Republicans Look to Eliminate ‘Tax Penalty’ For Married Couples
BY Jim Cosgrove
April 12-18, 1998 Issue | Posted 4/12/98 at 2:00 AM
Ending ‘wrong and immoral'system has heavy backing in Congress
WASHINGTON—Republicans in Congress have long been pushing for a tax system overhaul. Plans for a dramatic restructuring include the so-called “flat tax,” which would establish one tax rate for all Americans, with generous personal exemptions, and a national sales tax that would replace the income tax. Yet even the most ardent GOP tax reformers admit that such far-reaching initiatives are years away from political reality.
While the big ideas perco-late, however, a host of smaller GOPtax initiatives have already become law. In the 1997 balanced budget law, for example, capital gains taxes were cut, estate taxes reduced, and per-child tax credits instituted.
Presently, some Republicans have another tax cut in their sights—one involving married couples. House GOP stalwarts are pushing to repeal the so-called “marriage penalty,” which causes some couples to pay higher taxes simply because they became man and wife. The idea is fast gaining support, and legislation to end the marriage tax has the backing of a number of leading pro-family groups.
The marriage penalty is a common problem. When two individuals who are each in the 15% tax bracket become married, their combined income often pushes them into the 28% bracket when filing a joint return—even though neither of their earnings has increased. Simply because they are married, a portion of their earnings is taxed at a substantially higher rate.
For example, a single man earns $31,000. The first $25,350 of that income is taxed at 15%, with the remainder at 28%. He owes $5384.50 in taxes. Asingle woman earning $30,000 pays the same rates and owes $5,104.50. When they are married and file jointly with the IRS, however, the 15% rate only applies to the first $42,350 in income, on which the couples owe $6,352.50. The remaining $18,650 in earnings is taxed at the higher 28% rate. As a result the couple would owe $5,222 on that portion of their earnings. In summary, while the couple paid $10,489 in total taxes while single, they pay $11,574.50 in taxes after being married—a $1,085.50 tax increase despite no increase in income.
A congressional analysis showed that there are many couples in this predicament. In fact, a recent Congressional Budget Office study showed that more than a million families paid an average of $1,400 more in taxes because of the marriage penalty.
"The marriage [penalty] is particularly harmful to couples on the borderline,” said Neal Hogan, director of legislation at the Catholic Alliance, a Washington-based advocacy group. “For many couples, a couple of thousand dollars could have impact on their overall financial health. Choosing between being married in the Church on the one hand and financial well-being on the other is not a choice any couple—Catholic or otherwise— should be forced to make.’
There are three approaches to eliminate the marriage penalty, all of which have strong support in the U.S. House and Senate. The first is a bill by Reps. David McIntosh (R-Ind.) and Jerry Weller (R-Ill.), known as the Marriage Tax Elimination Act. This legislation essentially would allow each spouse in a two-income family to file separate returns. It gives each earner the right to calculate his or her tax burden separately, then combine the total owed by both. In the above example, this would allow the couple to pay the same amount they would have paid if they were unmarried.
Another piece of legislation, the Marriage Protection and Fairness Act, sponsored by Reps. Bob Riley (R-Ala.) and Matt Salmon (R-Ariz.) seeks to nullify the marriage penalty by a process known as “income splitting.’ Proponents of this approach claim that income splitting would be fairer for couples who make the financial sacrifice of having one parent stay at home to care for the kids. For example, a couple in which one spouse earns $61,000 and other spouse has no income could split the total household income and file as two earners, each with a salary of $30,500. Under this proposal, all $61,000 in earnings would also be taxed at the 15% rate. The proposal also helps two-income couples, since the standard deduction for married couples would be double that of single filers.
The third approach eliminates the marriage penalty, but it also has broader applications. Reps. Jennifer Dunn (R-Wash.) and John Thune (R-S.C.) have introduced the Middle Class Tax Relief Act, which would expand the 15% tax bracket to cover more individuals and married couples. Under current law, the 15% rate applies to the first $25,350 of a single person's income and the first $42,350 of a married couple's income. This legislation would raise those limits to $35,000 for singles and $70,000 for couples. In the example above, therefore, the couples would pay the same tax ($9,150) whether married or single—a substantial savings compared to current law and the other proposals.
"This tax is wrong and immoral,” said McIntosh in a speech to the Christian Coalition last year. “Because the second income in a family is … often the wife's, the marriage penalty really is a tax on working women. Washington must encourage families to stay together, not tax them more for supporting their families.’
While the competing proposals vie for co-sponsors and support from the GOP leadership, pro-family groups are girding for a major push once a marriage penalty repeal bill reaches the floor. In October, the House GOP leadership highlighted elimination of the marriage penalty as a goal for 1998, and a just-passed budget resolution allocates resources to do just that.
"Any structural impediment in the tax code to marriage should be abolished,” said Hogan. “The marriage tax is particularly troublesome to Catholics because it makes it more affordable to cohabitate than to get married. The concept of marriage is central to our faith. If we truly believe that the institution of marriage is a critical foundation of a strong moral society, then we have to oppose this tax.’
Marty Dannenfelser, director of communications and government affairs at the Family Research Council, sees momentum swinging toward efforts to treat all married couples equally.
"However we repeal the marriage tax, we should do so in a way that treats two-income families and single-income families the same,” he said, noting that the Riley-Salmon “income-splitting” bill accomplishes that goal. “This debate has progressed in much the same way as the child care debate. People are beginning to realize that we cannot continue to penalize families when one parent stays home to care for the kids.’
Most pro-family groups, including the Family Research Council, the Christian Coalition, the Traditional Values Coalition, Concerned Women for America, and Eagle Forum have come out strongly for the repeal of the marriage penalty. In late March, these groups released a joint letter to Speaker Newt Gingrich (who is himself the cosponsor of a repeal bill) urging him to schedule a floor vote quickly.
"For most Americans, the average marriage tax penalty is equal in value to approximately six months of car payments,” wrote the pro-family leaders. “With an extra $1,400, a couple might be able to send a child to a school of their choice. Other families might be able to invest in a college savings account or make repairs on a home…. Eliminating the marriage penalty will provide much-needed relief.’
Michael Barbera writes from Washington.
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