Jillian Kay Melchior notes that after the fiscal-cliff deal, married couples will be paying the top tax rate when they make more than $450,000 but singles will be taxed at that rate when they make more than $400,000. So the second earner of a couple pays a higher rate than she (and it usually is a she) would pay if filing as an individual. Tax policy has created a new marriage penalty, Melchior writes, that hits high-earning married women and discourages them from working.
That’s the conventional analysis of the marriage penalty, but it has too narrow a focus. It makes more sense, I think, to view the marriage penalty instead as the cost to couples of the tax code’s failure to recognize marriage as the economic partnership that it (in part) is. On this view, couples that make $500,000 a year should be taxed the same regardless of how the income is distributed among members of the household. So a married couple in which one spouse makes $500,000 and the other makes $0 should be taxed at the same rate as a married couple in which each spouse makes $250,000, or one in which one spouse makes $400,000 and the other makes $100,000.
In other words, the marriage penalty doesn’t just fall on the latter two couples, since they pay higher taxes than if they were single. It falls on all three couples, including the one with a homemaker, since all of them pay more than two singles making $250,000 each. Just as some women who work in the paid labor force pay a marriage penalty, so do some women who stay home to raise kids. In both cases, their families pay the penalty too: This isn’t a tax that falls exclusively on women.
Both problems are pretty easy to solve conceptually. Just set the tax-bracket thresholds for married couples at twice the level of those for singles.
P.S. Yes, I know we’re talking here about a small number of people whose taxes probably don’t affect their economic circumstances so much as to affect marriage decisions, but I dislike this type of differential taxation on principle.
P.P.S. Taken together, tax and entitlement policies probably redistribute income away from one-earner couples to two-earner couples because the former tend to raise more kids, and raising kids is an overtaxed activity.