The big tax deal shorted singles, again
While I’m on the topic of how your marital status shapes the way you’re affected by major federal legislation – let’s talk taxes! At the end of the year, Congress passed and the President signed a complicated tax package. In covering that news, many media reports mentioned the so-called “marriage penalty.” So let’s get that out of the way first. The Congressional Research Service says
“At all but the lowest and very highest income levels, singles pay higher taxes than married couples. The analysis of the marriage penalty indicates that marriage penalties have largely been eliminated for those without children throughout the middle-income range, but this change has inevitably expanded marriage bonuses. Marriage penalties remain at the high and low income levels and could also apply to those with children, where the penalty or bonus is not very well defined. But by and large, the current system is likely to encourage rather than discourage marriage and favors married couples over singles.”
This CRS report is a brand new update of the 2004 report that was the basis for AtMP’ s original tax policy analysis. If you value this kind of analysis, please donate $30 so I can purchase the new report, read the full detail and update our materials!
Speaking of details, did you know that 56% of taxpayers are unmarried? Due to our lower incomes (simplistically speaking), we paid 27% of all taxes after credits. (I calculated these 2008 figures from IRS data)
The fact that so many unmarried people have relatively low incomes means that we really got the short end of the stick in December’s big tax package. Our friend Shawn Fremstad does a great job of explaining how
some 51 million taxpayers will see their taxes go up in 2011. The vast majority of them—40 million tax units—are low-wage workers with incomes below $35,000. Low-income workers are the only income group that will lose income this year compared to 2010 under the deal.
I agree with Shawn’s suggested solution of “an increase in the EITC for low-wage workers without children.” The EITC, or Earned Income Tax Credit, is often called the U.S.’s biggest anti-poverty program (right up there with Social Security). The excessive impact of marital status on EITC is one policy area where complete ideological opposites can find common ground. I even find myself agreeing with Sam Brownback (and that’s REALLY funny!)
By the way, if you’re thrilled at the thought of further researching marital status & EITC, this student paper from Colgate University has a very nice bibliography and lit review.
2010 was a good year for scholarly papers on marriage and taxes. Puckett could have used our help seeing through the tired “case for marriage,” but I certainly like his conclusion:
The joint return (and special rates for married taxpayers) should be abolished as an incoherent penalty and subsidy of marriage. Joint filing is indefensible as a component of a progressive tax system. Marriage has many benefits, but the benefit most deserving of support is marriage’s connection with parenting. The contemporary reality is that parenting will occur outside of marriage, and parenting has high social benefits and high private costs. Although increased refundable child credits would be the most progressive method of implementing a parenting subsidy, simply retaining head of household status seems more likely.
I couldn’t bring myself to read all of Kornhauser‘s latest article. There’s no debating this, and I choose to see it as a call to action (whether or not that’s what she intended):
The nature of family, marriage, and religion are also important issues in America and the tax debates about the marital unit are an important area in which they are expressed. Consequently, congressional actions and rhetoric regarding the marital unit and marriage penalty—even if primarily symbolic — reaffirm a national commitment to marriage as instrumental to American democracy and tacitly acknowledge a similar importance of religion (which supports marriage).
January 26th, 2011 at 11:05 pm
I was surprised to read the claim that 56% of taxpayers in 2008 are unmarried (and consequently only 44% of taxpayers are married), considering that in 2009, only 42.7% of adults 18 and over were unmarried in 2008 — http://www.census.gov/population/www/socdemo/hh-fam/cps2009.html . And considering all that we have read about much higher average incomes of married households as compared to unmarried ones.
(I used a 2009 figure on unmarried percentage because I had it handy; I should of course gotten and used the 2008 figure, but no doubt it is very close to, or even a lower unmarried percentage).
Anyway, it appears to be true that only 44% of taxpayers are married if you only count tax returns, and count each MFJ (Married Filing Jointly) tax return as one taxpayer (though, see below, I get a slightly higher 46% married taxpayer figure when counted this way).
Using http://www.irs.gov/pub/irs-soi/08in12ms.xls
And using line 29 – Taxable Returns
And counting Married Filing Jointly (MFJ) and Married Filing Separately (MFS) as being Married
And counting Head of Household (HOH), Surviving Spouses (SurvSpouse), and Singles as being Unmarried,
I obtain this (counting number of returns):
MFJ 39,683,132
MFS 2,104,690
Married: 41,787,822
HOH 6,620,673
SurvSpouse 39,149
Single 42,212,461
Unmarried: 48,872,283
Total (Sum of Married and Unmarried): 90,660,105
Married/Total = 41,787,822/90,660,105 = 46.1%
Unmarried/Total = 48,872,283/90,660,105 = 53.9%
(If I had used the column “Income tax after credits - Number of returns”, I would have gotten the same percentage results to 3 digits even though the unmarried numbers are slightly different).
However, it seems inaccurate and misleading to count a married couple who, for example, both work full time etc. and file jointly as being just one taxpayer.
If one counts ALL MFJ returns as being 2 taxpayers, one gets a married taxpayer percentage of 62.5% and an unmarried taxpayer percentage of 37.5%.
But counting all MFJ returns as 2 taxpayers seems to be erring too far on the other side, since we are counting only taxpayers, that is, those who actually earn enough (and/or have enough other sources of income) to actually, on net, after any refunds, pay taxes (including withholding and estimated tax payments) during the tax year cycle. Since some spouses don’t earn anything, or earn enough to — on net — be taxpayers (if they were on their own), counting all MFJ couples as 2 taxpayers isn’t right either.
I have no way of knowing what the right figure is, but if one counts each MFJ return as 1.5 taxpayers, a reasonable assumption I think, the married taxpayer percentage of the total comes to 55.8% and the unmarried taxpayer percentage comes to 44.2%
Summarizing the above :
Percentage of All Taxpayers
Married Unmarried
——- ———
46.1% 53.9% Counting each MFJ return as 1 taxpayer
55.8% 44.2% Counting each MFJ return as 1.5 taxpayers
62.5% 37.5% Counting each MFJ return as 2 taxpayers
In summary, I don’t think there is data supporting the claim that the majority of taxpayers are unmarried, except by resorting to dubiously counting all MFJ couples as one taxpayer.
By the way, good find on the December 2010 Congressional Research Service report (why are they charging us citizens and taxpayers $30 for PDF files for government reports on tax policy?).
But wasn’t a 2004 Treasury study the basis of the bonuses and penalty numbers in http://www.unmarried.org/federal-income-taxes.html ?
Thanks much for all your work on this subject.
January 30th, 2011 at 3:57 pm
Thanks for catching that odd number, Jim. I think you’re right, they’re equating tax returns with tax payers, so married-filing-jointly is one return and one payer. Although that does seem silly in terms of humanity, it highlights the point that the IRS sees married couples (who file jointly) as a single economic unit. As we’ve said many times, the assumption of economic unity is ridiculous to apply to all married couples in this day and age, just as it is ridiculous to exclude all unmarried people from expressing economic unity with someone.
February 25th, 2011 at 11:59 pm
Nicky writes>> the IRS sees married couples (who file jointly) as a single economic unit. <<
Unfortunately I think this all originated when two Supreme Court cases allowed income-splitting between married couples in community property states (Poe v. Seaborn [1]), but denied that opportunity to couples in other states, even if they agreed by contract to share their incomes equally [Lucas v. Earl, 281 U.S. 111 (1930) [2]].
The CRS report cited in this thread (p. 5) says this:
"In the original 1913 tax law, a single rate structure was applied to all taxpayers as individuals. In 1948, joint returns were allowed that effectively permitted income splitting. This change had little to do with any theory regarding the tax treatment of the family. Rather, it occurred because married couples in community property states were successfully claiming the right to divide their income evenly for tax purposes"
Thus there was an unfair disparity between treatment of married couples in community property states (who were allowed to split their incomes for tax purposes) compared to those in common law states (who were not allowed to split their incomes).
Congress solved this geographic disparity problem by passing, and Truman signed into law, the Revenue Act of 1948 which brought us the married filing jointly thing. But that created a marriage bonus problem (tax bracket widths for marrieds filing jointly were double that of singles), and later adjustments in bracket widths created both marriage bonuses and penalties.
The important point being is that any effort to change back to everyone filing as individuals will run into the same problems as we had before 1948: a disparity between community property states and common law states, and overcoming Supreme Court rulings that allows income splitting in community property states (and not in other states). Eventually all states would then choose to become community property states and then we'd have marriage bonuses throughout (married couples can split their incomes, unmarried couples and singles cannot).
===== Footnotes ===========
[1] "The Marriage Penalty", Bruce Bartlett, National Center For Policy Analysis, No. 145, February 9, 1998
http://www.ncpa.org/pub/bg145?pg=2
"Congress and the Treasury Department attempted to thwart income splitting through legislation and regulations. Eventually, a case reached the Supreme Court. In Poe v. Seaborn (1930), the Court ruled that state community property laws did allow couples to split their incomes for federal income tax purposes. As expected, this led several states to change from common law to community property to give their citizens a tax cut at no expense to the state. The trend accelerated when tax rates shot up during World War II. By 1948 Oregon, Nebraska, Michigan and Oklahoma had changed their laws to become community property states.
[2] For Better or For Worse: Marriage and the Federal Income Tax, June 1997, Congressional Budget Office
http://www.cbo.gov/doc.cfm?index=7&type=0&sequence=2
"In 1930, the Supreme Court validated the splitting of income in community property states [Poe v. Seaborn, 282 U.S. 101 (1930)], but denied that opportunity to couples in other states, even if they agreed by contract to share their incomes equally [Lucas v. Earl, 281 U.S. 111 (1930)]"
March 5th, 2011 at 12:29 pm
Nicky>> As we’ve said many times, the assumption of economic unity is ridiculous to apply to all married couples in this day and age, just as it is ridiculous to exclude all unmarried people from expressing economic unity with someone. <<
One problem is that in many ways, by law, married couples are a single economic unit. Speaking in now archaic "his and her" opposite-gendered language for brevity, and in all of the following, "his" and "her" and "he" and "she" are interchangeable (as I believe the relevant laws are gender-neutral):
His debts are her debts. Their joint income and joint assets are used for many purposes, such as Medicaid (which causes many to divorce when one of them needs long-term care — provided by Medicaid to the indigent). He can't declare bankruptcy based on his own financial situation — their joint income and assets are taken into account. His bad credit rating affects her's.
Half of what they accumulate together as marrieds is his and hers; so for example if as an old guy I've accumulated a $200,000 401K retirement account, and I marry her, she is entitled to half the growth in my 401K during our marriage. So if we're married for 20 years and the 401K quadruples to $800,000, then half of the $600,000 growth in the account, or $300,000, is hers if we divorce. (Only a 7.2% annual return — well below the historic average for U.S. stocks — will result in a doubling in 10 years, so this isn't an extreme example).
Automatic fatherhood (yikes) – a husband is the legal father of any child born to his wife regardless of biological paternity.
There is shared tort liability.
If he owes his ex-wife or ex-girlfriend child support payments, and he makes little income, then he won't be assessed much in child support payments, even if his present domestic partner girlfriend makes a ton of money. If he marries his domestic partner, however, her income is taken into account.
The list goes on and on.
My understanding is that in community property states, married couples are joined even more thoroughly, though I'm not an expert at any of this.
Anyway, not many domestic partners are this economically interconnected nor want to be. And I don't think many friends, even very good friends, want to be this economically tied together either.
I suspect people will need to do more than just "express economic unity" before others become willing to pay for their enhanced benefits and tax breaks, especially in these fiscally tough times.
And should economically independent people, coupled or not, be required to support economically "interdependent" people? In particular, many women have fought for the right to be economically independent (with or without partner or spouse), and are unlikely to support a government-run scheme that forces them to subsidize the "interdependent", whatever that is.