Would you pay thousands a year to be married?

[dragoncar]

Jut replace a) with "A progressive tax code where people households who earn more pay a higher rate than people households who earn less"

Then you can just make the married brackets and cutoff a 2x single

No, that would still leave unsatisfied the objective described in (C) (i.e., a tax code that doesn't make getting married a disproportionately better deal for couples with earnings concentrated in one of them than it is for couples with earnings spread equally across the two of them), which maizeman also noted in the follow-up response to his post in the other thread.

EDIT:  I see maizeman also already responded and made the same point in this thread too.

Maybe I wasn't clear in my goal.  I want to eliminate the marriage penalty.  We already don't have (c).  Under my plan we will continue to not have (c).  However, there will be no penalty to getting married vs. staying single.

Consider that (d) "don't provide a disincentive to getting married" is a far more valuable policy objective than (c)

[maizefolk]

Jut replace a) with "A progressive tax code where people households who earn more pay a higher rate than people households who earn less"

Then you can just make the married brackets and cutoff a 2x single

No, that would still leave unsatisfied the objective described in (C) (i.e., a tax code that doesn't make getting married a disproportionately better deal for couples with earnings concentrated in one of them than it is for couples with earnings spread equally across the two of them), which maizeman also noted in the follow-up response to his post in the other thread.

EDIT:  I see maizeman also already responded and made the same point in this thread too.

Maybe I wasn't clear in my goal.  I want to eliminate the marriage penalty.  We already don't have (c).  Under my plan we will continue to not have (c).  However, there will be no penalty to getting married vs. staying single.

Consider that (d) "don't provide a disincentive to getting married" is a far more valuable policy objective than (c)

Apparently a miscommunication, I thought you were arguing that in fact it was possible to have A, B, & C.

We're in agreement that D is actually a good thing to achieve although we might disagree about its importance relative to the other three. Your method (married filling jointly tax brackets = 2x the single brackets) will certainly achieve A, B, and D. I would like to point out that the solution proposed in my quoted post "eliminating the married filing jointly option and increasing the tax brackets for married filing separately to equal to those for single filers" would also achieve D (as well as A & C) but without significantly increasing the proportion of the total tax burden payed by single people. Although it's not possible to be sure without a lot more data on how common different income splits are between married couples at different household income levels, it might have the effect of increasing the total proportion of taxes payed by married people while still never creating a disincentive to marriage.

We could discuss or argue about whether it makes sense to shift taxes from one group of people to another group of people or vice versa but that gets into value judgements rather than logic and I've rarely seen it end well IRL, on this forum, or elsewhere on the internet. Let's just agree that you and I would both like to be paying less in taxes than we currently do, and we can each identify lots of people who are getting a sweetheart deal from the current tax code and should be paying more and/or lots of government spending we don't think is necessary and could be eliminated to offset the reduction in taxes we would like (although it wouldn't necessarily be the same people or programs).

I just thought the fact that it doesn't appear logically possible to achieve the three objectives I identified simultaneously was an interesting constraint on public policy that I hadn't seen discussed anywhere else previously.

[brooklynguy]

Maybe I wasn't clear in my goal.  I want to eliminate the marriage penalty.  We already don't have (c).  Under my plan we will continue to not have (c).  However, there will be no penalty to getting married vs. staying single.

True, but your plan would exacerbate our current absence of (c) by making getting married an even more disproportionately better deal for couples with concentrated earnings than for couples with diluted earnings than it is today.

[dragoncar]

Maybe I wasn't clear in my goal.  I want to eliminate the marriage penalty.  We already don't have (c).  Under my plan we will continue to not have (c).  However, there will be no penalty to getting married vs. staying single.

True, but your plan would exacerbate our current absence of (c) by making getting married an even more disproportionately better deal for couples with concentrated earnings than for couples with diluted earnings than it is today.

(c) doesn't really bother me at all. 

[Cathy]

It's easy not to have a problem with (c) when it doesn't harm you.

Item (c) is especially unfair as applied to single people: a single person earning certain levels of income pays significantly more tax than a person who is otherwise identical but who is married to a person who does not earn income. In effect, single people are paying higher taxes in order to subsidise married couples of equivalent income level. Under the current regime, this effect phases out at a certain threshold, but dragoncar's proposed changes would prevent it from phasing out and would be even more unfair to single people.

It's difficult to justify forcing single people to subsidise married people when you consider that being married already offers its own rewards: aside from having a constant friend and partner to share your life with, there are also numerous financial benefits (such as being able to earn twice the income without increasing expenses, thus dramatically reducing the length of the working career required to achieve financial independence). To be fair, there are also certain risks, but most people appear to believe the rewards outweigh those risks. Anecdotally, most celebrated stories of people reaching financial independence early in life involve married couples.

In fairy tales, everybody falls in love and marries, but that's not how real life works. In real life, some people will never fall in love, will never have a romantic relationship, and will never marry. That is the cold hard truth of real life. Those people already have to work longer to reach financial freedom, and without the benefit of a lifelong friend, so why exacerbate the situation by also burdening them with higher taxes?

Under the Canadian tax system, individuals are taxed separately and married couples cannot combine their income for tax purposes, with certain exceptions that will not be discussed here. In maizeman's other thread, he proposes bringing the same system to the United States. That is certainly an egalitarian idea. One problem with it, however, is that the US tax code does not contain a property law code. Instead, property law is governed by state law. In certain states, including California (the most populous state), employment income earned by the members of a married couple is generally considered to have been equally earned by the two partners, regardless of the actual division of who did the work. See, e.g., Hunt v. Commissioner, 22 TC 228, 230 (1954) ("A husband's earnings from his personal efforts during the marriage are community property under the law of California. ... For purposes of Federal income taxation, each spouse is equally liable for payment of the tax on his or her respective equal share of the community income.") (citation omitted and emphasis added). (Although the quoted language refers to a "husband", the gender of the spouse is not material to the proposition of law.) In other words, maizeman's changes would still mean that married couples would benefit from income splitting so long as they lived in certain states, including the most populous state.

In order to implement maizeman's proposed changes uniformly across the United States, one would first need to analyse the constitutional question of whether it is within the authority of Congress to override state property law for the purpose of the tax code and, in effect, "reallocate" income based on who actually earned it. That is fairly subtle question for a variety of reasons and I do not propose to analyse it in this post.

[dragoncar]

It's easy not to have a problem with (c) when it doesn't harm you.

Item (c) is especially unfair as applied to single people: a single person earning certain levels of income pays significantly more tax than a person who is otherwise identical but who is married to a person who does not earn income. In effect, single people are paying higher taxes in order to subsidise married couples of equivalent income level. Under the current regime, this effect phases out at a certain threshold, but dragoncar's proposed changes would prevent it from phasing out and would be even more unfair to single people.

Item (c) does not apply to single people at all.  It relates to the difference between two different married scenarios.

You seem to be objecting to item (b), possibly in combination with something else

[Cathy]

None of the items in maizeman's list explicitly involve a comparison to single people. I think what I wrote about could fairly be considered to be within the ambit of (c), although it could also be considered to be within the ambit of (b) or even (a). The violation of (a) is that the current system is not progressive: a single person with a lower income can pay more tax, both in absolute dollars and in percentage of income, than a married person with higher income.

Incidentally, although maizeman claims the current system satisfies two of his three criteria, a closer inspection reveals that the current system actually satisfies none of them. It is not progressive (so it fails (a)), it does not consider only the combined income of a married couple (see, e.g., Rev Rul 1971-116) (so it fails (b)), and the question of how good marriage is depends on where income is concentrated in the partnership (so it fails (c)). In conclusion, maizeman's criteria may not be very useful for analysis as the current system fails all of them.

[maizefolk]

It's easy not to have a problem with (c) when it doesn't harm you.

Item (c) is especially unfair as applied to single people: a single person earning certain levels of income pays significantly more tax than a person who is otherwise identical but who is married to a person who does not earn income. In effect, single people are paying higher taxes in order to subsidise married couples of equivalent income level. Under the current regime, this effect phases out at a certain threshold, but dragoncar's proposed changes would prevent it from phasing out and would be even more unfair to single people.

It's difficult to justify forcing single people to subsidise married people when you consider that being married already offers its own rewards: aside from having a constant friend and partner to share your life with, there are also numerous financial benefits (such as being able to earn twice the income without increasing expenses, thus dramatically reducing the length of the working career required to achieve financial independence). To be fair, there are also certain risks, but most people appear to believe the rewards outweigh those risks. Anecdotally, most celebrated stories of people reaching financial independence early in life involve married couples.

In fairy tales, everybody falls in love and marries, but that's not how real life works. In real life, some people will never fall in love, will never have a romantic relationship, and will never marry. That is the cold hard truth of real life. Those people already have to work longer to reach financial freedom, and without the benefit of a lifelong friend, so why exacerbate the situation by also burdening them with higher taxes?

Under the Canadian tax system, individuals are taxed separately and married couples cannot combine their income for tax purposes, with certain exceptions that will not be discussed here. In maizeman's other thread, he proposes bringing the same system to the United States. That is certainly an egalitarian idea. One problem with it, however, is that the US tax code does not contain a property law code. Instead, property law is governed by state law. In certain states, including California (the most populous state), employment income earned by the members of a married couple is generally considered to have been equally earned by the two partners, regardless of the actual division of who did the work. See, e.g., Hunt v. Commissioner, 22 TC 228, 230 (1954) ("A husband's earnings from his personal efforts during the marriage are community property under the law of California. ... For purposes of Federal income taxation, each spouse is equally liable for payment of the tax on his or her respective equal share of the community income.") (citation omitted and emphasis added). (Although the quoted language refers to a "husband", the gender of the spouse is not material to the proposition of law.) In other words, maizeman's changes would still mean that married couples would benefit from income splitting so long as they lived in certain states, including the most populous state.

In order to implement maizeman's proposed changes uniformly across the United States, one would first need to analyse the constitutional question of whether it is within the authority of Congress to override state property law for the purpose of the tax code and, in effect, "reallocate" income based on who actually earned it. That is fairly subtle question for a variety of reasons and I do not propose to analyse it in this post.

Thank you for a fascinating read, Cathy.

I've done some further reading on community property laws now that I know such things exist and the fact that we somehow ended up with a system in the US where state laws are defining what income federal tax law applies to does throw an awfully big wrench into my hypothetical new tax system. Right now there are nine states with mandatory community property laws for allocating spousal income and presumably if any such change to the federal tax code actually passed plenty more states would quickly adopt similar systems to give their married residents the lowest possible federal tax burden. I can come up with lots of hypothetical strategies to try to avoid the issue, but they're all full of plenty of handwaving* and would likely lead to extensive litigation to decide the issue of constitutionality one way or the other. Otherwise I'm reduced to imagining passing a constitutional amendment (probably followed by years of litigation anyway). Pretty much always the outcome when people used to dealing with computer code think they've found a cool hack in the legal system.

This is actually one of the things I really like about discussion on the MMM boards. We've got everything from "is it logically possible to design a tax code to do X?" to "is it legally possible to design a tax code to do X" to "why in the world would I want to do X? I like having a not-X tax code just fine."

*For example make the MFJ brackets = the single ones but have a complex tax credit based on the income of the lower earning spouse such that it'd replicate the tax curve of two people separately filing as single. <-- with a disclaimer that I'm not asking Cathy or anyone else to comment or speculate on the legality/constitutionality of such a measure, just pointing out that to my own completely untrained eye it sounds like the sort of messy thing that A) likely couldn't be passed into law and B) would almost certainly be tied up in the courts for years if it did pass.

[chops]

Financial Samurai has a good article on this:

http://www.financialsamurai.com/the-financial-benefits-and-tax-penalties-for-gay-marriage/

 -Chops

[Jesstache]

I will get lambasted for this but how about we solve all of this by implementing a flat tax of X% on all income (whatever it takes to balance the budget, maybe 20-25%?).  Each wage earner gets a standard deduction equal to poverty level so no taxes on the first about $20k or so.  No brackets that depend on your marital status.  Just a certain amount of deduction per earner.  Bam, done.  No hard accounting, no deductions.  Easy peasy.  Higher earners still pay more percentage of gross, it's just a very smooth gradual curve,  you only pay the same percentage of tax on everything over poverty level.  It would look something like this:

Gross Income/Taxable Income/Tax Paid/Effective Tax Rate
$20000/$0/$0/$0
$30000/$10000/$2000/7%
$40000/$20000/$4000/10%
$60000/$40000/$8000/13%
$80000/$60000/$12000/15%
$100000/$80000/$16000/16%
$150000/$130000/$26000/17%
$200000/$180000/$36000/18%

Adjust the "standard deduction" and flat tax rate as you see fit, I just used those numbers for ease of calculation.  If you REALLY feel the need, add in one top bracket so people can feel better about not giving the top 2% (or 5%, whatever) a tax break or something.

Of course this will never happen because it would make the government too transparent and the ability to influence votes based on a promise of tax incentives or breaks would go away.  Not to mention it would do away with a whole sector of tax preparation professionals and most of the IRS. 

I actually feel like this would be really fair to everyone. 

[maizefolk]

Incidentally, although maizeman claims the current system satisfies two of his three criteria, a closer inspection reveals that the current system actually satisfies none of them. It is not progressive (so it fails (a)), it does not consider only the combined income of a married couple (see, e.g., Rev Rul 1971-116) (so it fails (b)), and the question how good marriage is depends on where income is concentrated in the partnership (so it fails (c)). In conclusion, maizeman's criteria may not be very useful for analysis as the current system fails all of them.

Yikes! That'll teach me to be sloppy in defining my variables and constraints. I stand by the original position that it is impossible to design a tax code that satisfies A, B, & C as originally defined simultaneously but would be possible to design tax codes that satisfy any two or the three criteria. However, in order my statement about the current tax code to apply I have to impose additional constraints that you're correctly pointing out I didn't consider in my original post.

Additional constraints not previously verbalized in italics.

A) A progressive tax code where people who earn more pay a higher rate than people who earn less (considering only comparisons among households of the same classification ie comparisons among MFJ, MFS, HoH, or single people but not comparisons between the various populations)
B) A tax code that only considers the total income from both members of a married couple to calculate their tax liability
C) A tax code what doesn't make marriage a better deal for one person earning X dollars and one person earning $0 than for two each earning .5X dollars.

Right now (evaluating only the basic federal income tax code brackets, and excluding the effects of various credits and deductions, the separate treatment of dividends and long term capital gains, as well as other forms of taxes imposed by various levels of government, including but not limited to payroll taxes, state income taxes, sales taxes, property taxes etc) we have A & B which makes it impossible to achieve C.

It is definitely bad form to start revising ones arguments only after people start poking holes in them as originally stated, so let me apologize for doing so in this case.

[maizefolk]

I will get lambasted for this but how about we solve all of this by implementing a flat tax of X% on all income ...
I actually feel like this would be really fair to everyone.

I'm not going to lambast you at all because you completed the set!

We've had dragoncar arguing for progressive taxation (A) and lumping income together (B), I've been arguing for progressive taxation (A) and making marriage an equally good deal for people with concentrated or divided incomes (C), and now we've got the final argument: lumping income together (B) (maybe? do you want to give a married couple 2x the deduction of a single person or would each person get one deduction to use or lose?) and making marriage an approximately equally good deal for people with concentrated or equally divided incomes  (C) through the use of a flat tax. It demonstrates how differently people weight the three factors when trying to design a system that's "fair."

[brooklynguy]

It is definitely bad form to start revising ones arguments only after people start poking holes in them as originally stated, so let me apologize for doing so in this case.

That post may very well have been the most gracious acceptance of correction by resident-stickler-for-hypercorrectness Cathy in forum history, so I wouldn't worry about committing bad form if I were you :)

[Jesstache]

I will get lambasted for this but how about we solve all of this by implementing a flat tax of X% on all income ...
I actually feel like this would be really fair to everyone.

I'm not going to lambast you at all because you completed the set!

We've had dragoncar arguing for progressive taxation (A) and lumping income together (B), I've been arguing for progressive taxation (A) and making marriage an equally good deal for people with concentrated or divided incomes (C), and now we've got the final argument: lumping income together (B) (maybe? do you want to give a married couple 2x the deduction of a single person or would each person get one deduction to use or lose?) and making marriage an approximately equally good deal for people with concentrated or equally divided incomes  (C) through the use of a flat tax. It demonstrates how differently people weight the three factors when trying to design a system that's "fair."

I think, in my hypothetical tax code scenario, I would make it so that each person in a marriage would have the ability to each take a standard deduction, up to the amount they earned themselves.  So if each spouse worked, they would get the first $20k tax free as long as they earned that much through their own labor.  If they earn less, say, 10k, their standard deduction is capped at that, just as if they were single. No work/income?  No deduction, just like a single person. 

[dragoncar]

I will get lambasted for this but how about we solve all of this by implementing a flat tax of X% on all income ...
I actually feel like this would be really fair to everyone.

I'm not going to lambast you at all because you completed the set!

We've had dragoncar arguing for progressive taxation (A) and lumping income together (B), I've been arguing for progressive taxation (A) and making marriage an equally good deal for people with concentrated or divided incomes (C), and now we've got the final argument: lumping income together (B) (maybe? do you want to give a married couple 2x the deduction of a single person or would each person get one deduction to use or lose?) and making marriage an approximately equally good deal for people with concentrated or equally divided incomes  (C) through the use of a flat tax. It demonstrates how differently people weight the three factors when trying to design a system that's "fair."

I'm certainly not "arguing for" (b).  I don't see a problem with eliminating joint filing altogether.  I just don't want my tax rate to go up because I got married (happened).