|Marriage not worth the taxes to these folks.|
Three decades earlier, my husband and I were also economists in love at Harvard, and we reached the opposite conclusion.
Justin and Betsey explain their reasoning in an excerpt from an interview on the Spouseonomics blog:
You can read more about them in today's New York Times.
Over three decades ago, my husband and I, like Justin and Betsey, also met and fell in love in Harvard's economics PhD program.
The marriage penalty we faced when we married in 1979 was greater in percentage terms than today's academic economists would generally face. (It is easy to use the National Bureau of Economic Research's handy on-line tool, TaxSim, to get a quick estimate of marriage penalties in every year from 1960 to the present. And no--you don't have to be a card-carrying economist to use it. It is available for anyone to use.)
|We said "I do" to marriage --- and the resulting tax bill!|
Had we remained legally single, we would have paid a total of less than $24,000 in federal income tax, but marriage resulted in a tax bill of over $29,000. (All numbers are based on 1979 tax law, but expressed in current 2012 dollars, using the Bureau of Labor Statistics CPI calculator.)
Tax rates were higher on everyone back then and getting married pushed us newly minted assistant professors from the 34% marginal tax bracket to the 43% marginal tax bracket. Our effective *average* federal income tax rates went from 19% of our AGI to 23% when we married as newly minted assistant professors of economics earning identical salaries.
We got married anyway (the photo above is from our wedding dinner, held at a Szechuan restaurant across the street from the White House on Pennsylvania Avenue--we had a simple and inexpensive but memorable and meaningful ceremony and celebration with just a few friends and family members, less than 20 people were there in total, no special wedding gown for me or tux for my husband, but beautiful hand-dyed batik napkins for the wedding dinner that my mother created from old bedsheets, which we still use on special occasions! The restaurant said they couldn't provide a cake, but we were welcome to bring our own, so my mother baked one herself. When we asked the waiter for a knife to cut the cake, they brought the only type of knife they had in the restaurant--a butcher's cleaver! A little unusual, but it still worked fine!) We look forward to celebrating our 33rd anniversary this summer.
I just asked my husband to be sure he still agrees--we have no regrets!
Of course, the marriage penalty varies according to income and other circumstances (e.g., children, deductions, etc.) and some people actually get a marriage bonus rather than a marriage penalty. As Justin points out, two-earner couples with relatively equal earnings tend to face a marriage penalty, while couples in which one spouse earns much less than the other tend to get a marriage bonus. Over the course of a lifetime, many couples may have years when one spouse earns significantly more than the other or vice versa, due to health issues, disability, taking care of children or elderly relatives, as well as years when both spouses have roughly equal earnings. The Tax Policy Center has an excellent overview of the topic, including a good bibliography to launch further investigations available here.
In percentage terms, the steepest marriage penalties today are actually NOT those faced by high-earning power couples like Justin and Betsey, folks who have the luxury of choices and the money to hire lawyers to make suitable substitute arrangements for marriage, not to mention that they also have a nanny (with a master's degree in education, whom they pay $50,000 per year) as well as a housekeeper and chauffeur (whose credentials and salary were not reported in the New York Times.)
The steepest marriage penalties are those faced by many low-income working single parents, much greater than those my husband and I faced or those that Betsey and Justin faced. This may explain why we see very few married couples filing returns at our site. A glance at the Earned Income Tax Credit graph and a little arithmetic make the reason for this immediately evident. Two unmarried single parents earning minimum wage and working fulltime receive the maximum amount of EITC. If they marry, they will wind up receiving little or no EITC.
The Tax Policy Center provides more details about the huge marriage penalties many of the working poor face here. Of course, the marriage penalties for traditional welfare (AFDC) were even greater than those in the income tax code.
Justin also raises concerns that the federal government does not recognize same-sex marriages. I agree with him that this is wrong, and I am glad to be able to say that this year, New York State is finally treating all married couples identically thanks to the Marriage Equality Act. It does introduce some complications for our VITA site, because we need to prepare separate returns (Single and/or HoH filing status) at the federal level and then a Married Filing Joint return at the state level based on a hypothetical but not actually filed federal joint return, but it is worth it to us to treat our clients with equal dignity and respect for their status, at least at the state level.
I also agree with Justin and Betsey that there are many inequities in the tax laws treating married and unmarried couples. European countries address this problem by doing away with joint returns altogether and requiring all individuals to file separate returns, regardless of marital status. However, such a move in the United States is complicated by the fact that the US has community property rules for attributing income in some states but not others, as well as the issue of how to deal with refundable credits aimed at low-income households.
Happy Valentine's Day to all, married and single, straight and gay.