QuestionWhy do married people get tax breaks?
Hopes&Fears answers questions with the help of people who know what they're talking about. Today, we try to figure out who decided to give married couples in the US tax breaks.
The thought of getting married might conjure images of classy floral arrangements, teary eyed bridesmaids, or overbearing mother-in-laws. The minutia of marriage tax policy isn’t quite so sexy. But from the perspective of the IRS, people are no longer individuals once they get married, at least not in terms of income taxes!
While most countries tax each individual person independently, the US files married people jointly. And depending on the income of each partner in the marriage, this joint tax can either act as a benefit, or a penalty. What sort of couples are rewarded by this policy? And which couples might have been better off co-inhabiting without tieing the knot? Turns out men are rewarded if they marry unemployed women, black women are more likely than white women to incur marriage tax penalties, and no other developed country uses a joint return for married couples—according to the experts on tax law that we asked to answer these questions: Why did the IRS start taxes married couples together? Is this how other countries do it? What kind of behavior is rewarded by our tax policies? And is this the best way to do things in 2015?
Dr. James R Alm
Professor and Chair of Economics at Tulane University, The editor of Public Finance Review and Associate Editor of Review of Economics of the Household
The tax breaks really began in 1948, and were largely an afterthought (and an unintended one) to the 1948 tax reform that changed the unit of taxation from the individual to the family via the adoption of income splitting for married couples, partly because taxpayers in community property states were already implementing joint filing on their own. However, keep in mind that, beginning in 1969 or thereabouts, the tax code started penalizing (some) married couples, mainly those in which both partners earned similar (and significant) incomes.
Any time the unit of the income tax is the family, and not the individual, there can be a marriage tax and also a marriage bonus. Two people with similar incomes tend to face a marriage tax while two people with dissimilar incomes tend to receive a marriage bonus. The dominant practice, around the world these days is to tax the individual, not the family – in which case there is neither a marriage tax nor a marriage bonus.
There are three desirable properties of a tax system:
Tax couples with equal incomes equally
Tax a couple with the same liability as two singles with the same incomes
However, it is a mathematical impossibility to achieve all three. Currently we have a compromise that achieves (1) at the expense of the others.
Professor of Law, Professor of Sociology at Vanderbilt University, Fulbright scholar and pioneer in the analysis of federal tax code’s impact on African Americans
Married people traditionally received a marriage bonus in the form of lower tax rates than single people based on a post World War II vision of a stay at home wife and kids. As more women entered the workforce and made as much as their husbands, a marriage penalty was imposed on those couples many of whom were black because black married women are more likely to work and make close to their husbands' income. In recent years, Congress has sought to eliminate the marriage penalty. The changes were not always successful.
Patricia A. Cain
Professor of Law at Santa Clara University, Author of the book Rainbow Rights, The Role of Lawyers and Courts in the Lesbian and Gay Civil Rights Movement (2000) and co-author of one of the leading casebooks for Sexuality and the Law courses, Sexuality Law, 2nd edition (2009)
Married couples with only one earner (or perhaps one high earner and one low earner) experience a tax benefit by filing jointly. But two-earner married couples generally are penalized by the joint return rates. They would be better off filing as two single taxpayers. The primary reason for this difference is a historical accident and Congressional responses to political pressure. The modern joint return was enacted in 1948 in order to treat all married couples the same, regardless of where they lived. Before 1948, married couples in community property states were able to split community income and report each half on a separate tax return. Given the existence of progressive rates, these couples necessarily paid lower taxes than couples in non-community property states where the earnings all belonged to one spouse. And so the joint return was created to solve this problem. But then single parents complained that they were discriminated against because they could not split income with the children they were supporting. Congress responded with the Head of Household rates. And then single taxpayers complained that they were being discriminated against because married couples benefited from economies of scale and enjoyed the tax-free imputed income of the stay-at-home spouse. Congress responded by adjusting the rates for single taxpayers.
More recently, in response to complaints about the marriage penalty, Congress has responded by adjusting the lower brackets that apply to the joint return. As a result, most lower-income married couples do not experience a penalty from the rate structure. The United States is the only developed country that uses a joint return for married couples.
In the US, same-sex spouses can file federal tax returns using a married filing jointly or married filing separately status.
37 out of 50
US states recognize same-sex marriage:
Alabama, Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Indiana, Kansas Maine, Maryland, Massachusetts, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, Utah, Washington, West Virginia, Wisconsin and Wyoming, as well as the District of Columbia and some counties in Missouri.
Research Associate at the National Bureau of Economic Research
It came about because taxpayers in community property states were splitting their income on to two tax returns, thereby keeping more income in the lower tax brackets. After WWII, the federal government decided that it was unfair that taxpayers in community property states paid lower income tax.
In the UK, property income can be split, but not wage income. In France, income can be split with children also, a pro-natalist feature of the French tax system. There are limits to this in the French law. The progressive tax system [in the US] does discourage the wives of high-income husbands from working since they are taxed at a high rate from the first dollar of income.
ILLUSTRATION: Sergii Rodionov