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![handle is hein.taxfoundation/iretcgadv0067 and id is 1 raw text is: IRET
July 22, 1998 No. 70
GRAMM PROPOSAL ILLUSTRATES
DIFFICULTY IN STRUCTURING
MARRIAGE PENALTY RELIEF
The marriage penalty in today's income tax
code has emerged recently as a major political topic.
Senator Phil Gramm (R-Texas) introduced a
proposal to aid those hurt by the penalty and
attached it to the failed Tobacco Settlement Bill.
Despite the demise of that legislation, the issue will
not fade. In constructing future marriage penalty
relief plans, the Gramm
proposal illustrates a number
of what-not-to-do's from an
economic standpoint. Marriage pen
[occuri becaus
His proposal would have and the stan
granted an additional deduction married couj
of $3,300, phased-in over ten while larger
years, to all couples with taxpayers, are
adjusted gross incomes (AGI) large.
below $50,000. While
providing relief for some
couples currently hurt by the
existing marriage penalty, the deduction would have
withheld relief from many couples hurt by the
marriage penalty, given aid to many couples already
receiving a marriage bonus, and created severe work
and saving disincentives for couples in a moderate
income range. The deduction's structure would
have damaged the economy.
Couples subject to a marriage penalty have
higher tax liability than if they were two single
people with the same income. Those likely to be
hurt are two-income couples whose incomes are
roughly comparable, that is, each spouse contributes
between 30% and 70% of the couple's income.
Two-earner couples with less-equal earnings may
receive a marriage bonus. Their tax liability is less
than that of two single workers with corresponding
incomes. One-earner couples receive a marriage
bonus as well. Their tax is less than that of a single
worker with the same income as the working
spouse.
Marriage penalties and bonuses stem from the
fact that the tax brackets and the standard deduction
for married couples filing jointly, while larger than
for single taxpayers, are not fully twice as large.
For example, two single taxpayers would each be
entitled to a standard deduction of $4,250, for a
total of $8,500, versus a standard deduction for a
married couple of $7,100. Furthermore, two single
taxpayers, each earning $30,000, would find all of
their taxable income falling within the 15% tax
bracket; filing jointly, some of their combined
taxahle income
dties and bonuses...
e] the tax brackets
lard deduction for
les filing Jointly,
than for single
not fully twvice ais
would likely be taxed at 28%.
Consider two taxpayers with
W no children and claiming the
standard deduction. As
singles, they would each pay
$3457.50 in income taxes for a
total of $6915. As a couple,
they would pay $7794,
meaning that marriage would
cost them $879.50 in added
income tax.
The marriage penalty does
more than take extra tax
money from two-worker couples. As illustrated
above, it often increases the marginal tax rate on
additional wage and saving income that the couple
might earn, compared to the marginal tax rate the
couple would have faced as individuals. The higher
tax rate, regrettably, discourages work and saving,
damaging family income and reducing economic
output. Any good fix for the marriage penalty
would reduce the higher marginal tax rates that the
penalty imposes on income-earning activity.
Institute for
Research on the
Economics of
Taxation
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public about policies that will promote economic growth and efficient operation of the free market economy.
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