The Magazine

MARRIAGE AND TAXES

Feb 9, 1998, Vol. 3, No. 21 • By ALLAN CARLSON and DAVID BLANKENHORN
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Weller-McIntosh would permit married couples to file their returns either singly, as if they were unrelated individuals, or jointly -- whichever results in the lower tax burden. The practical effect would be to give a tax cut to two-income couples, with most of the relief going to those with fairly high incomes. In short, Weller-McIntosh would replace the marriage penalty with a new "homemaker penalty," penalizing millions of at-home parents by shifting a greater share of the tax burden onto them. The proposal would also encourage millions of couples, in effect, to deny their marital partnership each April 15, seeking tax treatment as individuals rather than as couples.


The measure's advocates insist that it will strengthen marriage. Actually, just as in Sweden, the predictable results of introducing "marriage neutrality" as a guiding principle of federal taxation are reduced incentives to marry, reduced incentives to bear children, heightened incentives for the parents of young children to enter the paid labor force, and discouragement of all non-market and home-centered labor.


What Congress has forgotten is that two economies always coexist: the market economy, where exchanges take place primarily through money and where competition and effciency drive decisions; and the home economy, where exchanges take place through the altruistic sharing of goods and services among family members, normally independent of cash calculations. It is precisely the home economy -- acts of unpaid production ranging from parental child care and nursing of the sick and the elderly to gardening, home carpentry, and food preparation -- that is the organizing principle of family life and the basis of civil society.


Every marriage creates a new home economy. These little economies are largely undetected in our measurement of the gross national product, just as they are usually beyond the reach of tax collectors. But they are vitally important. If they thrive, the wellbeing of children and of society as a whole improves. Despite its having arisen under the guise of ending the marriage penalty, the current push to weaken the recognition of marriage in the federal tax code -- to move toward taxing all persons as individuals, regardless of marital status -- will do little to strengthen marriage and much to undermine it.


The United States once had a pro-family tax code. It was crafted in the 1940s and lasted into the 1960s. From the introduction of the modern income tax in 1913 until 1943, the federal record on taxes was fairly dismal. The federal income tax largely ignored marriage in favor of efficiency of collection and progressivity of rates, achieved primarily by designating the individual as the main taxable unit. Perhaps not coincidentally, family trends were sharply negative during this period: The marriage rate tumbled, the divorce rate climbed, and the birth rate dropped by a third.


One catalyst for change was a 1930 Supreme Court decision, Poe v. Seaborn, holding that in community-property states (where by law husbands and wives are allocated equal shares of family assets, regardless of the assets" origins), married couples must be permitted to share or "split" their income for purposes of taxation. This change allowed married couples to file joint returns in which the marriage was treated as an equal partnership, with each spouse holding a claim to exactly half of the couple's total income, and with tax brackets for joint returns twice as wide as for singles. Within progressive rates, this measure provided a substantial economic benefit to marriage. (In those rare cases in which husbands and wives earned the same amount, the effect was nil.)


During the 1930s, the practice of income splitting spread, as state legislators found themselves able, by adopting community-property provisions, to provide their constituents with a pro-marriage cut in their federal taxes. To end this stampede, the House Ways and Means Committee proposed in 1941 to eliminate the joint return, so that married couples would pay the same tax on their consolidated income as they would have paid as two individuals -- a reform idea very similar in spirit to that of the Weller-McIntosh single- filing proposal. However, the proposal was beaten back in the House as "a tax on morality" and as "an incentive to divorce."


Instead, the Tax Reform Act of 1944 created for the first time a uniform tax exemption of $ 500 per person, granted only to household members related by "blood, marriage, or adoption." In 1948, the Republican Congress, overriding President Harry Truman's veto, passed a second Reform Act, raising the personal exemption to $ 600 and extending income splitting for married couples to all 48 states.