Cutting Marriage Tax Isn't So Easy - 3/16/01
cmfce at his.com
Tue Mar 20 18:29:22 EST 2001
subject: Cutting Marriage Tax Isn't So Easy - 3/16/01
from: Smart Marriages
"GOP Finds Cutting Marriage Tax, Once A Slam Dunk, Isn't So Easy"
By Brian Mitchell and Sean Higgins
Investor's Business Daily
March 16, 2001
Ending the "marriage tax" was supposed to be easy for the GOP. It brought
together two of the party's key constituencies - tax-cutting fiscal
conservatives and pro-family social conservatives.
But a funny thing happened on the way to the tax-cut altar. The pro-family
groups bolted. They are now fighting hard against President Bush's proposed
fix for the marriage tax. And they are winning.
House GOP leaders left the Bush fix out of the nearly $1 trillion tax-cut
package they passed last week. They are now scrambling to rework the fix to
please its critics.
They'll need to come up with something quick. Bush has made it his top
priority to pass his tax cut by early July. The House is expected to move on
the marriage tax in the next two weeks.
At the moment, though, the only thing everyone can agree on is that
something must be done.
Right now a husband and wife who both work often pay more in taxes than they
would if they were not married. This happens for two reasons:
(1) The standard deduction for married couples is less than the standard
deduction for two singles. A single person can deduct $4,400 from his
taxable income. Twice that would be $8,800, but married couples can deduct
Two single people living together can get an even bigger break if one of
them files as "head of household." That would give them a combined deduction
(2) Taxing husbands and wives together often pushes couples into a higher
tax bracket. Two singles with a taxable income of $60,000 would be taxed at
28%. But if they were married, their combined income of $120,000 would be
taxed at 31%.
They would pay even more if they were married and filed separately. That
would put them in the 36% bracket.
President Bush has proposed letting working couples deduct 10% of the lesser
income, up to $3,000. That would wipe out the "marriage penalty" for most
The Congressional Budget Office found in 1997 that 43% of couples incur the
"marriage penalty" under current rules. But 51% of couples are better off
the way things are now. Most of those have only one income.
The Bush fix would mean that couples with two incomes would pay less tax
than couples with one income at the same level. Instead of a "marriage
penalty," couples with stay-at-home moms would suffer a "homemaker penalty."
"What it really amounts to is a little subsidy for wives to be in the
workforce, and we don't really need that," said Michael Schwartz, lobbyist
for Concerned Women for America.
"Not only do I not think (the Bush proposal) is the right path, I think it
is actually harmful," he said. "It's not even better than nothing."
The Bush fix would also mean that the richer would pay less and the poorer
would pay more. That's because couples with stay-at-home moms earn much less
on average than dual-income couples.
Data from the 2000 census show that couples with a working husband and a
non-working wife have a median income of $45,541. For couples in which both
the husband and the wife work full-time, the median income is $72,930.
Working couples with kids do even better if they claim the Dependent Care
Tax Credit, which can cut up to $930 off their tax bill. Couples who do not
pay someone else to watch their kids can't do that.
Senate Minority Leader Tom Daschle, D-S.D., has sponsored a bill that would
let married couples file separately and each get the singles deduction. That
would end the marriage penalty all right. But it would tilt the tax system
in favor of couples with two incomes over couples with one.
Other bills in Congress would make the married deduction double the singles
deduction. Congress passed such a bill last summer, but President Clinton
vetoed it, saying it would cost too much.
But doubling the standard deduction won't end the marriage penalty for
everyone. Some working couples would still pay less tax as singles.
A third way put forth in Congress would double the standard deduction and
the top limit of each tax bracket. This would end the marriage penalty
without slighting one-income couples.
Sen. Kay Bailey Hutchison, R-Texas, has sponsored such a bill in the Senate.
Rep. Sam Johnson, R-Texas, has sponsored a similar bill in the House. Both
have won the support of many family groups.
In effect, the Hutchison and Johnson bills would revive the practice of
"income splitting." Income splitting was part of the tax code from 1948 to
Under it, a married couple making $60,000 is taxed at the same marginal rate
as a single person making $30,000. It doesn't matter which spouse makes the
money. One-income couples are treated the same as two-income couples.
Through the 1960s and 1970s, the trend in the U.S. and Europe was toward tax
codes that ignored marriage and treated earners as individuals. Income
splitting fell victim to the charge that it was unfair to singles. It was
also thought to waste labor by rewarding wives for not working.
Then in 1986, President Reagan pushed through the current system favoring
married couples. The Bush plan would reverse Reagan and restore a 1981 tax
break for two-income couples.
"What makes it so hard is that there are three groups of taxpayers:
unmarried taxpayers, one-earner couples and two-earner couples," said
Lawrence Zelenak, expert on tax law at the University of North Carolina.
"There is absolutely nothing you can do under which one of those groups does
not have a plausible complaint that they are getting a bad deal."
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