Posted on 08/29/2010 8:33:38 PM PDT by 2ndDivisionVet
Over the next few months I plan to explain my deep hatred for the income tax. What most bothers me about the tax is not the amount that I pay (although I believe my wife and I pay more than usual for people with our incomes) but rather the sheer insanity of the entire system. We can certainly afford to pay our tax, so I am not trying to plead poverty. What bothers me is that I must spend several days each year just doing the paperwork. This year I finally relied on HR Block, and had to pay $610 dollars for the privilege. I read that in Sweden the government simply sends you a bill.
Then there are the perverse incentives created by the tax. Today I’ll discuss the marriage penalty.
Why is there so little discussion of the marriage penalty in the press? And why do both political parties seem to favor it? I can’t answer these questions, but will try to speculate anyway. I’d also appreciate your thoughts.
I first became aware of this problem after I got married. I noticed that the combined income of my wife and I pushed us up into higher tax brackets. Initially the problem was trivial. But as we got older and got promotions our income rose into the upper middle class range (low 6 figures) and then it became very noticeable. Suddenly we had to pay the AMT, although if we were single we would not earn enough to trigger an AMT tax. The official 15% capital gains tax rate became a joke, as the realization of significant capital gains can push you into the AMT, which can dramatically affect the tax on your non-capital gains income. I won’t bore you with all the confusing details, but I am shocked each year when I compute how much lower our total tax would be if we were both single.
Indeed the new health care bill makes the marriage penalty even worse for married couples earning between $250,000 and $400,000. Contrary to what Obama says, workers making $130,000 (married to each other) might have to pay higher taxes as a result of the health care bill. So it isn’t just the “rich,” the upper middle class will also be affected. Under the bill a cohabitating couple where each person makes $200,000 from interest, dividends, or rental income will pay an extra $5900 in taxes if married, but no extra taxes if “living in sin.”
You might think this is just some sort of unfortunate “glitch” in the tax code, and that it will be fixed once the authorities become aware of it. I think they already are aware of it. The marriage penalty has been around for decades; it would have been fixed if the government wanted to fix it. But why would the government be so opposed to people getting married? Isn’t marriage generally considered a good thing? My theory is that both parties want to fix it, but they can’t agree on how to do so, so nothing gets done:
1.The Republicans might prefer a flat tax, which would avoid the problem of people getting pushed into higher tax brackets after they get married. But the Dems consider that sort of tax regime to be insufficiently progressive (especially given the regressive nature of payroll taxes.)
2.The Dems might be willing to allow married people to file as a single person, but Republicans oppose that because they think it would favor working moms over stay at home moms. I.e. consider two families that live next door to each other. In one family both husband and wife make $100,000. In the other family the husband makes $200,000 and the wife is a homemaker. Under current law they pay the same amount of taxes, and I think Republicans are OK with that. If married people were free to file under the single person’s tax rates, then the family with two people each making $100,000 would pay less taxes than the person making $200,000. Actually, that seems very fair to me, as a family with someone making $200,000 plus a homemaker is much better off economically than a family where each spouse makes $100,000. In the latter case they still have all the chores to do at home, or else they’d have to hire maids and nannies.
Here is the bottom line. The government is discriminating against people according to their marital status. Two families that live side by side, each with two adults earning $130,000, might each pay very different amounts of taxes. The family where the two adults are legally married pay more taxes than the next door neighbors, who might tell all their friends and relatives that they are married, but in fact secretly got a divorce and are now living in sin. Does that seem fair?
BTW, this isn’t just a problem that affects the upper middle-class; low income workers also face a large implicit marriage penalty, as benefits like the EITC get phased out much more quickly if two low income people get married. Indeed in percentage terms this probably affects them much more than me. (Interestingly, as the marriage penalty got worse for low income workers, their marriage rate fell.)
My wife and I would be better off getting divorced. Unfortunately, women tend to be rather sentimental about marriage. So it may not be easy for me to convince my wife of the logic of this argument. But here’s something I can say for sure. If we did get divorced to save $80,000 to $100,000 in taxes over our lifetime, you’d never know about it. It would be between us and the IRS.
As a good libertarian I oppose having any government policies hinge on whether people are married or not. (I.e., governments should not recognize marital status.) I believe all upper-middle class libertarian couples should stay single, to help “starve the beast.” Let’s hope Megan McArdle’s recent ceremony was just for show, and that they “forgot” to have it formalized at City Hall.
Gay men may actually benefit when gay marriage is legalized at the Federal level, as the social pressure to get married is lower than for heterosexual couples. So they will be able to more easily choose the marital status that best fits their particular tax status—assuming that society doesn’t start pressuring gays to get married. Unfortunately, Americans often seem to want to either ban things or mandate them—with no in-between option of freedom.
I suppose some of my more conspiratorial readers think that Obama is increasing the marriage penalty because gays are an important part of the Democratic coalition. Please spare me! That would be about as likely as the first African-American President paying for health care with a tax that only hits white people.
PS. I do know that many gays are actually hurt by being forced to file as single.
PPS. I am one of what Joe Biden calls the “super-rich” who will be hit by the planned expiration of the Bush tax cuts for upper income people, and I make well under $150,000. So much for Obama’s promise not to raise taxes on people making less than $200,000. My income is a bit more than a Boston cop, but a lot less than a Massachusetts turnpike cop. I guess a Boston cop who is married to a highly-skilled nurse is also “super-rich.” Again, the money doesn’t bother me, I have plenty since I am a high-saving nut. What bothers me is the thought that when I retire I’ll be paying more taxes or getting less Social Security benefits to help those “unfortunate” guys who made just as much as me, but never saved anything. The guys who have garages filled with expensive toys.
Eliminate all forms of income tax and replace it with the Fair Tax on new goods.
Our money system is based on fractional reserve banking and government debt. The principle is meant to be rolled over in perpetuity; the income tax is meant only to pay the interest. If it sounds insane, it’s because it is insane.
While 130k is hardly rich (wealth is determined by assets not income) The median household income in the US typicly runs about 65k.
Maybe we married and in love can get divorced, one apply for food stamps, the other have an income under the radar and let the “married” gays pay for it all.
I hear ya, and identify with a lot of what you say.
I must say, however, you paid H and R Block $610 to prepare your income tax returns???? That seems pretty costly for the services rendered by a tax preparer such as Block.
I have a somewhat complicated personal situation, and paid a CPA about $300. I just mention it because H and R Block are not certified public accountants, and if you have any complications in your finances and taxes, you really should be using a CPA.
Of course, the reason anybody pays a tax preparer is because the tax code is too darn complicated in the first place.
If you want an income tax, a flat tax is the only way to avoid it. Your wife’s employer withholds the same whether she is married or not, as does yours. If you work overtime, same percentage. If you moonlight, your second employer doesn’t have to know he’s a second, its the same percentage.
To go further, there is no reason for the individual to have to deal with his income tax at all. Your employer withholds the tax per the IRS chart, end of story. No citizen should ever have to deal with “filing” aside from the form he fills out the day he hires on. If you want deductions for children, fine, but you notify your employer, he adjusts the amount withheld, end of story.
If by some weird mistake the employer holds out too much this month, he holds out a little less next month, though how that could happen is hard to imagine. In any case, the company has the accountants, not the individual worker, so the individual should never have to deal with it.
If you are an independent contractor, you’re a business and you have an accountant. If you’re an employee, you aren’t and you don’t.
The annual April 15 madness is pointless and unnecessary.
Why do gays want to get married again?
Ah April 15th - the day the greedy, cheating taxpayer gets his just deserts.
/sarc
1, I prepare my own and have prepared it for others (family etc).
2, the tax code is too damn complicated. I agree, eliminate income taxes altogether and collect it off the tariffs.
3, I am glad you’ve been wise and have saved. I only hope that the opportunities that permitted you to earn a decent living will be there for me as well at your age.
fairtax.org Inform and the masses will come for the prebates. http://www.fairtax.org/site/PageServer
This is an important article because of it's link between marriage and taxes in general.
As everyone is well aware, gay marriage is an explosive issue in this country. But who stops to realize that what everyone is arguing about is actually a tax status?
Go back a hundred years. You got married in a church, or under the auspices of your religion, and that was it. It had NOTHING to do with government approval, let alone a requirement you to receive a GOVERNMENT LICENSE to be married. The very thought would have had people marching in the streets.
But with the income tax, government claimed the power to approve or disapprove the "tax legitimacy" of literally anything in your life - and so, legitimacy had to be affirmed by the government to exist. That affirmation is called a "license." And you have to request it, be judged by a bureaucrat, and pay for it - IF you're allowed to have it.
As a result, there are two types of people left in America. Those who recognize that this denial of their very humanity is profoundly evil - and those who don't.
That wouldn't be "fair" at all. For all we know, the man earning $200,000 could be working twice as hard, or he might be working twice as many hours. Why should he have to pay a higher tax rate?
It's hardly pointless. The government regulates private behavior by granting "exemptions" and "credits". This power is not something they will easily give up.
Back when I was much younger, anybody that expressed suspicion that all this government power was not such a good thing would likely be told, "if it gets too bad, we can just vote it out." Well, it's gotten too bad, and I'm still waiting for that vote.
Hyperbolic headline + unreadable opening paragraph = why bother?
Thats stupid. He’s clearly only putting money over the sanctity of a governmental status, not his marriage. Or do you believe marriage only exists when it is a product of the state?
A week before, so they'll have time to really reflect.
Tax code in the US is about 72,000 pages and counting.
Tax code in Hong Kong is about 170 pages.
Singapore is about the same size, as are most of the mainland Asian countries.
Is there any wonder why the rich and companies are fleeing to Asia? Not just because costs are lower, you can get what you want, you can do what you want, but the Government doesn't force you to have an army of CPAs and lawyers to figure out just what tax you owe...
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