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Journal Issue: Marriage and Child Wellbeing Volume 15 Number 2 Fall 2005

The Hefty Penalty on Marriage Facing Many Households with Children
Authors: Adam Carasso C. Eugene Steuerle

Conclusion

For several decades now, policymakers have created public tax and transfer programs with little if any attention to the sometimes severe marriage penalties that they inadvertently impose. The expanded public subsidies thus put in place by lawmakers came at the expense of higher effective marginal tax rates, as program benefits often had to be phased out beginning at fairly low incomes to keep overall program costs in check. The combined effective marginal tax rates from these phase-outs and from regular taxes are very high—-sometimes causing households to lose a dollar or more for every dollar earned and severely penalizing marriage. In aggregate, couples today face hundreds of billions of dollars in increased taxes or reduced benefits if they marry. Cohabitating—that is, not getting married—-has become the tax shelter of the poor.

These developments are in no small part the consequence of a half-century of social policy enactments of roughly similar design. Liberals wishing to keep programs very progressive and conservatives wishing to keep budget costs low have together put a substantial portion of household subsidies and assistance onto this platform.

These penalties can be reduced in various ways. Most promising, in our view, is to establish a combined maximum marginal tax rate for low- and moderate-income households similar to the rates applying to the richest individuals in society. Another innovative strategy would be to provide a wage subsidy on an individual rather than a family basis for low-wage workers. Two other approaches, both of which have already been tried successfully on a smaller scale, would be to make some programs more universal, as with the child credit and public education, and to move toward mandatory or optional individual filing for benefits and taxes.

In recent years, couples in the United States have increasingly regarded marriage as optional, one among many ways of creating a household. This declining regard for marriage calls into question government's continued use of marriage vows as the primary mechanism by which to enforce household filing for benefits and to raise taxes or lower benefits. Whether Americans' changing views on marriage eventually lead to the radical restructuring required to reduce the very high level of marriage penalties facing most low- and moderate-income individuals remains to be seen.