"Our Country!
In her intercourse with foreign nations may she always be in the right;
but right or wrong, our country!"

    --Commodore Stephen Decatur

Friday, December 10, 2010

Tax Reform and the "Hidden" Marriage Penalty

Stop the presses!!!  Longtime readers know that the Prolix Patriot is not usually a fan of President Obama.  However, today's New York Times suggests that massive losses for his party in 2010 are bringing the President around to more reasonable policies with genuine bipartisan appeal:

While administration officials cautioned on Thursday that no decisions have been made and that any debate in Congress could take years, Mr. Obama has directed his economic team and Treasury Department analysts to review options for closing loopholes and simplifying income taxes for corporations and individuals, though the study of the corporate tax system is farther along, officials said.

The objective is to rid the code of its complex buildup of deductions, credits and exemptions, thereby broadening the base of taxes collected and allowing for lower rates — much like a bipartisan majority on Mr. Obama’s debt-reduction commission recommended last week in its final blueprint for reducing the debt through 2020.

Republicans have made much hay over provisions such as the "marriage penalty" which was supposedly abolished as part of the Bush tax cuts of 2001 and 2003.  However, the graphic above shows that even after doubling the standard deduction for married couples, the tax code is still extremely unfair for married couples, especially for people with modest incomes.

In the graphic, the green and purple bands represent tax savings for married couples vs. the amount they would have owed Uncle Sam if they each filed as singles.  Conversely, the red and blue bands represent an increased tax burden for the couple after celebrating their nuptials.  From this, we can see that the current tax code punishes couples with similar incomes--even without the massive increases that will go into effect for 2011 if Congress fails to extend the current rates.

For hardworking parents who each bring home $25,000 a year in taxable income, the net tax savings from getting married is exactly zero.  Then, for two people who each bring home a taxable income of $40,000 a year before marriage, their taxes will actually increase by 10 dollars a year after saying, "I do."  Meanwhile, if a millionaire is betrothed to a pauper, his or her taxes will actually decrease by thousands of dollars each year.

Of course, liberals can take consolation that if couples both make six-figure salaries, they will really get taken for a ride at tax time.  If two people each make $110,000 a year and are thinking of getting married, they are actually better off staying single to the tune of $1,300 a year.  If you think the wedding reception is going to be expensive, just multiply the increased tax burden by 20, 30, or even 50 years of wedded bliss!

Bottom line: whether a couple is earning a modest income or is at the top of the income ladder, the tax code punishes hard working families with dual incomes and rewards single-income families--especially the super rich--with higher tax savings.  Given that the majority of American families have two incomes, meaningful tax reform that rewards hard work is long overdue.  If Obama wants to make good on his promise to lower taxes for the middle class, abolishing the hidden marriage penalty would be a good place to start.

No comments:

Post a Comment