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We are proud to present commentary by Edward J. McCaffery, whose landmark book Taxing Women (1997) has launched a torrent of debate and new ideas on economic justice. Here are McCaffery's latest views on current tax legislation.
Marriage Tax Relief: Gridlock 1, Principle 0
Edward J. McCaffery
There is a way to make our tax system fairer, help the increasing numbers of working wives and two-earner families, and support the institution of marriage. We could and should reform the income tax to eliminate its so-called marriage penalties. There is presently a widely endorsed proposal before Congress to do just this. Thus there is hope at long last for greater principle in our tax system, the largest and most coercive instrument of state control in America today.
But it may not happen. Why not? Because Congressional Democrats and the Clinton Administration have yet to get on board. Why not? It is hard to tell, exactly, but this particular bit of inertia seems principally due to the unprincipled reason that Republicans put forth the proposal. Democrats appear unwilling to agree with any Republican initiative, especially for tax reductions; they would rather spend whatever money the invigorated economy makes available outright.
Rather than endorse the Marriage Tax Elimination Act, President Clinton has responded in typical ad hoc fashion -- with a multi-faceted plan to help with the costs of child care that includes some seven different programs and is far less generous than the Republican proposal. While there are some attractive features of the Clinton plan -- it particularly helps married families with children, the most burdened of all groups under our tax system, and it would do more for the working poor than the Republican initiative would -- it is a limited and complex set of steps that falls far short of systematic reform. This plays out a more general theme in tax reform today -- Republicans call for bold, sweeping changes, such as abolishing the IRS, moving to a flat tax, or repealing the gift and estate tax, and Democrats counter with incremental, particular proposals to shore up the status quo, such as calls for commissions, the inordinately complex and poorly named Taxpayer Relief Act of 1997, or the recent child care package. Democrats fiddle while Republicans burn.
This is all unfortunate. When our politics resemble the name-calling fights of pre-schoolers, there is little hope for sensible reform for the tens of millions of adult taxpayers who deserve it.
Let's back up and look at the marriage penalty again. The "Marriage Tax Elimination Act" recently introduced by Jerry Weller (R-Illinois) and co-sponsored by over two hundred mainly Republican representatives would allow married persons the option to pay taxes as if they were unmarried. The possibility of a significant budget surplus make this change, an expensive one, conceivable. This is a good, sensible and fair law, one that I advocated in my recent book, Taxing Women. I had thought that book, which described how the tax code penalized modern two-earner families and the working women within them, was largely targeted at liberals and feminists. It is instead the Christian Coalition and Congressional Republicans who seem to have listened. What's going on?
Like just about everything about taxes these days, the "marriage tax" is complicated business. To understand it and the stakes better, consider that it should actually be called the "two-earner tax." For it is only some married couples--about one-half--who pay a penalty. Those families with two roughly equal earners see their taxes go up on marriage. More traditional one-earner families receive "marriage bonuses." This follows from decisions made in 1948, to move to joint filing for married couples, and in 1969, to alleviate the "single's penalty." Two-earner couples have since become the norm. But our tax laws haven't changed.
Understanding the marriage penalty as a two-earner tax helps clarify some matters lost in the thicket of tax law complexities. These points also underscore the puzzle lying behind the current gridlock. For there is much in the Marriage Tax Elimination Act that ought to appeal to nearly everyone, Democrats and feminists included.
First, the two-earner tax is largely a woman's issue. In the overwhelming majority of cases, the difference between a two- and a one-earner family turns on whether or not the wife works. In fact, the two-earner tax is just one of many features that make it hard to be a working married mother. Others include inadequate child-care deductions and excessive social security contributions. The average working wife sees two-thirds of her salary lost to taxes and work-related expenses; many wives simply lose money by working outside the home.
Second, the two-earner tax is especially burdensome for lower-income couples. This is not always apparent from government figures portraying the penalty as a middle- and upper-income issue. But things are different than they at first appear. Lower-income couples pay steep marriage penalties because of the loss of welfare and "workfare" benefits, such as the earned-income tax credit, as they enter into the lower-middle class. When this is taken into account -- as the Weller bill does not -- many more couples pay a penalty than get a bonus, and the poorest are hardest hit. In 1994, for example, a couple where each spouse earned $25,000 would pay a marriage penalty of $727. But a couple where each spouse earned $10,000--less than half as much--would pay a penalty of $3,717--more than five times as much!
Third, the two-earner tax has different effects on different income levels. Among the upper classes, it may push couples to be one-earner households--that is, to have a stay-at-home wife. Other wealthy families simply pay the penalty. But among the lower classes, the choice that parents face is not whether to work or not. It is, instead, over whether to marry, or to stay married, or not. When we consider our tax and transfer policies, it is no surprise that one of four American children live in single parent, female-headed households, the vast majority of them poor. Steep marriage taxes, whether they are understood in all of their gory detail or not, contribute to this depressing state of affairs. What we don't know can definitely hurt us.
Solutions to the two-earner tax are often deemed infeasible because of their revenue cost. The Marriage Tax Elimination Act, for example, is estimated to cost $18 billion dollars or more a year. But would it, really? It is another political irony that we do not hear the usual Republican supply side rhetoric in support of the Act, for economists have long recommended separate filing as a way to increase national productivity. Michael Boskin, a conservative who became George Bush's leading economic advisor, co-authored a paper in 1983 noting that the optimal tax plan might feature rates twice as high on married men as on married women, essentially on account of supply side effects. When someone advocates cutting the capital gains rate by a few points, we are sure to hear talk of increased work and savings. Why aren't the dogs barking when it comes to a proposal that would largely lower taxes on married women?
Then again, why aren't Democrats and women's groups rushing to embrace the current proposals, which would benefit working mothers and families? If these more progressive and feminist oriented groups could get on board, then the Marriage Tax Elimination Act could be restructured to include an accommodation for the working married poor affected by the steep marriage penalties under the earned income tax credit. Our tax laws would no longer penalize the act of getting married, for richer or for poorer citizens, and they would finally be brought more into synch with modern times and modern families, where working mothers are increasingly the norm. Why wouldn't we make such changes to a tax system set up under now ancient times?
There are no easy answers to these questions. When it comes to tax and politics, nothing is easy anymore. Go figure.
Edward J McCaffery is Professor of Law at the University of Southern California Law School and the California Institute of Technology. This piece builds upon his recently published book, Taxing Women (University of Chicago Press).
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Copyright 1998 by Edward J. McCaffery. All rights reserved. No part of this material may be reproduced or transmitted in any form, or by any menas, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without the permission of Edward J. McCaffery.