By Albert B. Crenshaw
The penalty, which causes some married couples to pay higher income taxes than they would as single people, has been a problem for as long as there has been a federal income tax.
The key element that leads to the marriage penalty is the progressive nature of the nation's tax code. As income rises, it is taxed at higher rates, also known as brackets. When two people marry, their income is added together, so instead of, say, two singles in the 15 percent bracket, they become a married couple partly in the 15 percent bracket and partly in the 28 percent bracket.
For example, a single man earning $25,000 annually and a single woman earning $25,000 would each be in the 15 percent bracket. If they marry, however, their annual income becomes $50,000 and some of it is taxed at 28 percent. For married couples filing jointly, that higher bracket starts at $42,350.
While the tax code penalizes married couples with similar incomes, it benefits couples in which one spouse earns most or all of the income.
For example, a single woman earning $50,000 annually is taxed at the 28 percent rate for slightly less than half her income, while the rest is taxed at 15 percent. If she marries a man with no income, $42,350 of their income is taxed at 15 percent, and less than $8,000 at 28 percent.
For lower-income workers, the effect can be even more dramatic because of the earned income tax credit, a credit designed to ease the tax burden on low-income working families. For example, the Congressional Budget Office last year found that two single parents earning $11,000 each would have no income tax liability and each would receive a $2,150 refund under the EITC. If they married, they would owe $765 in tax and receive only $1,368 under the EITC. The credit would wipe out their tax liability, but their refund would be only $603.
Thus this couple would lose $3,701, or 16.8 percent of their income, by virtue of being married.
The CBO study found that about 42 percent of couples paid a marriage penalty in 1996, 51 percent paid less than they would have as singles -- a marriage "bonus" -- and 6 percent were unaffected. In other words, 21 million couples paid an average of $1,400 in additional taxes because they were married, while 25 million got a tax benefit -- to the tune of an average $1,300 -- because of their marital status. In total, penalties added up to $29 billion, and bonuses to $33 billion.
Since World War II, tax policy has veered from greatly benefiting married couples to helping out singles to today's hodgepodge of rules that benefit some married couples and penalize others.
The CBO noted that "marriage penalties and bonuses are not deliberately intended to punish or reward marriage. Rather they are the result of a delicate balance among disparate goals of the federal income tax system."
Some scholars have found bonuses and penalties in the code going back to 1914, but the modern dispute dates from 1930. At that time, taxes were levied on individuals, and single or married people paid at the same rates. This benefited couples in which spouses had similar incomes and penalized those in which one earned much more than the other.
In community-property states, however, state law required that couples share all income equally. Taxpayers in those states had begun dividing their income equally for tax purposes as well, and in 1930 the Supreme Court upheld that strategy.
This resulted in couples in different states being taxed at different rates, depending on whether they lived in a community-property or common-law state. In 1948, to remedy this, Congress began allowing all couples to, in effect, equally divide their income.
This, in turn, meant that singles paid more tax on the same income than married couples. By 1970, a single person with $20,000 in income was paying $5,328 in tax compared with $3,750 for a married couple -- a 42 percent penalty for the single person.
Congress limited the differential to 20 percent beginning in 1971, and in 1981 it added a two-earner deduction of up to $3,000. This cut the penalty for couples affected by the penalty but boosted the bonus for others. The Tax Reform Act of 1986 repealed the two-earner credit but also sharply reduced the number of tax brackets, from 15 to two -- at 15 percent and 28 percent -- and thus also reduced the marriage penalty. The addition of new brackets in 1990 and 1993 boosted the number to five, and the issue began heating up again.
© Copyright 1998 The Washington Post