Like much of the American way of life, the tax code was set up assuming that a family = two adults + 1.5 children + a house in the suburbs with a white picket fence. It further assumes that one of those adults stays home while the other goes out to bring home the bacon.
Fast forward 200 years, and only about half of Americans fit this scenario. Today, a couple of professionals each with $120,000 in taxable income would pay a total of $55,158 if they file as two singles. The same couple would owe $57,989 if they file as a married couple — a “marriage penalty” of $2831. It also bumps them into the next tax bracket, changing their marginal rate from 28% to 33%.
Let’s say the couple has a newborn infant. If they invest the tax difference, $2831, every year for 18 years at 5%, they will have $79,642 — a tidy sum to help pay for college expenses.
Why can’t Uncle Sam fix this problem? A couple shouldn’t be penalized just because both choose to work outside the home.
Tax rates can be found on p. 80 of the IRS 1040 instructions.
Science and Money Feed
Terry Neese
on Apr 6th, 2009
@ 1:59 pm:
The tax code needs to move into the 21st Century. Thank you for talking about it. Since most of us don’t live an Ozzie and Harriet lifestyle, I agree that the government needs to work to fix this problem. At the Family Policy Center, we believe at a minimum that married couples should be allowed to file jointly or as singles, so that workers with similar incomes pay comparable taxes.
helen_maynard
on Apr 6th, 2009
@ 9:11 pm:
That sounds like a great idea, and a simple way to equalize the system. Why force people to file as married, if it means they have to pay significantly more in tax? Of course this might open up a Pandora’s box. Another inequity I see is when one member of an elderly couple needs care at a nursing home, they must effectively deplete the life savings of both of them to pay for care. If the survivor is significantly younger, it can result in a significantly diminished life experience for him/her. Sometimes, in desperation, the couple divorces to divide their assets (though with look-back periods, I’m not sure this is successful).
Affine Financial Services » Blog Archive » Solution for the marriage penalty
on Jun 14th, 2009
@ 9:05 pm:
[...] working people tend to pay more in tax if they are married rather than stay single. It received a comment from Terry Neese suggesting a terrific solution that I’d like to elaborate on. Terry is a Distinguished [...]