Commentary | Wages, Incomes, and Wealth

Marriage Tax Bill Not That Helpful

Opinion pieces and speeches by EPI staff and associates. 


Marriage tax bill not that helpful

by Max Sawicky

Congress passed a bill that purports to eliminate the “marriage tax penalty,” and President Clinton vetoed it. Have we been denied the chance for connubial bliss? Not necessarily.

Who would benefit from the bill, and how? We can boil it down to four cases.

Case A is Marge and Homer Simpson. Their combined earnings are $25,000. Somewhere in the distance is the “toll gate to the middle class.” Before their wedding, each earns $12,500 and has two children (for the moment, forget about Bart, Lisa, and Maggie).

Under current law, filing as singles, Marge and Homer owe no income tax. Thanks to the Earned Income Tax Credit (EITC), they each get checks of $3,816 from the IRS. Once they marry, their combined benefits are reduced to $1,296, for a marriage penalty of $6,336 — over 25 percent of their joint income.

How does the bill passed in Congress help this family? Not at all. The marriage penalty remains. (Note that Marge and Homer also shoulder $1,913 each in payroll taxes, married or not.)

Case B is Al and Peg Bundy. Al makes $45,000, while Peg has four kids and is unemployed. As a bachelor, Al’s income tax is $7,279. Peg has no income, so she is ineligible for the EITC. After marriage, their income tax is $1,195. They get a nice marriage bonus under current law.

How does the bill passed in Congress help this family? Not much. Once they marry, Al and Peg’s taxes are $210 lower. (Note that they already enjoyed a marriage bonus.)

Case C is Cliff and Clair Huxtable. To keep things simple, let’s say they each make $60,000 and have two children. Under current law, each pays $7,221 in income tax. If they marry, the tax bill is $19,368; their marriage penalty is $4,927.

Congress is good to the Huxtables. Under the bill, their married tax bill goes down to $17,877, for a marriage penalty reduction of $1,491.

The properly skeptical reader may suspect that the examples merely highlight problems in the bill Congress has passed. But the examples are chosen to reflect general patterns in the Congressional bill. Low- and middle-income families get little aid, if any; families with marriage bonuses get tax cuts; and higher-income couples get the largest tax cuts.

In this sense, we have the worst of three worlds: little relief goes to those with the largest marriage penalties; more relief goes to those with with relatively high incomes; and those with no penalties get tax cuts anyway. Arguably, this is not the best use of the budget surplus.

There is one issue we haven’t mentioned. It’s reflected in a fourth family, our case D. Consider a single parent with the same income as the Huxtables. Call her Murphy Brown. Under the proposed law, her taxes are $21,803, or $3,926 more than the Huxtables’.

In families of equal size and income, the single parent will pay more tax. If Murphy Brown had five kids, for example, she would pay more in income tax than the Huxtables would pay if they had only four kids. This is true under current law, but the new bill makes it worse.

So what to do? Critics of marriage tax reform need a better tax cut of their own. The salient financial implication of marriage is not the union of adults but the result — dependent children. Since the ability to pay taxes depends on the number of children in a family, the logical remedy is to expand existing tax benefits for children.

Robert Cherry of Brooklyn College and I have proposed a “universal, unified child credit” that would be available to all working families. It would be refundable, rise to higher income levels than the current Earned Income Tax Credit, and phase down to a fixed minimum per child. Tax relief would be broadly and fairly distributed. Bipartisan legislation from Reps. Dennis Kucinich (D-OH) and Tom Petri (R-WI) is in the works.

Congress’ solution to the marriage tax is ineffective and wasteful. The President is justified in vetoing it, but it’s hard to beat something with nothing. In tax reform, the old political adage applies: if you stand for nothing, you’ll sit still for anything. Expanding tax credits for all working families with children is simple, effective, and fair – qualities lacking in the tax cuts passed by this Congress.


Max Sawicky is an economist with EPI. He specializes in U.S. budget policy and tax issues.

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