Marriage Penalties: Bigger Than You Think

by Ramesh Ponnuru

In the Weekly Standard, Ashley McGuire writes that Republicans should make an issue out of how the government overtaxes married women with children. I think she is right about that, but understates the problem in three ways while overstating it in another.

First, the overstatement. McGuire writes:

The “self-employment tax” hits the independently motivated worker (regardless of sex) with both the employer and employee contributions to Social Security and Medicare. There is no reason to exempt self-employed women from paying into Social Security and Medicare like everyone else. But the fact remains that a woman making a living as an independent contractor sees less of her income than a woman with a boss.

The assumption here is that the employer would pocket the money if the government cut the “employer share” of the tax. Most economists believe that what would actually happen is that this share actually comes out of wages. The tax doesn’t make the independent contractor’s take-home pay any lower than a woman with a boss. The independent contractor just sees what’s happening to her paycheck with a little more transparency.

The understatements result from the fact that McGuire has too narrow a focus. She notes and decries the fact that in some married two-earner households, the lower earner pays more taxes on her (it is usually her) income than she would if she were single. The difference between what the couple pays married and what each person would pay if single is what she takes (as most people who write about this subject take) to be the “marriage penalty.” On this view, some couples also get a “marriage bonus” when their taxes together are lower than the sum of their taxes separately.

A broader view of the marriage penalty might treat it as the cost of the tax code’s failure to treat marriage as an economic partnership. On this view, the couple in which one person makes $250,000 a year and the other does no paid labor should pay the same in taxes as the couple in which each partner makes who makes $125,000 a year. The tax code as it is lets the second couple pay less if the partners file as singles. The result is to treat households differently depending on how they have organized their labor rather than on their total income. So it’s not just some second earners and their spouses who pay the penalty; it’s also, in some cases, non-earners.

Both problems can be neatly solved by setting the thresholds for the tax brackets for married filers at exactly twice the level of the thresholds for the tax brackets for single filers.

That fix wouldn’t, however, solve the second problem, which is that taxes and entitlements discriminate against both mothers and fathers compared to non-parents, and against parents with several children compared to parents with fewer. (See here for more on this topic.) McGuire says that current policies wage “a war on married women with children.” They certainly work to the disadvantage of a lot of married women with children—and almost certainly to the disproportionate disadvantage of married mothers who are raising multiple children at home rather than working in the paid labor force. Not to mention fathers!

P.S. Actually, there’s a third understatement, since various benefit programs also contain marriage penalties.