In the United States, married couples can file their income taxes jointly or as single filers. Yet as Jillian Kay Melchior observes, many married couples pay higher taxes when they file jointly than they would if they had filed separately, i.e., these couples face a “marriage penalty.” In our debates on tax policy, we tend to hear arbitrary thresholds below which taxpayers are to be shielded from tax increases. Until recently, $250,000 was the number of choice, and the new arbitrary threshold is $450,000. But these are the arbitrary thresholds for joint earnings. For single filers, the numbers are somewhat smaller — $200,000 and $400,000. The result is that, as Melchior explains, a married couple in which the wife earns $390,000 and the husband earns $70,000 finds itself in a bind. As the secondary earner, this husband effectively faces a much higher tax rate than he would as a single person, and the same, in this case, goes for his wife, the primary earner.
Ramesh Ponnuru calls for solving this problem by setting tax-bracket thresholds for joint filers at twice the level as those for single filers. The inevitable objection to this approach is that it would represent a boon to spouses who specialize in household production rather than market production. But Ramesh sees this as a feature and not a bug, as marriage should be recognized as an economic partnership and spouses should be free to arrange this partnership as they see fit, without facing a penalty. Over the life course, a couple might choose to specialize in different ways, e.g., (a) a husband will work in the market while his wife acquires a valuable credential, and then they’ll switch roles down the line or (b) parents will trade-off serving as primary care-giver, with one parent devoted exclusively to that role for some stretch of time. In both of these cases, the spouse specialized in household production or focused full-time on building human capital is making a contribution to the couple’s joint economic product.
What Ramesh doesn’t address, however, is that there is a more cynical justification for the failure of the U.S. tax code to embrace what you might call true income splitting: doing so would shrink revenues. I would be happy to trade tax expenditure reform or somewhat higher tax rates for true income splitting, and I imagine Ramesh would agree. There is no question, however, that doing so would be controversial, as it moves us from tilting the tax code against married couples in which one spouse specializes in household production, a shrinking share of households overall as fewer couples marry and as parents delay child-rearing, etc., to an approach that would enable more families to make that choice.