The ‘Marriage Penalty’ Victimizes the Poor
In a few short months, I’ll pass the milestone that every little girl dreams of: the day she swears — before family and God, in sickness and in health, all in the name of love — that she’s willing to pay a much higher tax rate.
Yes, dear readers, yesterday was my last tax day as a single filer. By this time next year, I’ll be married, and the Internal Revenue Service will pool my earnings with those of my husband-to-be. The first dollar of my earnings will be taxed at the same marginal rate as the last dollar of his (or vice versa, depending on how you stack our incomes). Since marginal tax rates rise as earnings increase, that means we will have a higher tax liability as working spouses than we do as working single people. This higher tax burden is known as the “marriage penalty.”
My accountant informs me that hubby and I will each be slapped with a four-figure federal income tax “marriage penalty.” But don’t cry for us. We’ll grumble about it, sure, and one of us might even whine about it in a column. But husband-to-be and I will be able to absorb the higher tax burden and still pay our rent, as will most two-career, professional, childless couples who trade in a lower tax rate for the promise of wedded bliss.
The people who really suffer from the marriage penalty are lower-income families with young children — you know, those people constantly scolded by the Family Values Police for eschewing the bonds of holy matrimony or for being too lazy to work.
Consider a family in which the husband earns $25,000 and the wife stays home to care for their children. (Women are more often the more marginal earners, both because they earn lower wages and because they are more likely to be primary caregivers.) This family would face a series of painful “marriage penalties” if the mother decides to join the paid labor force.
If she takes on a $25,000 job, the family would lose the entirety of their earned-income tax credit — about $5,000 — and pay an additional $6,000 in payroll and federal income taxes, according to calculations from a recent report by the Hamilton Project, a nonpartisan think tank. This family would also lose access to about $2,600 worth of food stamp benefits, as well as other means-tested benefits, such as Medicaid. (The exact amount of lost benefits depends on which state they live in.)
To add insult to injury, the family’s expenses would rise sharply, too. Once mom goes to work, the family must find someone else to care for the children and do other household chores previously performed by an unpaid, stay-at-home mom. And in most states, day care costs more than college tuition.
Add up the increased taxes, the lost means-tested benefits and additional child-care costs, and the family is likely to keep just 29 cents of every dollar that this opting-back-in wife might earn, according to the Hamilton Project. That’s not much of an incentive for married moms to go back to work, especially if they have any non-finance-related misgivings about handing over child care and household tasks to hired help.
Conversely, if two unmarried sweethearts work, the tax code discourages them from getting hitched. I know of a few couples who have decided to live in sin in perpetuity for precisely this reason. There are also famous cases of couples repeatedly getting divorced at year’s end and remarrying in January, because your marital status on Dec. 31 is key to determining your annual tax liability. That loophole, however, was closed, after such divorce/remarriage schemes were deemed “sham transactions.”
Despite all the morality rhetoric spewed by some policymakers and pundits, Congress has expressed peculiarly little interest in removing disincentives for married moms to work or for working parents to marry. Periodically there are murmurings of change; last month, for example, Sen. Patty Murray, D-Wash., introduced legislation that would allow low- and middle- income families with young children to deduct part of the secondary worker’s earnings from their taxable income. But like other proposed reforms of the tax system, this has achieved little traction so far.
Right now, unpaid primary caregivers can calculate that the amount they would earn as paid workers is just not that much greater than the immediate costs of bringing in those earnings. I say “immediate costs” for a reason: By staying home now — to avoid the marriage penalty or otherwise — many parents will cost their families much more money later on, when the kids no longer need as much intensive child care, because extended career interruptions can result in persistently lower pay. In other words, by maintaining the “marriage penalty,” Congress is not only costing U.S. families billions of dollars today; it is also holding back their earning power tomorrow.
Catherine Rampell is a columnist for The Washington Post.