The Case For The Tax Cut

Policy Reports | Taxes

No. 226
Sunday, August 01, 1999
by Bruce Bartlett

Marriage Penalty Relief

A marriage penalty exists when a two-earner couple pays more federal taxes than they would pay if each spouse could be taxed as a single.35 The tax tends to be greatest where each spouse has roughly the same income. The tax bill helps alleviate this problem by widening the 15 percent bracket and increasing the standard deduction for married couples.

According to the Treasury Department, this year alone couples will pay $28.3 billion more in federal taxes than if there were no marriage penalty. About 25 million couples will pay these higher taxes, which average $1,141 per couple. The Treasury study also found that increasing the standard deduction for couples would reduce the marriage penalty for three million of them, with the benefits mainly accruing to couples making between $15,000 and $30,000 per year.36 Among the other effects of the marriage penalty are these:

"Blacks and women suffer the most from the marriage penalty."

Blacks Suffer Most. Professor Dorothy Brown of the University of Cincinnati College of Law has argued that blacks are more likely to suffer a marriage penalty from the Tax Code.37 The reason is that among married couples, black women are more likely to work than white women. Furthermore, working black women on average provide a higher percentage of the couple's total income than working white women. In 1991, working married black women contributed 37.8 percent of the family income, while working married white women contributed 30.6 percent, according to the Bureau of Labor Statistics.38

Women Are Discouraged from Working. The marriage penalty mainly has an impact on women because they tend to be the lower-paid spouse. This means that a wife's income comes on top of her husband's and she pays taxes on her income at the couple's highest marginal tax rate. Many studies have shown that this effect causes many women to stay out of the labor force or work less than they would if the marriage penalty did not exist.39

Studies have also shown that efforts to mitigate the marriage penalty have had a strong impact on women's labor supply. A study of the 1981 tax act, which reduced the marriage penalty by instituting a secondary earner deduction, shows that married women's work expanded by almost enough to pay for the deduction's revenue loss.40 Analysis of the Tax Reform Act of 1986, which lowered the top marginal tax rate from 50 percent to 28 percent, shows that married women responded more strongly to the increased work incentive than men did.41

"Past efforts to mitigate the marriage penalty have had a strong impact on women's labor supply."

Another study estimated that if the marriage penalties remaining after the Tax Reform Act were eliminated, the average married woman would increase her labor supply by 46 hours per year. High-income and low-income women would respond even more strongly, increasing their work by 100 hours per year.42 The latest estimates by economists Martin Feldstein and Daniel Feenberg suggest that sharply cutting the tax rate on secondary workers could lead to an increase in earnings by such workers of as much as $66 billion per year.43

Marriage Penalties Discourage Marriage and Encourage Divorce. Several studies have looked at this question. They find that the marriage penalty has a small but significant impact on couples' decision to marry. When the marriage penalty rises, aggregate marriage rates fall. There is a much greater impact on the timing of marriage, with couples often delaying marriage from late in a year to the next year to minimize their marriage penalty.44 Finally, there is some evidence that taxes encourage divorce, especially on the part of women who are affected most by the marriage penalty.45

While the tax bill does not fully eliminate the marriage penalty, it takes an important step toward that goal.

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