SYNOPSIS: The 'Marriage Tax' is little more than a present for the upper middle class
After working hard for many years, you and your husband have retired with a decent income from pensions and investments. Then, sadly, he dies. Is it fair that you should suddenly face higher tax bills, because your deductions have been cut in half and you are now in a higher tax bracket? In 1969 widows didn't think so.
Thanks in large part to their complaints, Congress decided to increase the deductions offered to single adults, and raise the incomes at which they entered higher tax brackets. Married couples in which the husband was the dominant earner -- the norm 30 years ago -- still paid lower taxes than they would have if unmarried, but their advantage was reduced. Nowadays, however, there are enough married couples with two comparable incomes that this tax break for widows is denounced as a "marriage tax," though even more couples receive a "marriage benefit."
The moral of this story is that the legislation Bill Clinton vetoed last week, which would have reduced the taxes of married couples, was not a clear move in the direction of "fairness." Widows, widowers and single people in general can justifiably claim to have been unfairly neglected -- especially since it turns out that most of the benefits would have gone to couples who already pay lower taxes than they would if they were unmarried. And the vetoed tax cut would -- surprise! -- also disproportionately help couples who are already very well off.
So is this just another example of trickle-down economics, of tax cuts for the affluent that are supposed to benefit the rest in some indirect way? No: it's worse than that.
You see, in the good old days conservatives used to argue that the really important thing was to reduce the marginal tax rate, the share of an additional dollar of income paid to Uncle Sam. If people got to keep more of any extra money they made, so the argument went, they would be motivated to work harder, save more, and so on. Of course, that also meant big tax cuts for the rich -- but increasing incentives was supposed to be the point of it all.
The bill eliminating the "marriage penalty," however, doesn't reduce marginal tax rates for its biggest beneficiaries. A married couple earning $100,000 a year would have gotten a tax break of around $1,700 -- seven times as much as the benefit for a couple with half their income -- but any additional money they earn would have been taxed at the same 28 percent rate as before. And because the marginal rate hasn't changed, the couple have no incentive to work harder, invest more, or any of those other good things that tax-cutters usually promise. So this isn't even supply-side economics; it's just a gift package for upper-middle-class couples.
Still, isn't it a good thing to encourage marriage, the bedrock of our society? Any tax expert could have told Congress that the really serious marriage penalty in our tax code involves the earned-income tax credit, which supplements the income of the working poor: when low-earning workers marry, their benefits are sharply reduced. Congress did vote a token increase in earned-income tax credit allowances, but not nearly enough to solve the problem. You might think that strengthening families trying to work their way out of poverty is more important than persuading affluent professionals not to live in sin. But I guess not.
I never thought that I would miss the days of the Laffer curve, when right-wingers used to say that lower taxes would mean higher revenue. But back then tax cuts were rationalized by ideas, however silly. These days the anti-tax movement seems driven only by a carefully selective sentimentality -- one that weeps for children of multimillionaires who don't get their full inheritance, but tells poor mothers to go out and get a job.
And it's a funny thing, but though the rationale for tax cuts seems to have changed, the distribution of the rewards -- who gets nothing, who gets the big benefits -- always ends up being the same. You might think that just once, for the sake of appearances, Congress would pass a law that provided more benefits (at least as a percentage of income) to those earning less than $50,000 a year than to those earning more than $150,000. But these guys are nothing if not consistent.
Originally published in The New York Times, 8.9.00