When the "marriage penalty" first appeared in the tax code in 1969, most families had only one member working, and the tax provision was designed to give a tax cut to one-income families. Unfortunately, the tax failed to envision the growing number of women in the workforce. Today in most families, both spouses work, either because they want to or because they must to make ends meet. The marriage penalty targets these two-income families for higher taxes. That is because the penalty taxes the income of a family's second wage earner at a much higher rate than if the salary were taxed only as that of an individual.
In order to address this inequality, the tax cuts of 2001 and 2003 resulted in married couples in the 10 percent and 15 percent tax brackets receiving standard deductions that are exactly twice those of individuals. Prior to 2001, many married couples paid a "penalty" because their standard deductions and income tax brackets were less than twice those of singles.
Unfortunately, the penalty that the tax code gives to married couples never went away for those in higher tax brackets. Congress' last-minute actions (after years of inaction) surrounding the "fiscal cliff" on New Year's Day perpetuated bad dogma resulting in the 25 percent bracket ending at $87,850 for singles but only at $146,400 for joint filers. The highest bracket starts at the same income level whether the filer is a married couple or a single person.
The 112th Congress should be applauded for rescuing married couples in the 15 percent and lower brackets. Yet if this marriage penalty is bad policy at 15 percent, what makes it good policy to penalize marriage at other levels? Deductions and exemptions for items such as property taxes, children and charitable donations also will be eliminated for married couples making more than $300,000. If you are married and make $450,000, you are hit even harder. In addition to the aforementioned penalties on your income, your tax rate is being raised by nearly 5 percent to almost 40 percent.
A couple making $300,000, while better off than most others, is not necessarily "rich." They are often business owners who hire workers or, to use a description that Washington might be able to understand, they are the people who employ more taxpayers.
The Wall Street Journal estimates that a married couple with children making an income above $300,000 would pay close to $20,000 more in taxes as a result of the marriage penalty. This is money that most families, rather than politicians, probably could put to better use. That amount in the real world could be the difference between hiring another employee or not. In Washington, that amount would barely cover a "holiday party" for the Government Accounting Office.
On top of the possible employment losses, what messages are we sending when the government penalizes marriage at any level? One message is clear. The decision by Congress to impose a marriage penalty only discourages couples from getting married and subsidizes cohabiting households. The Marriage and Religion Research Institute studies the social science data and research on the impacts of marriage and religious practice on the lives of children and the future of the nation. Statistics show that homes headed by married couples are less likely to need government assistance. Analyzing the data, they have found that children in homes headed by married couples are more likely to be higher-achieving students and better citizens, and are less likely to become dependent on the failing government subsidy system.
Add in the higher taxes (an average of $2,425 per employee) from the 2 percent tax increase in everyone's paychecks to pay for Social Security and the myriad tax increases all families will pay thanks to the malady known as Obamacare, and it is likely that families will end this year with their own personal fiscal cliffs. If Congress is serious about tax reform, easing the burdens on all families should be at the center of any transformation.
Tom McClusky is senior vice president of the Family Research Council.