The tax proposal unveiled by the president on Aug. 28 contains a provision aimed at reducing the so-called "marriage-penalty" -- the anomalous structure of our income tax system that imposes a higher federal income tax on a married couple with both partners working than on two single individuals with the same incomes.
The president's proposal would permit the spouse with the lower income for the year to deduct 10 percent of that income (up to $30,000) and report only the remaining 90 percent.
The tax-reduction bill approved by the Senate Finance Committee a week earlier contained a similar provision, the principal difference being that the deduction would be phased in over a two-year period.
The proposed deduction is intended to compensate for the additive effect inherent in a joint return. That is, the income of both spouses is added together so that the smaller income is taxed starting in the higher tax bracket where the larger income stops.
An example, using the 1979 tax rules, will show how this works out in practice. Let's look at a married couple with no children or other dependents, one spouse earning $25,000, the other $20,000.
If we assume for the sake of simplicity that they have no other income and that they claim 13 percent of their income in itemized deductions, their joint federal income-tax bill comes to $8,990.
Now, if the same two people were not married and each filed an individual return, the tax liability for the one earning $25,000 would be $4,432, while the $20,000 income would generate a federal income tax bill of $3,018. The combined total is $7,450 -- or $1,540 less than the tax on a joint return. This $1,540 is the marriage penalty.
Using the formula in the president's proposal, the joint tax bill for the married couple (still applying the 1979 tax rates) would be reduced to $8,134. This is $856 less than under the present law -- but still $684 more than they would pay as single individuals.
So the new rule would take some -- but not all -- of the sting out of the present inequity by reducing the amount of the marriage penalty. This is not apt to pacify opponents of the present system. While the amount of the tax penalty is lower, the principle of a married couple paying more than two singles remains intact.
At the same time that it lessens the impact of one perceived inequity (without eliminating it), the new rule would generate another. This technique would impose a higher tax on a married couple with one breadwinnner than on a family with identical income brought in by two wage-earners.
This situation is hardly likely to escape the notice of the taxpayers. So instead of one group protesting -- with perhaps slightly muted voices -- the Congress is likely to end up hearing from two groups.
Added to the continuing complaints about the marriage penalty will be the voices of single-income families unhappy over what may come to be known as the "homemaker's penalty."
The eventual solution may be to permit income-splitting for federal tax purposes. That technique is now authorized (with some restrictions, depending on local law) for residents of community property states. Simply put, this would permit allocating half the family income to each spouse without regard to who received it.
Properly drawn, such legislation also might help to resolve some of the problems now affecting women in connection with Social Security benefits and retirement pension plans (particularly IRA and Keogh programs).
If we can see far enough down the road to recognize the shape of the tax laws that we're going to have to come to, it might make sense to avoid rushing into an interim fix.
Instead of a patchwork solution that may have some political attraction but only generates other problems, maybe we ought to take enough time to do it right the first time.