relief is provided to couples that itemize their deductions and therefore do not take the standard deduction.

* Expand the earned-income tax credit for working poor couples by adding $2,000 to the amount a couple may earn before benefits begin to phase out. The change would increase payments to existing beneficiaries and allow more families to qualify for benefits.

Before approving the bill, the House rejected, on a 233-to-192 vote, a Democratic alternative that would have provided about $95 billion in tax breaks over 10 years for couples, but only after Congress approves measures to shore up Social Security and Medicare and to pay off the national debt.

Democrats cited studies estimating that the GOP bill would give three-quarters of its benefits to couples making more than $75,000 a year and that half the bill’s benefits would go to couples not affected by the marriage penalty.

But Republicans accused Democrats of making up excuses to avoid using any of the emerging budget surplus to cut taxes.

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Effect on a Family of 4

Effect of the bill on six families of four that take the standard deduction. The negative numbers at lower income levels reflect families that get money back from the government because their earned-income tax credit exceeds what they owe in taxes.

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Note: Figures reflect full effect of bill, which would not occur until 2005

Source: Joint House Committee on Taxation

Effect on a Family of 4, Los Angeles Times