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I do? Tallying up the marriage penalty in the new fiscal deal
A couple soon-to-be-married poses for pictures in front of a back-drop of City Hall at a busy City Clerk's office on December 12, 2012 in New York City.
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Correction: An earlier version of this story incorrectly identified Isabel Sawhill’s first name. The text has been corrected.
Under the new deal, if you're a woman who makes $225,000 a year, and so does the love of your life, your tax rate will be a lot lower -- if "Single Ladies" by Beyonce is your theme song.
But, if "Love and Marriage" is more your thing, you may be in for a tax hike. Bob Williams, with the Tax Policy Center says the new top rates include a big marriage penalty, "but not as big as last year," he says.
In fact, according to Williams, the new tax rates give high earning married couples a bit of a break, compared to the last decade. But slide down the income ladder to the bottom two tax brackets, and at those levels, there's no marriage penalty under the new tax deal.
Isabel Sawhill, a poverty expert at the Brookings Institution, says removing barriers for marriage helps reduce child poverty.
"Two people can combine their incomes, can live more cheaply than one," says Sawhill.
Sawhill doubts taxes will ever be the deciding factor for popping the question, but she says sometimes, it can tip the balance.
The penalties start far below $450k. At a combined income of $147k married couples start paying more than a single at $74k. Add to that earlier phase outs of personal exemptions, itemized deductions, the AMT penalty, the penalty for married couples with child care expenses, the net investment credit penalty, and the fact that Congress only wants one member of a marriage to borrow money to go to school (no doubling ofstudent loan interest deduction), and there are plenty of penalties in the code this article missed. How many thousands do you need to save before deciding to live together instead of paying marriage tax penalties? A married couple making around $100k and two children could easily drop $3k off their tax bill, maybe more if they each claimed head of household and each had a good portfolio of student loan interest.
I have two quibbles with this story.
1) your example totals exactly450k. As I understand it the new tax rates affect income over that threshold. The next dollar after the 450k in your example will be the first dollar taxed at the new higher rates. Correct me if I am wrong.
2) Traditionally, stories about the marriage penalty have treated it as being unfair to women, and the tone of your story ("All the Single Ladies") continues this idea. Seems to me that your example contains two equal partners, and it is the couple that would jointly face the penalty.
The traditional marriage penalty argument is based on the concept that it is the man's job to provide all the support for the family, and the woman then gets a job to provide supplemental income, but unfairly all the deductions have been used up by the husband's income and her portion of additional income is taxed at the highest rate of the couple's combined income. Of course this same situation applies when someone takes a second job working nights and weekends, but I have never heard anyone refer to the "second job penalty".
