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 Ill 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 cant answer these questions, but will try to speculate anyway. Id 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 wont 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 isnt 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? Isnt marriage generally considered a good thing? My theory is that both parties want to fix it, but they cant 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 persons 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 theyd 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 isnt 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 heres something I can say for sure. If we did get divorced to save $80,000 to $100,000 in taxes over our lifetime, youd 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. Lets hope Megan McArdles 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 statusassuming that society doesnt start pressuring gays to get married. Unfortunately, Americans often seem to want to either ban things or mandate themwith 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 Obamas 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 doesnt bother me, I have plenty since I am a high-saving nut. What bothers me is the thought that when I retire Ill 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.
Find a good CPA. I get mine done for 145 dollars, she had been doing my taxes for 18 years.......I file long form with deductions not the short form......
If "we' did replace it with fair tax.. that Fair tax would become a VAT faster than you can say "RINO eat my shorts"...
all I know is that if the leftists are successful in making homosexual “marriage” a reality and a civil right, then those jokers better be paying the marriage penalty tax as well......whats good for the goose is good for the gander...
A lot of what you say is something many especially the longer married types do consider. I was talking to someone the other day who said just your thesis.
Here is another one....when someone has a disease, especially Alzheimer’s, often now elder care attorneys are suggesting that a couple divorce in order to preserve assets so that the ill person can qualify for medical or VA aid and assistance..nice huh.
There is no “sanctity” of govt honored marriage. You stand before God and vow to love honor and cherish. You don’t need a stinkin’ license, you do not need to declare to the govt in such a way as to cost you more money than need be. Let the gays marry as many times as they please, only those pledged before God mean anything.
I've been saying this for years. Once people hold the money, they'll think of it as theirs, and they'll think of the taxes as an expenditure.
Strangely, it was Milton Friedman who came up with the idea of paycheck tax with-holding. When asked about it later, he said he wished he could repeal it, but he came up with the idea as a young economist working for NBER during WW II when the government was desperate for cashflow.
btt
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