The Magazine

Marriage Penalties

What's good and what's bad in Bush's tax plan

Feb 26, 2001, Vol. 6, No. 23 • By ALLAN CARLSON and DAVID BLANKENHORN
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So here is the conservative economist Alan Reynolds of the Hudson Institute in 1999, writing in National Review, worrying that the U.S. economy is "running short of willing and able workers." Why are we running short? Primarily because high marginal tax rates are "driving skilled married women out of the labor force." This is very bad. Such women become economic non-contributors. They raise children and run communities as volunteers, indifferent to the fact that The Economy needs them! And here is the Social Democratic finance minister of Sweden, Bosse Ringholm, explaining in February 2000 that he opposes the extension of certain tax benefits to at-home parents because "society gets nothing back from a parent who is at home. Those who are at home contribute nothing to the state." Milton Fried-man strategically cuddling up with Gloria Steinem. Who could have imagined it? Yet this odd intellectual scaffolding has defined the "marriage penalty" debate in the United States for more than two decades.

In 1981, purportedly to reduce the marriage penalty, the Reagan administration sought and achieved a change in the tax code that was an important step in the direction of individual taxation. Under this law, couples in which both spouses work were allowed to deduct 10 percent of up to $ 30,000 of the income of the lower-earning spouse. It was a classic supply-side measure -- essentially a $ 600 per year incentive for the second spouse to enter the paid labor force. This provision was eliminated in the tax changes of 1986.

In the early 1990s, Newt Gingrich loudly revived the notion of ending the marriage penalty, including the promise in the Republicans' 1994 Contract With America. In 1997, the Congressional Budget Office weighed in, releasing a study not only quantifying the marriage penalty, but also showing that many (primarily one-earner) couples enjoy what the CBO called a marriage "bonus" -- that is, they pay less as a married couple than they would have paid as single individuals. Largely on the basis of this CBO report, virtually everyone in the public debate -- except a few eccentric marriage buffs -- came firmly to believe that individual filing represents the basic standard of tax fairness.

This was a huge idea, and it had consequences. In 1997, and again in 1999, congressional Republicans seriously entertained, and in fact came close to passing, legislation permitting married couples to file their returns singly, as if they were unrelated individuals, or jointly -- whichever would result in the lower tax burden. Only last-minute lobbying by the Family Research Council and a few individuals, including several marriage buffs on key congressional staffs, prevented this idea from becoming law.

Which brings us finally to President Bush. His proposal for reducing the marriage penalty in 2001 is to go back to 1981 and permit the second earner in two-earner couples to deduct 10 percent of income, up to $ 30,000. In purely economic terms, this is a fairly small move. But it is rooted in the same bad thinking that has haunted this issue for decades. Such a shift in the tax code would be economically regressive, primarily benefiting comparatively affluent, two-earner couples. By encouraging spouses to join the paid labor force, and by shifting a greater share of the total tax burden onto one-earner couples, such a law would create greater disincentives for at-home motherhood and for all other forms of unpaid work in families and communities. More broadly, by moving us closer to an individual, as opposed to family, basis for taxation, such a policy would discourage the economic and personal interdependence that is at the heart of marriage.

There are several ways to eliminate the marriage penalty properly, without undermining marriage as an institution. The details vary, but the essential idea is to treat married couples as joint economic partnerships, just like other legally recognized economic partnerships, permitting them fully to share their income for purposes of taxation. Congress actually adopted something very close to this in 2000, only to have the legislation vetoed (mostly for extraneous reasons) by President Clinton. So a genuinely pro-marriage solution is readily available for anyone who wants it. But it would be better to do nothing about this problem than to do what President Bush is now proposing.