IMAGINE a young couple, planning their wedding, making the arrangements for a new life together, thinking about the changes that married life will bring. Under todays tax laws, one of the unexpected -- and unwelcome -- surprises awaiting them comes when April 15 rolls around.
Because of the combined effects of the provisions of our tax code, many married couples pay more in federal income taxes than the two individuals would owe if they were not married. The need to provide relief from this marriage tax penalty is a top priority of Congress.
The marriage penalty came about as the result of two sets of tax changes that were made in response to legitimate social concerns. In 1948, Congress acted to create a married, filing jointly option for taxpayers. Prior to that time, each taxpayer filed as an single individual. The 1948 change made the tax brackets for married filers twice those of single taxpayers. Under this system, there was no marriage penalty.
The second change was made in 1969, in response to a growing concern among single taxpayers. The crusade for tax relief for single taxpayers was led by an elderly widow who made the very correct argument that as a single person, she paid much higher taxes than her married friends who had the same income but were able to take advantage of a lower tax rate because of their joint filing status. Congress responded by adjusting the brackets to provide tax relief for single taxpayers.
Since then, we have seen great changes in the economy -- principally, the tremendous increase in the number of two-earner families as millions of American women entered the work force. These social changes, combined with the changes in the tax laws, have had the unintended effect of creating a tax penalty on marriage.
In recent years, the marriage penalty has exploded into a major problem. In 1972, only 15 percent of married couples paid higher taxes because they were married; today 21 million American families, about 40 percent of married couples, have a marriage penalty.
Heres an example of how the tax laws penalize marriage. Suppose you and your spouse each work, and each earn $30,000. If you were single, you would each be entitled to a standard deduction of $4,400, or a total reduction in your taxable income of $8,800. If you are married, however, your standard deduction would be only $7,350. That means you would pay taxes on an additional $1,450 of earnings.
Congress should act this year to provide relief from the marriage penalty. One major step toward that goal would be to increase the standard deduction for married couples to make it twice the standard deduction for single taxpayers. Since 60 percent of married taxpayers claim the standard deduction rather than itemizing, that simple change would eliminate the marriage penalty for millions of American families.
One of the little-understood aspects of the marriage penalty is that it affects only couples whose income is fairly evenly balanced between the two individuals. For families with only one wage earner, the tax code actually provides a marriage bonus. According to the Congressional Budget Office, about 25 million American married couples benefit from a marriage tax bonus, and actually pay less in taxes than they would if they were single.
A marriage penalty bill should target tax relief to those who pay the marriage penalty. Unfortunately, the the Marriage Tax Penalty Relief Act, which is expected to be voted on today in the House of Representatives, reaches far beyond its stated purpose.
As written, more than half the $182 billion in tax relief provided by this bill would go to couples who do not pay any marriage penalty at all. We should target marriage penalty relief legislation to provide tax relief to families that pay a penalty, not to those that already receive a bonus.
One provision of the proposed bill is particularly problematic. The bill would increase the income levels at which the 15 percent tax bracket changes to 28 percent, which is at about $70,000 of earned income for a typical family. The idea is to expand the size of the 15 percent bracket for married, joint tax filers to make it twice the size of the 15 percent bracket for single filers.
While it is intended to reduce the marriage penalty, the problem is that most of the tax relief would go to taxpayers who currently enjoy a marriage bonus.
In addition, the provision will bust the budget. By delaying its effective date until 2003, and then phasing it in over six years, the bill attempts to conceal its true budget impact. This change, once fully phased in, is the most expensive provision in the bill, costing $20 billion a year.
And, finally, after years of budget discipline do we really want to consider marriage penalty relief without a budget blueprint in place? By taking up the bill before we have considered a budget resolution, we cant know how the bill fits into our overall priorities.
We can fix our tax code to support marriage, but lets do it the right way. We can help millions of American families escape the marriage tax penalty without creating a double marriage bonus for others.
Benjamin L. Cardin represents Marylands 3rd District in the House of Representatives. He also is a member of the Ways & Means Committee, which is responsible for all tax legislation.