The Marriage Penalty
It is remarkable that both Democrats and Republicans have so thoroughly embraced the goal of eliminating the so-called marriage penalty. Although lawmakers have not been of one mind regarding an appropriate strategy for removing this characteristic from the tax code, virtually no one has defended the status quo.
The marriage penalty, of course, is the feature of our income tax rules that causes some married couples to pay more tax than they would pay were they both single. Critics say this is unfair and encourages living in sin. (Personally, I would suspect the sincerity of anyone whose excuse for not getting married is to minimize his tax liability, but this is really beside the point.)
The discussion of the marriage penalty—more properly, the non-discussion of the marriage penalty—emphasizes that tax policy has become completely politicized and divorced from any philosophical considerations. The fairness argument sounds reasonable and, after all, the change would give lots of people a tax cut, which is usually a political winner. In reality, however, neither the politicians nor the public appear to have given the marriage penalty issue any serious thought.
The question everyone should be asking, of course, is what are the objectives of our tax policy beyond simply raising revenue. Does the marriage penalty advance or retard some generally accepted objective or is its effect neutral with respect to tax objectives. The concept of fairness, an often-invoked rationale, is too vague to be helpful here; fairness can be a quite subjective notion that, in practice, seems highly dependent upon one’s circumstances.
In less expansive times, people used to talk about taxation based on ability to pay. They even spoke without embarrassment of redistributing wealth, a phrase I have not heard in conjunction with the present attempt to abolish the inheritance tax. Only rarely does one hear fundamental questions raised about the income tax and whether some other tax, such as a value-added tax, would be preferable. And I cannot remember when last I heard someone invoke a principle as abstract as that one should not have to pay tax on money paid as tax.
However irrational our tax code—and it is pretty irrational by virtue of special interests having promoted provisions favorable to themselves—it does seem to embody a few concepts that are widely accepted. One of these is that everyone deserves to have some income exempted from tax, as everyone requires some money for subsistence. (Besides, taxing people into abject poverty simply means we have to subsidize them with welfare, which does not seem rational.) Most would also agree that the practice of (at least in principle) taxing higher incomes at a somewhat higher rate is justified on the basis that higher income people have relatively more money available after basic survival needs have been provided for.
But this suggests a prima facie argument for the marriage penalty. Although two cannot live as cheaply as one, living together— a usual concomitant of marriage—rather than marriage, per se, usually results in economies of scale with regard to the necessities of life. House payments, utility bills, grocery costs, even insurance for people living together is likely to cost less that twice what a single person otherwise similarly situated would pay. It is perfectly consistent for tax laws to tax married people more than two single people, given their lower subsistence expenses. It is perhaps unfair not to treat unmarried people living together the same way. The argument that the marriage penalty rewards living in sin could be countered by forcing cohabitants to file jointly and, potentially, suffer the imposition of the marriage penalty.
I am not necessary promoting the status quo, but I do think the so-called marriage penalty makes more sense than it is given credit for. It is interesting to note, however, that it came about as a reaction to the perception that single people were being treated unfairly by the tax code. We are, no doubt, going to swing the tax pendulum back too far in the other direction.
Isn't it time we re-thought our entire system of taxation, establishing principles before implementing regulations? Let us decide if we want to redistribute wealth, encourage savings and investment, or promote particular industries or activities. We would then have a framework within which rational discussion of particular tax proposals could take place.
— LED, 9/2/2000