Here's a pretty good article on marriage penalty, I highlighted in bold the best insight.
Momentum builds for ending marriage penalty
in federal tax code
Copyright © 1998 Nando.net
Copyright © 1998 Scripps-McClatchy Western
WASHINGTON (January 1, 1998 11:18 a.m. EST nando.net) - About 42 million wage-earning
Americans take an extra hit on federal income taxes every year because they're married and forced to
pay a penalty for it.
"It's wrong. It penalizes married people. It discourages marriage and rewards people who live together
in sin," says Rep. David McIntosh, R-Ind., who's leading the growing bandwagon on Capitol Hill to end
the so-called "marriage penalty" this year.
McIntosh has 230 House co-sponsors, more than enough to pass the bill. House Speaker Newt Gingrich
of Georgia and almost all Republicans are co-sponsors. Some Democrats have signed on as well, including
Rep. Robert Matsui of California.
"We should not continue with a provision that, inadvertently or not, provides a disincentive to working
and getting married," Matsui says. "This is an unintended quirk of the tax law that ought to be fixed."
McIntosh's bill would allow married couples to file either as individuals or as a couple, whichever
provides the greatest tax benefit.
But opponents say the movement is ill-advised because it could return the federal government to its old
deficit-spending habits, and would be almost certain to create a new group of winners and losers under
the tax code.
For example, while an estimated 42 million spouses paid marriage penalties worth $29 billion in 1996,
an even larger number - 51 million - received $33 billion in extra tax money because they were able to
file as couples. The bonuses appear especially where only one spouse works for a wage, and for
low-income people.
Jeff Bell, president of a political action fund-raising committee for working families, said congressional
efforts to end the marriage penalty "might force Congress to take a step against families where one
parent chooses to stay at home and take care of the kids."
The marriage penalty was never written as a swipe against matrimony. Rather, it evolved largely
because of a phenomenon never envisioned by architects of the federal tax code - the growth of families
where both spouses work outside the home.
It's because double incomes have pushed household earnings into progressively higher tax rates that the
marriage penalty has flowered.
In 1996 the marriage penalty, which tends to hit middle and upper-income taxpayers, averaged nearly
$1,400 per family. The marriage bonus, which often works to the advantage of the less affluent,
averaged $1,300 per family.
The penalties and bonuses could grow large enough to "lead people to change their behavior toward work
or marriage itself," says Jane O'Neill, Congressional Budget Office director. "They may affect work
patterns, particularly for a couple's second earner."
But Robert Reischauer, a Brookings Institution scholar, said elimination of the marriage penalty would
be yet another favor for the rich.
"A lot of people look at the marriage penalty and say it's unfair and ought to be eliminated," says
Reischauer. "But a change would punish families with stay-at-homes moms, would benefit the affluent
and hurt the working poor, and add complexity to the tax code.
"The budget act of 1997 provided large benefits to upper income people. Why should Congress give
another tax break to the wealthiest people?"
Beyond the fairness issue, there are fiscal bumps in the road that the conservative McIntosh hasn't
figured how to avoid. It could cost the Treasury Department $30 billion each year in revenue,
according to the Congressional Budget Office. McIntosh estimates the cost at $18 billion in 1997.
Either way, President Clinton isn't buying. While agreeing with McIntosh that the marriage penalty is
"not defensible," Clinton said he wouldn't offer a major tax-cut plan in 1998, saying his first duty is to
prevent another build-up of federal debt.
The budget law requires that revenue losses be offset by cuts in spending in order to keep the nation on
a glide-path toward a balanced budget in 2002. McIntosh said he would pay for elimination of the
marriage penalty largely by tapping an anticipated surplus in the current fiscal year.
But that's where some of his supporters back away.
"Any solution to this problem must be offset by spending cuts or other adjustments to the tax code,"
said Matsui. "There has been a great deal of talk about spending the so-called budget surplus on this
and other priorities, and that talk should cease. Whatever surplus exists will be temporary and should
be used for additional deficit reduction, not permanent changes in the tax code."
Tax specialists say the marriage penalty has grown into a political problem as incomes have pushed
taxpayers into higher tax brackets. Some propose a different approach.
"The best and perhaps only way to truly fix the marriage penalty without penalizing single people is to
get rid of the progressive rate structure," said Stephen Moore, director of fiscal policy studies at the
Cato Institute, a think tank in Washington.
Moore said Republicans should push toward a flat tax system rather than fix the marriage penalty,
which he said would complicate the tax code and make "Republicans look hypocritical on the issue of tax
simplification."
"The value of fixing the marriage penalty is not worth the very large cost," Moore continued. "With
$30 billion, Congress could eliminate either the capital gains tax or the estate tax entirely, either of
which would be more pro-growth than elimination of the marriage penalty."
Others point out the tentacles of eliminating the marriage tax would be extremely long.
Eugene Steuerle, senior fellow at the Urban Institute, said it would also have a harmful effect on the
low-income working poor who get the Earned Income Tax Credit, as well as on families receiving
welfare, Medicaid and food stamps.
"While elimination of the marriage penalty looks simple," Steuerle continued, "it would require Congress
to adjust a wide range of tax code provisions, including individual retirement accounts, and phase-outs
of deductions and exemptions."
Key Republican senators are cool to McIntosh's proposal. Sen. Spencer Abraham of Michigan is
working on a Senate GOP alternative that would allow all married couples to split their income in equal
shares for tax purposes and then file as individuals.
But Abraham's aides concede that there are complications. Who, for example, declares the children as
exemptions? Who takes the deduction for interest on the home mortgage? Who gets the child care
credit?
Or are they cut down the middle, making everybody's tax filing more of a nightmare?
"Changing the marriage penalty would be a setback to tax simplification," says Reischauer, who doubts
it will happen.
By LAWRENCE M. O'ROURKE, Scripps-McClatchy Western Service |
