Archive for the ‘taxes’ Category
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.
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).
Many thanks to Jim (and to Bitsy, and Dennis, who both tried earlier) for getting me to finally read Lily Kahng’s paper on “eliminating marriage as a basis for preferential treatment under the tax law.” What a pleasant surprise to discover that she references AtMP’s advocacy on income taxes, as well as Jim’s extensive research and analysis (marriagePenalty.xls, best accessed here). Of course, we agree completely with Kahng’s conclusion: “The joint return is unsupportable and should be abolished.”
Quoting (with permission) Jim’s post to AtMP-Talk, our email listserv:
all my work, and all AtMP’s work for that matter, compares two unmarried people vs. a married couple, i.e. ALWAYS TWO people compared to TWO people. I believe comparing the tax burden of one person to that of two people is an apple vs. oranges comparison. But I do strongly agree with her that the plight of the uncoupled single (someone who doesn’t have someone else to collaborate with on splitting credits and deductions and even income to minimize taxes) is being left out of practically all studies and discussion of the marriage bonus/penalty issue.
For those who hate numbers and taxes, Kahng’s paper is about much more than that – she surveys attitudes to singles, all kinds of advocacy and alternatives to married groups, discrimination (other than taxes), and other sociology of singles topics. So you can skip over the tax stuff if you want and enjoy the sociology stuff.
For example, here are Kahng’s closing words:
Moving beyond the tax system, recognizing the value of singleness can help us interrogate and critique the role of government and citizens in promoting and supporting marriage. For example, the same-sex marriage debate might be informed by considerations of whether the legal, economic, and social privileges of marriage ought to be expanded further, or rather eliminated entirely. Similarly, we might further question the role of the government in promoting marriage as a solution to poverty, especially for African American women. Instead, marriage could come to be viewed as one among many alternatives. (link added)
National Union of Activists for People who Live Alone: doesn’t that sound great? It sounds even better in French: Union Nationale des Groupes d’Action des Personnes qui Vivent Seules (UNAGRAPS). And it’s for real!
Even if you don’t read French, visit the website for the charming graphics of activists holding banners that say roughly “solo = more expensive,” “fighting for ourselves together,” etc.
UNAGRAPS has 10 local chapters, in all corners of France. It tackles issues of taxation, social security and retirement, succession rights, and some leisure costs like the single supplement. It demands recognition of solo singles as an interest group (apparently not a dirty word in Europe), and won interest group registration under the European Union in August 2009.
As Ulla Anderson, UNAGRAPS’s President, emailed me in English (several communications excerpted and compiled here):
Our pursuit pertains to the difference between single without children (one person household) and married people without children.
French tax is calculated according to number of persons in a household. A one person household has one “part”; a couple without children has two parts. In a majority of situations this leads to higher tax for the single person than for each member of the couple.
It is widely accepted that the French system is particularly unfavourable for single persons as most countries tax couples separately.
[Nonetheless, in] Europe there are [similar singles' rights] associations in … Norway, Finland and Holland. There may be more that I haven’t found yet.
We recently read about singles rights organizations in India. We’re often asked if there are any in Canada, but we haven’t found one. Do you know any other international (or U.S.) organizations working to make laws and economics more fair for singles and unmarried households? Please click Comments to help us get connected!
Really glad to see the impact of marital status discrimination addressed in Race Talk. With 70% of African-American adults unmarried (compared to 45% of Whites and 49% of Latinos in the US), every law or economic policy that uses marital status has a disparate impact on the Black community. AtMP agrees wholeheartedly that
it’s time to rethink those norms and accommodate a changing society that no longer consists of a married majority. It’s unfair to reward the life choices of some and not others when all are valid realities that should be treated as such.
On Election Day we learned that the majority of Maine voters don’t want to share the word marriage with same-sex couples. Yet polls show that many are willing to share the rights and responsibilities typically accorded to spouses. Maine is in the unique opportunity to launch the experiment of truly civil partnerships for all.
Unique among all 50 states, Maine registers all non-related couples regardless of gender or age. Since 2004, Maine’s statewide domestic partnership registry has been open to any two competent adults who have been living together in Maine for at least 12 months, are each other’s sole domestic partner and expect to remain so, are not related in a fashion that would prohibit marriage, and are not married or in a registered domestic partnership with another person.
This means that all Mainers (is that the right nickname?) in different-sex couples who are willing to boycott marriage in solidarity with same-sex couples can register and have the exact same status legal status as registered same-sex couples. Imagine a well-publicized wave of DP registrations among a wide diversity of couples!
Then imagine the civil rights movement these couples could foment! I’d bet they could rapidly build a political base of support for expanding DP rights. Currently, Maine’s “domestic partners are accorded a legal status similar to that of a married person with respect to matters of probate, guardianships, conservatorships, inheritance, protection from abuse, and related matters.” How quickly could Maine could pass a law modeled on California’s to give DP’s all of the state-based protections and obligations of marriage?
There are important personal risks involved in this strategy. AtMP’s friend Frederick Hertz (an author of Living Together: A Legal Guide for Unmarried Couples, and an attorney who specializes in helping same-sex & unmarried couples) is highly sensitive to the financial costs and legal burdens that could be encountered by any couple that registers as DP’s with the state of California. For example: they have to file state tax returns as married but federal returns as single; they have to go through a state divorce but have no protection from federal double taxation upon transfer of assets; they faced higher property taxes until CA passed a remedial law. When we were exploring this issue back in 2006, he noted that people might opt out of the marital rules by doing a pre-nup, but that costs typically $5,000 or more and would be of limited value when it comes to spousal support, the costs of a dissolution, and joint liability for debts. He felt strongly that most people really don’t understand the negative consequences of registering, and if they want the benefits of marriage, they should marry.
I agree that contradictory layers of legal status are a nightmare. People need to be educated about the legal and financial obligations they are taking on when then enter in to DP (or marriage, for that matter). On the other hand, the reality is that people are seeking out alternatives to marriage. Access to a registered status might be an attractive option not only for boycotters but also for people who feel forced to marry even though they don’t believe marriage is the right status for them, because they need specific protections and benefits. I know several different-sex couples who are remaining unmarried even though it costs them a lot of money in local and federal taxes. The taboo against “marrying for the money” actually bolsters their resolve not to participate in the institution. Some of them might also refuse to register, but others might register despite the costs.
People have already ‘voted with their feet’ by not marrying. Philosophically speaking, non-discriminatory DP registries could be a step toward (a) non-discriminatory marriage and (b) recognition that too many legal and economic factors are being attached to coupledom. Isn’t “we’re all in this together” a better way to create change?
Last week Forbes magazine ran a commentary by two Notre Dame professors about the income tax penalty faced by low-income couples who marry.
The Bush tax cuts attempted to make tax rates “marriage-neutral”; for most middle-class taxpayers, there is now, in fact, little if any difference between filing as a married couple or as unmarried singles. … [But a] single parent earning $21,000 with two children would receive an earned income credit and child tax credit of $5,460. Say that same parent is living with, but not married to, another single parent with two children who earns the same amount. Their combined income is $42,000. Unmarried and filing their taxes separately, they would receive a total of $10,920 in earned income credits and child tax credits. If they were to marry and file jointly (listing four dependent children), they would receive only $3,400 in earned income credits and child credits. So it would cost them $7,520 to be married. To make the situation worse, this “penalty” will occur every year, adding up over time to a huge amount.
AtMP believes that taxing people based on their marital status is wrong, and that it’s especially wrong to tax lower-income people more heavily than higher-income for the exact same behavior (in this case, marrying). Naturally, we’re less concerned than those professors about rising rates of cohabitation. More importantly, we’ve heard more creative solutions than the two options they propose:
If you “remove” the marriage penalty by lowering the credits for single taxpayers, you invoke the wrath of those who would say you’re “raising” taxes (by reducing their credits) on people who can least afford it. On the other hand, if you raise the credits for married taxpayers to the point where getting married offers the same tax result as being single, you’ve got a budgetary issue–where is the money to compensate for these additional credits going to come from?
In fact, we printed another professor’s more creative solutions in our newsletter last year!
Given the many forms of modern families, two policy alternatives are clearly preferable…. First, policymakers should expand the definition of family for tax purposes to include unmarried opposite- and same-sex couples, single parents, cohabiting unmarried family members, and perhaps even platonic roommates demonstrating economic interdependence. These families share the same kind of expenses, responsibilities, and liabilities as married families. There is no reason for the tax system to treat them differently. Under an expanded definition of the family unit, “marriage” penalties would become “family” penalties, and doubling tax brackets for families would benefit all multi-person households.
Second, we could abandon the family as a unit of taxation altogether and move to a system of individual filing. This approach would effectively eliminate all marriage tax penalties. As importantly—and unlike preserving the family as a unit of taxation—individual filing would eliminate the secondary-earner bias in the tax system that currently taxes the first dollar earned of the lesser-earning spouse (disproportionately women) at the higher rates associated with the last dollar earned of the primary-earning spouse.
Either approach—expanding our concept of “family” under the family tax unit or adopting as the norm the individual unit—would more effectively address the concerns of the modern American family in its various forms.
A New York Times op-ed by John Gilbert McCurdy celebrates the Fourth of July as the
dawn of a new era when personal differences — first marital status, but later sex and race — no longer mattered in determining one’s citizenship.
Well, unmarried citizenship is not in question; but equal treatment is still far off. Has the USA really matured past the biases of its founding fathers? Compare some of McCurdy’s examples to the present:
As the delegates created a new nation, they assailed sexual immorality, luxury and sloth — all of which they associated with the single life. …
Nor was it just inside Independence Hall that bachelors were scorned. For 80 years, Pennsylvania had collected a levy on single men who earned wages but did not own property. This tax had been devised as a means of easing the burden on men with large families, but it had become increasingly onerous for the colony’s bachelors. Since the 1740s, landless singles had been paying higher taxes than 90 percent of property owners.
In our current national income tax structure, the net bonus enjoyed by married couples is about $30 Billion per year.
Celebrate your Independence Day by writing a letter to the NY Times editors to remind them that there’s more work to be done. A few years ago, AtMP posted tips and sample letters on income taxes here. Send your letter to firstname.lastname@example.org, and post a copy here for us to read!
Several recent news items and commentaries highlight the injustice and illogic of using relationship status to determine immigration status or tax rate.
Marriage makes it easier to immigrate, but if you lose your spouse, you lose your immigration status. AtMP supports efforts to make immigration policy more fair (read our whole statement here). As always, we’d like to see all partners treated equally, regardless of marital status or gender. Debanuj Dasgupta (my co-panelist at a conference last Saturday) makes a good point: letting US citizens sponsor their partners expands the rights only of US citizens, but is not an expansion of immigrants’ rights. Is that really all we want?
Marriage will lower your federal income taxes if only one spouse has an income, but raise your taxes if both spouses make good money. Our friend Dennis J. Ventry Jr. calls it a “Stay-At-Home-Spouse Tax Subsidy,” or “Married Families Are Better Than Any Other Families Tax Subsidy.” This tax policy is based on outdated assumptions about work and gender roles (Debra Siegel’s observations about high income one-earner married couples demonstrate why we’d want to encourage more egalitarian relationships through our tax code).
States also use the standard deduction to promote one-earner marriages. For example, Rhode Island is proposing to end its “marriage penalty” by making a married couple’s standard deduction twice as big as a single person’s. This is unfair because single taxpayers will have to make up the difference, or do without public services. But maybe there’s a silver lining: with all the bad news about layoffs, RI could market its new “unemployed spouse stimulus package.” I can just see the ad campaigns: “Lost your job? Ran out of unemployment benefits? You can earn up to $7500 by getting married (to someone who still has a job, of course)!” or, “Employed? Take advantage of this great offer: Marry someone who’s jobless, and you’ll be eligible for a $7500 tax deduction!”