8/29/00 3:15 p.m.
The Myth of the Marriage Bonus
Marriage is a partnership, and should be taxed that way.

Robert Stein is an economist in Washington, D.C.

he marriage penalty might be the only area of tax policy where many supply-siders are not embarrassed to agree with the Washington Post, the left-wing Center for Budget and Policy Priorities, the Congressional Budget Office, and almost every liberal commentator on the issue. Here's their view on the marriage penalty, which, because of its widespread support, I'll refer to as the "establishment" position.

The marriage penalty occurs when two people who are married pay more in taxes than they would if they were single. Many two-worker married couples pay a marriage penalty. However, even more married couples get a marriage bonus. Addressing the marriage penalty by expanding the standard deduction or tax brackets for married couples would increase these marriage bonuses.

For example, let's take the following chart. A married couple in which husband and wife each make $30,000 ($60,000 combined) pays $7,474 in income taxes. If they were single and each made $30,000, they would pay a total of $6,840. This is a marriage penalty of $634. (The couple pays a penalty for two reasons. As singles they would get two separate standard deductions of $4,400 each, for a total of $8,800; as a married couple they get one standard deduction of $7,350. As singles, they each have the 15% tax rate apply to $26,250 in taxable income, for a combined $52,500 facing the lowest possible tax rate. As a married couple, they have the lowest 15% rate applying to only $43,850 in taxable income, leaving more of their income subject to the higher 28% tax rate.)

A married couple in which the husband earns $60,000 while the wife is a homemaker also pays $7,474. But if the husband were single, he would pay $11,372! This is a marriage bonus of $3,898. (By getting married, the worker can use a larger standard deduction and a wider tax bracket than if he remained single.)

Table 1 Current Law (2000)
$60,000 - 0 $30,000 - $30,000
Married $7,474 $7,474
Single $11,372 $6,840

The problem with the establishment approach is it that uses singlehood as the basic reference point to measure the treatment of married couples. In effect, it defines the marriage penalty without first defining marriage. It takes a husband earning X and a wife earning Y, and compares them to two completely random singles where one earns X and the other earns Y. In sum, the establishment view on the marriage penalty is that the best way to treat married couples is to pretend marriage doesn't exist.

The alternative is to acknowledge that marriage is, in part, an economic partnership in which husbands and wives share their earnings. Regardless of who brings home the paycheck, the benefits of the income are shared. According to this approach, which we'll refer to as the "partnership" view, there's really no such thing as a married couple in which one spouse makes $60,000 and the other makes nothing. If a married couple brings in a total of $60,000 then the husband and wife each earns $30,000, regardless of who goes to work in the morning and who stays at home. If we use the partnership view of marriage, a married couple that earns $60,000 should pay $6,840 in income taxes — regardless of who supposedly earns what. Using $6,840 as the appropriate target means that both couples in the above example are paying a marriage penalty. The couple that the establishment says is getting a bonus of $3,898 is, according to the partnership view, paying a penalty of $634. In fact, according to the partnership view, about 85% of married couples pay a penalty, and no one gets a marriage bonus. (The only couples who don't pay a penalty are those who face a top marginal rate of 15% and who also itemize.)

Supporters of the establishment view — including many supply-siders — argue that the tax treatment sought by the partnership view of marriage would create a quirk in the tax laws. A single worker could reduce his income taxes simply by getting married to someone who stays at home. The marriage would give the worker access to a bigger standard deduction and wider tax brackets, so he can have lower tax rates apply to more of his income.

The problem with the establishment argument is that a single worker has sole control over his income. If gets married he has to share this income with his spouse. He becomes half of a new economic partnership in which his income has to support two people. Yes, marriage generates economies of scale. But where else in the tax code do we deter people from creating economies of scale through voluntary non-commercial cooperation?

The marriage penalty is especially tough on people getting the earned-income credit. A single mom with two kids earning $12,500 per year gets an earned-income credit of $3,888. If she marries a man making as little as $19,000 per year, she no longer gets the credit. That's a large loss of money at any income group, and is an enormous loss of money at such a low income level. In effect, the people for whom the social benefits of marriage may be most important are the ones most deterred from getting married.

The solution to the problem with the marriage penalty, correctly understood, is to acknowledge that marriage is a partnership. The standard deduction should be twice as wide for married couples as for singles, and the amount of income in each tax bracket should be twice as much for married couples as for singles.

This was the law of the land from the late 1940s through the 1960s. Addressing the marriage penalty in the context of the earned-income credit takes a bit more ingenuity, and must be done without subjecting more people to the high marginal tax rates caused by the phase-out range of the credit.

For those who support the partnership view of marriage, the first thing to change about the marriage penalty is the rhetoric. The establishment defines the marriage penalty as the extra taxes a couple pays when it is married rather than single — America heard Al Gore use this in his acceptance speech.

This definition opens the door for the supposed marriage bonus when a couple consists of one worker and a homemaker. Those who support the partnership view must change the language of the debate by defining the marriage penalty as extra taxes a couple pays because the tax code does not recognize that marriage is a partnership.