Senate Approves Bill to Eliminate ‘Marriage Penalty’

The Senate on Tuesday passed a bill that would end the tax code’s much-maligned “marriage penalty,” the latest Republican-backed measure designed to spotlight tax relief as a major election issue.

The legislation would provide a fix for the legal quirk that last year caused nearly 25 million couples--about half of joint filers--to pay higher income taxes than if both partners had filed as individuals. But every couple would benefit under the bill. Indeed, President Clinton has argued that it would provide too large a share of benefits to couples who are well-off and do not suffer marriage penalties.

In fact, about 21 million couples received a “marriage bonus” last year, paying less in taxes filing jointly than if they had filed as single taxpayers, according to the Treasury Department. Often, this occurs when one spouse earns most of the couple’s income.

Clinton repeated his vow to veto the measure, which would reduce federal tax revenues by $56 billion over five years and $248 billion over 10 years. But he left room for compromise--if congressional Republicans agree to a Medicare prescription drug program to his liking.

Such a compromise “is the best way to break the partisan logjam and help the tens of millions of older Americans across this country who face rising prescription drug costs,” Clinton said. “By itself, I would veto this bill.”

So far, GOP congressional leaders have said that there will be no deal.

The Senate vote was 61 to 38, with eight Democrats--including Sen. Dianne Feinstein of California--joining the Republican majority in supporting the measure. Sen. Barbara Boxer of California joined most of her Democratic colleagues and one Republican in opposing the bill.

The vote fell short of the two-thirds majority that would be required to override a presidential veto.

“This has been a long time coming,” Sen. Sam Brownback (R-Kan.) said after the roll call. “We’ve fought for this for years.”

Added Sen. Kay Bailey Hutchison (R-Texas): “It is un-American to make people choose between love and money.”

But Senate Minority Leader Tom Daschle (D-S.D.) complained that the bill would benefit even couples that make more than $1 million a year and may now get the “marriage bonus.” Said Daschle: “Our Republican colleagues say that they should get another tax break--before we . . . extend the solvency of Social Security or Medicare or add a prescription drug benefit and before we create tax breaks to help middle-class families with pressing costs, like child care, college tuition or long-term care for their parents.”

Senate, House Must Resolve Differences

Senate negotiators still must work out differences with the House, which earlier this year passed a version of the bill that would cut taxes by $182 billion over 10 years. But GOP leaders are rushing to send a final bill to Clinton so the party can focus attention on it at the Republican National Convention in Philadelphia that starts July 31.

Senate Majority Leader Trent Lott (R-Miss.) offered a preview of the likely convention rhetoric, saying that a veto “is going to be very hard to explain. . . . Mr. President, are you for eliminating the marriage penalty tax or not?”

The Senate vote came just after the Congressional Budget Office provided the latest update in the growing projections of the federal budget surplus, estimating that the figure would reach nearly $2.17 trillion over the next decade. That was higher than the $1.87-trillion estimate last month by the White House budget office, and the new figure makes even more intense the political jockeying on Capitol Hill over how the windfall should be used.

In line with the GOP strategy to promote tax relief, the bill targeting the marriage penalty was the second major tax-relief measure passed by the Senate in less than a week. The chamber on Friday gave final approval to a 10-year, $105-billion phaseout of taxes on inheritances.

Clinton also has pledged to veto that bill, again arguing that it would provide too much benefit to those who need it the least: the wealthy.

GOP leaders are expected to delay sending the estate tax repeal to Clinton until September to keep the focus now on the marriage penalty. But at the same time, Republicans are setting their sights on another tax-cutting measure: repealing a 1993 law sought by Clinton that increased the income tax imposed on Social Security benefits for seniors with annual earnings of more than $34,000 for single taxpayers and $44,000 for couples.

Tax Deduction Would Increase

Eliminating the marriage penalty has been a top goal for religious conservatives, who argue that the tax code rewards unmarried couples living together and is a financial disincentive to marriage.

Part of the reason for the penalty is the standard income tax deduction, which is $4,400 this year for single filers. But for couples filing jointly, it is $7,350. The bill would raise the deduction to $8,800 for couples--twice that of single taxpayers.

Another source of the penalty is the structure of federal income tax brackets, which push couples into higher brackets faster than it does single filers. For instance, individuals pay a 15% rate on taxable income up to $26,250. But couples start paying 28% on taxable income of $43,850.

The bill would expand the 15% and 28% tax brackets for married couples to twice that of a single taxpayer.

The measure also would increase by $2,500 the income cap for low-income couples who claim the earned income tax credit.

In California, 2.8 million couples are affected by the penalty.

Whether a couple is affected largely depends on the disparity between spouses’ incomes: the penalty is more likely to hit couples with similar incomes.

The so-called marriage bonus, in contrast, is likely to kick in when one spouse receives 70% or more of the income reported by the joint filers. In these cases, the spouses pay less in the aggregate than they would if they were not married.

Democrats offered an alternative that would have allowed couples to file jointly or as single taxpayers and limited the relief to couples earning less than $150,000 a year. But it was rejected Monday night, 50 to 46.

According to the Clinton administration, about 9% of the benefits of the GOP bill go to taxpayers with adjusted gross incomes below $30,000, while 28% of its benefits go to those with incomes above $100,000 a year.

Sen. Edward M. Kennedy (D-Mass.) characterized the GOP bill as “plums for the rich and crumbs for everyone else.”

But Sen. William V. Roth Jr. (R-Del.) countered that all taxpaying families “have contributed to the tax overpayment in Washington. All these families, therefore, deserve to receive some of the benefits that we are seeking to return to the American people.”

Feinstein Favors Democratic Version

In voting for the GOP bill, Feinstein said that she favored the Democratic alternative. But Feinstein, who is seeking reelection this November, added: “If Congress only passes into law one piece of tax reform legislation this year, it should be marriage penalty relief.”

Other Democrats voting for the bill were Joseph R. Biden Jr. of Delaware, Robert C. Byrd of West Virginia, Max Cleland of Georgia, Herbert Kohl of Wisconsin, Bob Kerrey of Nebraska, Mary Landrieu of Louisiana and Robert Torricelli of New Jersey. The only Republican to vote against the bill was George Voinovich of Ohio.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Marriage Penalty Tax Cuts

A bill approved Tuesday by the Senate would fix the so-called marriage penalty, which causes millions of couples to pay higher taxes than if they had filed as individuals. The measure would be fully implemented in 2007. The bill now heads for negotiations between the House and Senate on a final measure that could go to President Clinton this week.

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Here are sample tax cuts that couples could expect to see, measured in year 2000 dollars:

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Annual income TAX CUT WITH NO KIDS TAX CUT WITH TWO KIDS

$25,000

$218 $513

$50,000

$218 $218

$75,000

$1,125 $1,096

$150,000

$1,560 $1,392

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Key Points of Bill

* Will gradually enlarge the 15% and 28% tax brackets so they apply to a greater share of married couples’ income.

* Will boost a married couple’s standard deduction in 2001 so that it equals that of two single people--in 2000 dollars, an increase from $7,350 to $8,800.

* Will increase the income cap for low-income couples who claim the earned-income tax credit.

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NOTES: 1. Bill does not affect tax breaks provided for children. 2. The couple earning $150,000 takes itemized deductions worth 16.4% of their income, and the couple earning $75,000 takes 15.4%. All other couples take the standard deduction.

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Source: Center on Budget and Policy Priorities