Labels matter in politics. They simplify and, in politics, simplification is often the essence of success.
Consider the "marriage penalty." That's a snappy label with real appeal. And it's enjoyed an unquestioned triumph in Congress. Whatever else is in the tax bill, there almost certainly will be relief from the marriage penalty.
But it's doubtful whether many members of Congress quite understood what they're doing. Put simply, they seem determined to spend $6 billion to $8 billion of the tax reduction to reward married women for working.
The marriage penalty refers to the alleged effect of the tax code in discouraging marriage by imposing a higher tax on a two-earner married couple than on the same two people living together and filing separate returns.
Understanding why this issue is so popular isn't difficult. First and foremost is its huge natural constituency. About half of all married women now work, up from less than fourth in 1950 and less than a third in 1960.
Beyond that, the magic of the label has united groups that usually aren't allies. Religious and family groups oppose the penalty as a subsidy for sin. At the same time, feminist organizations think that the marriage penalty discourages women from working. If you assume the woman is the second earner -- which most of these groups do -- then she faces high tax rates that may make the work seem unprofitable. Little wonder that Congress is bound to act.
The Senate bill would allow a couple to deduct 10 percent of the lower earner's wages up to $30,000, for a maximum deduction of $3,000. At a 30 percent tax rate, the savings for someone making $15,000 would be nearly $500. The House Ways and Means Committee bill would allow a 10 percent deduction up to $50,000.
But whether all this constitutes good tax policy is another matter.
The marriage penalty dates to 1969. Until then, single taxpayers and married couples used the same tax schedule, but married coupled (after 1948) were allowed to "split" their income. A couple with $20,000 could act as if they were two single taxpayers with $10,000 each.
Because the tax system is progressive -- the percentage of taxed income increases as income increases -- this represented a huge benefit when only the husband worked. Getting married meant an immediate tax cut. This was a "marriage reward" or a "singles penalty."
Reacting to complaints of singles, Congress slightly adjusted their tax schedule, although not enough to offset completely the advantage of the one-earner couple that "splits." As it happened, though, the change occurred just when the proportion of women in the labor force was rising dramatically. Now, when two earners marry, they usually find that their combined tax bill exceeds their taxes as singles.
The marriage penalty undoubtedly causes some couples to delay getting married -- perhaps postponing to the next year -- and it may hasten some divorces. But to think (as many do) that the tax system has a fundamental bias against marriaged and the family is utter nonsense.
Today's adjustment to the marriage penalty seems to suffer from the same awkward timing as did the 1969 shift in the singles' tax schedule. While Congress is accomodating yesterday's social reality, today's social reality may be changing.
The huge postwar "baby boom" generation is now beginning to have large numbers of children. Many two-earner families, rethinking their own priorities and values , may decide they want someone to stay home and raise the children.
But their decision will mean losing a sizable tax benefit. Will they think that unfair? Will family and religious groups decide they made a ghastly error of judgment? Somebody might even dream up a new label: the "baby penalty."
Feminist groups see the issue differently. They don't want high marginal tax rates (not the average tax rate, but the rate on every extra dollar earned) to keep women from working. They argue, quite plausibly, that the system already discriminates against the two-earner couple compared with a single-earner couple that has the same income.
Consider two couples with income of $30,000. They pay the same taxes, but the couple with one earner not only has less in work-related expenses but also more leisure time and the services of a homemaker. By that logic, correcting the marriage penalty would offset some of the difference.
As long as the tax treatment of families and single workers is different, there is no way to satisfy everybody. And the difference is likely to persist, because the alternative -- simply taxing all workers the same -- would involve a large tax increase for one-earner couples.
The real evil lies in the high marginal tax rates, which exaggerate the inevitable distortions. And the way to get those tax rates down is to cut out some of the exemptions, deductions, exclusions and credits that, by eroding the tax base, inevitably force up rates.
But with provisions like the marriage penalty, Congress is adding deductions, not subtracting. It's not solving problems but creating them.