Posted on 01/24/2013 4:22:42 PM PST by Responsibility2nd
Every year, I sit down with families who made a particular financial move, and as a result, some unforeseen -- and unintended consequence -- kicked in. This could be an unexpected tax event, it may have been a broken relationship, or a business failure. (All of which and more, by the way, is why you should be sure to ask us about tax PLANNING this year, rather than tax "reporting" -- which is what the tax return preparation process really is.)
But sometimes these consequences are because of the tax code itself.
Take marriage, for example.
The foundations of most civilizations function on the principle that children are best raised in a home by two parents in a committed relationship. As such, couples have always been encouraged to marry.
(My point in this article, by the way, is about what's in the tax code, and how it encourages social change. So this is NOT at all to speak of anything related to the special heroism which is single parenthood.)
But for many couples, our current tax code actually discourages marriage, and I think it's a shame.
Here's how it does so...
An individual who is working but makes a smaller income qualifies for the "Earned Income Tax Credit" (EITC). It's refundable, which means that whether you owe that amount in tax or not, you may still receive it as a refund.
The amount is calculated based on your salary, filing status and number of children. There is a plateau at which point the amount of the credit goes down.
Without going into all the math, let me show you an example:
If you and your partner are not married but have two children, you have some flexibility. Each of you can earn $17,100 and still collect the maximum $3,169 for a total of $6,338.
A married couple, on the other hand, with two children earning the same $34,200 would only collect $2,735. The formula "penalizes" them $3,603, or 10.5% of their salaries, simply because they are legally married.
And the marriage penalty only increases as income and the number of children rise. The"penalty" can be as high as $8,400 when compared against unmarried couples in certain salary levels.
This should be sobering to us as a society. I have no problem whatsoever with each individual making their own choices in these matters. And the EITC receives support from all parties because it's an incentive to work (it only is received when there is a job in place). But we shouldn't disincentivize a civilizational building block through our tax code. (And I also hope that a few thousand dollars doesn't keep people from embracing the richness available to them in marriage!)
One solution could be to extend it to all individuals equally, regardless of marital status. But the point I want to get across is this: our choices have consequences, many of which aren't immediately apparent. So be wise, and have a guide as you make tax and financial decisions moving forward.
It helps to have someone who's seen the road ahead.
It must be understood that a healthy marriage is the foundation of a healthy nation. And obviously welfare queens colecting far more government benefits than they will ever even earn is destroying our nation.
"One solution could be to extend it to all individuals equally, regardless of marital status."
Maybe. But the BEST solution is to extend EITC to married couples ONLY.
More info on the Marriage Penalty Tax....
Marriage Penalty Background
The marriage penalty aspect of the federal tax code was built into the federal tax tables. Higher taxes were required for a married couple who earned the same as two single individuals. It didn’t make any difference if the married couple filed jointly or separately.
From 1913 to 1969, married couples had an advantage when it came to income taxes. However, because of the 1948 income-splitting tax-code which many thought was unfair to singles, the law was changed in 1969. The tax raise of 1993 made matters even worse for married couples. Married folks also took a hit by some targeted tax cuts enacted in 1997.
Prior to 2003, if both spouses earned about the same amount of money, then they ended up in a higher tax bracket and were penalized for being married. Actually, the smaller the difference between what they each earned, the higher the marriage penalty. However, if one spouse earned a good salary, and the other didn’t, then they weren’t penalized. The marriage penalty could affect couples in all income brackets, though. A couple who married could lose earned income tax credits that they had received as singles.
The Congressional Budget Office estimated that in 1996 the average marriage tax penalty was about $1,400 which adversely affected 42% of all married couples. Many believe that some couples chose not to marry because of the tax penalty.
more....
http://marriage.about.com/od/finances/a/marriagepenalty.htm
How about the retired’s dilemma? A single tax filer must pay tax on his Social Security if his income goes above 25K. The poor married schlub has to start paying income tax on a combined income of 32K. If we were divorced, we could file single and each have the 25K threshhold. Thank you billy and your demoncrap partners in crime.
I have know people to forego promotions in order to NOT take a pay cut because getting an extra 2K would put them in a higher bracket and they would end up paying 4K more in taxes so they would be down 2K a year.....
Screw this so called “progressive tax” we should be only funding the fed gov with either Just a tariff or a Flat tax.
Progressives Love to kill self incentive, because they themselves have none.
Bttt.
The EITC is widely abused. A lot of people limit their legitimate work and then work under the table to qualify. It is also paid in one lump sum which then gets spent on a big screen tv.
Perverse incentives always hit at the margins. Thomas Malthus told us so.
That's not how tax brackets work. If your income increases so that you are in a higher tax bracket, only the income that is above the higher tax bracket threshold is taxed at the higher rate.
As an example (using purely fictional numbers), suppose the tax bracket for everything below $30,000 was 15%, and for everything above $30,000 it was 30%. If you made $30,000 and received a promotion and raise to $31,000, the first $30,000 would be taxed at the original 15% rate, while only the last $1,000 would be taxed at the higher rate. Even though the tax rate doubles, you would still take home more money after the raise, because only the additional money would be taxed at the higher rate.
Down here in FL I know many women who haven’t gotten married simply because that’s how they get medicaid.
Everyone talks about bad presidents, but I think Lyndon Johnson, with his destruction of the family though his “Great Society” programs, was one of the most destructive presidents ever.
Bears repeating in bold font.
Brokeback Obama is making it a close race. But so far... LBJ is our worst prez ever.
So here's the tax issue: Towards the end of the year, the woman got a paycheck where the whole thing went to tax withholding. When she investigated, the university told her that, because she was married, the tuition benefit was taxable. When she informed them that, no, they weren't married, they told her that in that case the tuition benefit wasn't taxable, or at least didn't affect her taxes. His income will probably be low enough that he won't pay taxes either.
Domestic partners (usually of the same sex, of course, but Tucson doesn't discriminate) avoid the marriage penalty. Maybe same-sex marriage isn't a bad idea -- it may get the marriage penalty overturned.
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