The Marriage Tax

By Daniel Kadlec

Like it or not, baby boomers get pretty much whatever they want. They've got the numbers. They've got the votes. Now the generation that insisted on competitive pay for women wants to shield part of that pay from the tax man by eliminating the so-called marriage penalty. You can bet boomers will get their way this time too. And in this case they should, this boomer says. The basic flaw in the current system is so absurd that something must be done.

The marriage penalty is a peculiar "tax" levied mainly on married couples in which the husband and wife have similar incomes. Once relatively rare, pay parity in two-earner homes has become fairly common in the '90s--and there's the rub. Such households often pay more federal income tax married than if the two earners had remained single and just moved in together. How's that for Uncle Sam walking in on your love life?

Consider a husband and wife, each of whom earns $30,000 a year. This year the couple would owe $7,795 in federal income tax. They would owe $880 less if they divorced but stayed together. That's because married people get a smaller standard deduction: $7,100 per couple, vs. $4,250 per single ($8,500 together). Married couples also move to the next tax bracket quicker: after typical deductions, they can earn $42,350 in the 15% bracket before further income is taxed at 28%; singles can earn $25,350 each ($50,700 together) before crossing that threshold.

Those are not petty differences. Some 21 million couples pay an average $1,400 extra each year just because they are married. That's enough to keep many lovebirds--including young couples, divorcees and retirees--from officially tying the knot. One study shows that an expected $500 increase in taxes decreases the probability of a couple's marrying up to 2%.

You'd think the solution would be easy: treat all taxpayers as though they were single. But this is the tax code. Nothing is simple. That treatment would remove a so-called marriage bonus now enjoyed by 25 million "dominant earners." A single person making $60,000 pays about $11,599 to the IRS. But if that person marries, and the spouse stays home with the kids, the tax bite drops about $3,804.

Keep in mind that the $60,000-income couple still pays $880 more tax than two singles who each make $30,000. The marriage "bonus" merely offsets part of the penalty. Confusing. But if you live in sin (or are considering it) and need an excuse for the neighbors, this is it.

That excuse may not be around much longer though. There's strong support among members of both parties in Congress to at least reduce the marriage penalty. The likely outcome will be a half step: a bigger standard deduction for married couples. That might eliminate the marriage penalty for couples earning less than $50,000--those most likely to let it keep them from the altar. But to wipe out the penalty for all requires a bigger change.

Treating married couples as singles for tax purposes, with each claiming half of household income, is the way to do it. That would be fair--but very expensive for the Treasury, and thus unlikely. For now, lovers with similar incomes should take a hard look at the tax bill they would pay for wedded bliss. And those of us already married can use the same numbers as a reminder of the things we do for love.

See time.com for more on the marriage tax. E-mail Dan at [email protected] And see him on CNNfn at 12:40 p.m. E.T. on Tuesdays.