Higher taxes hit working wives

March 5, 2009

 Diana Furchtgott-Roth– Diana Furchtgott-Roth is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor.  The views expressed are her own. —

Marriage is hard enough without the tax system making it even harder.

Look at Jeanne’s upcoming wedding to Rick.  Rick owns a plumbing firm and has taxable income of $160,000, and Jeanne’s taxable income as a teacher is $50,000.  Unmarried, he is in the 28 percent bracket and she is in the 25 percent bracket.  When they get married, they will be taxed at 33 percent — rising to 36 percent in 2011 if President Obama’s proposed tax hikes take effect.

By raising taxes on upper-income Americans, Congress would worsen our tax system’s marriage penalty on dual-income married couples, and Jeanne and Rick would pay even more tax married than single.

It doesn’t have to be this way.  Men and women could be taxed on their income separately, as is the case in Britain. Since 1990, British married couples have been taxed independently, with deductions and allowances split between them.

It’s a revolutionary idea.  A married woman has her own tax return, with only her income, deductions, and capital gains.  She pays her own tax and has tax refunds returned to her.  If she makes mistakes, she pays her own penalties.

Rather than moving in the direction of Britain to reduce the marriage penalty, the penalty may rise further in 2011.  In President Obama’s new budget for 2010, he outlined plans to allow the top two tax rates to rise from 33 percent to 36 percent and from 35 percent to 39.6 percent in 2011.

Taxes would rise for singles with taxable income over $172,000 and married couples over $209,000.  Even if Jeanne and Rick weren’t immediately affected by higher rates, those rates might well hit them when they earn more.

Unless, of course, Jeanne and Rick decide to have children, and Jeanne left the workforce to care for them.  Say that Jeanne’s taxable income rose to $60,000, so she and Rick had a combined income of $220,000, placing them in President Obama’s new 36 percent bracket.  But with Jeanne at home looking after the children, their federal tax rate would be 28 percent.

Tax systems shouldn’t make it harder for women to work.  The penalty falls most heavily on married women who have invested in education, hoping to shatter glass ceilings and compete with men for managerial jobs, and the Obama plan would exacerbate the penalty.

When mothers take jobs, earnings are reduced by taxes paid at their husbands’ higher rates, in addition to costs for childcare and her transportation. This discourages married women not just from working, but also from striving for promotions, from pursuing upwardly-mobile careers.

Mothers are more affected by the marriage penalty than other women because they are more likely to move out of the labor force to look after newborn children and toddlers, and then to return to work when their children are in school.

Labor Department data show that as average number of earners per household rise, so do income levels.

One characteristic of the highest-earning one-fifth of households is that they have an average of two earners per household.  The middle fifth averages 1.4 earners per household, and the lowest-earning fifth averages half an earner per household—more part-time and unemployed workers, or retirees.  More married working women, more households in the top fifth of the income distribution. (See BLS Consumer Expenditure survey in pdf format.)

For President Obama to announce that he is raising taxes on those at the top end of the scale adversely affects the married working women who voted for him by a substantial majority.  There has to be a better way.

Diana Furchtgott-Roth can be reached at dfr@hudson.org.

93 comments

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“Get off your butt, go to school, get off welfare, and quit getting pregnant before you can afford to raise those kids.”

You mean like Sarah Palin’s daughter?

Posted by WAWA | Report as abusive

There seems to be no problem with wives claiming the total sum of the couple’s income as a joint marital asset in divorce court so why the difference in tax court?

As far as comments that tax policy discourages marriage, please share that with your LBGT community who do not yet have the privilege to marry. Let them know how happy they should be to be both wealthy and unmarried.

The taxes revert back to the Reagan levels of the 80′s as I understand it, these are not really an Obama tax increase as much as a sunset of regressive tax breaks for the wealthy. I have no sympathy for the wealthy who benefited from regressive tax policies of the past administration. Enough with the fantasy “Joe the Plumber” anecdotes. It’s time to pay your fair share.

I wish I had your problems.

Posted by L Johnson | Report as abusive

Have you looked at the math on the take home pay for this theoretical couple? If you put 401K and various insurance costs aside, this couples take home pay is just under $12,000 a month! That’s enough to make it in any city in this country. I understand they’re getting taxed higher but how much to you need?

Posted by Neil | Report as abusive

Democrats discourages marriage? Through taxes? If your combined income is over 200K and afraid to get married for slight increase in taxes, you shouldn’t get married in the first place. It’ll actually save you money in divorce proceedings later on.

Posted by Brian Choi | Report as abusive

Quote” “What I said is, and most economists would agree, regressive or flat taxation increases wealth disparity, and wealth disparity is the reason why wars naturally happen. No nation’s riches want catastrophic events, since in such scenario there is no ordinary political guarantee for them to have their wealth protected.”

What a heap!! Go wave your little red book somewhere else. Religion is the cause of wars, culture difference is the cause of wars, oil is the cause of wars, next, water will be the cause of wars.

Posted by bill in texas | Report as abusive

Dear Bill from Texas,

Money has always been the foundation of any conflict :), don’t live so brainwashed. Even the mere existence of religion is to facilitate wealth distribution.

Posted by Ananke | Report as abusive

In response to “RA” and others who think that they are being punished for their educations and hard work: I’m actually in the top 1%, thanks to the education my husband and I received. Before you hurt yourself patting your own back, remember that there is a reason we choose to live together in society with other people. If you were given a public education, I helped pay for it, even though I get nothing in return for your edcucation. Similarly, I am paying for the clean water that comes from your pipes, the firefighter who saves your home, and the highways you drive on, without seeing any direct benefit to myself for all the money I’m spending for you. Those student loans you all are struggling to meet? I paid to subsidize the lenders you borrowed from, and if I hadn’t done so, you might never have been able to earn those “hard won” degrees. Yet, oddly enough, I and all the other taxpayers who have been carrying you through your life have never submitted a bill to you and your husband for all the benefits you enjoy every day. We are all in this life together. How do you propose we pay for the many blessings you have become so accustomed to that you don’t even notice them anymore? I help you afford them, and you help everybody else afford theirs. Think back to that time you decided to pursue your degrees and at least be honest to yourself: would the knowledge that your tax bracket might have been raised really have convinced you not to continue your education? By accepting as gospel the so-called ‘facts’ spewed out at you by people like Ms. Roth, you are carrying the water for companies that have nothing in common with you, in the hope that someday you, too could be rich. Stop currying favor with people whose economic interests are completely opposit to your own. The truly wealthy don’t really want your company.

Posted by LS | Report as abusive

I marvel at the arguments over the notion of a progressive
tax system…the whining from the “free lunch bunch” never
ends. I pay taxes, my neighbors pay taxes and YOU should
pay taxes too. The suggestions for draft legislation that
the President and the Congress have submitted are reasonable, and I believe that they should be adopted.

Posted by darlene | Report as abusive

The overall argument to tax members of the household as individuals was good and appealing. But the attempt to give a feminist twist to the whole argument was quite disgusting.

Posted by andy | Report as abusive

maybe a move to just everyone just entering into a “civil union” would be in order.

we could all go back to the good ole days of Ike and the top bracket could be taxed 90%.

Posted by eisenhower | Report as abusive

First of all, mothers aren’t the only ones that stay home these days, so the glass ceiling argument doesn’t apply here. My wife made more money, so I stayed home for 5 years. She would have gladly traded places with me if she could.
Secondly, marriage is the joining of two separate entities that the law recognizes as one. There are many benefits to this arrangement, so why is it so bad that we are taxed as one?
I don’t agree with income tax as a whole, but not because it discriminates against married people. It seems counter-productive to pay the government to work and to pay the government more if you are fortunate enough to be successful in your job.

Posted by Chad | Report as abusive

I just discovered that the tax system is taking 78% of my working effort in federal and state taxes. I’ve run our 2009 estimated taxes if I work through the end of 2009. Then I ran the estimated tax if I cease working in August. My income is reduced, but family taxes are reduced (33% bracket back to 28%) so that the net effect of my working is that my family gets to keep only 22% of my hourly rate. This is a MAJOR ISSUE. I feel like marching on Washington screaming at the top of my lungs! I did what I thought society wanted, went to college and worked hard. Married a college educated man and manage 3 children. We founded two companies (job creation) and I am burnt out and or what? My mother stayed home and my father (did not attend college), and my standard of living is not yet what I grew up with. The President needs to attempt to live in California before he decides $250K is rich. He should also study the time value of money. I’m sure my $260K is not the equivalent of $70K in 1970. I’m quitting. I’m taking my life back for a while. The Presidents threat for 2011 means that this horrible penalty to working wives will only get worse. One of those companies we spent the last 15 years on sought to encourage STEM (Science, Technology, Engineering, and Mathematical) career choices in our youth. It has remained a continued disappointment to me that females were so under-represented in our programs (thirty boys and maybe one girl). Now I believe that we were wrong. Society is really not ready for women (wives) in force in the workplace (or were the old male lawyers giggling at what this type of policy would do)?
Paying my fair is fine, but getting to keep only 22% (I did not go into the AMT/SSN complications in that analysis) so it is probably worse, is ludicrous. The national media needs to focus attention on this issue. I have long known it was an issue but I did not know it was this bad. Most women probably don’t either. It was a long and arduous spreadsheet calculation, difficult for me, and I am an Excel Master. I advise all wives to contact a tax professional and forecast their family’s tax liability for the year then repeat the forecast as if they were not working. Compare the difference to your income. Is it worth it? See how keeping the tax code so complicated hides facts from us? MAD! FURIOUS! I am opting out.

Posted by Denise Burke | Report as abusive

No country lasts long with a continuing huge wealth disparity and the majority of its citizens struggling simply to survive. Pretending that we’re different from all other historical examples is silly. The right-wingers willfully ignore this issue and simply say “to hell with the rest.” What will happen when “the rest” is 90% of your own country? Do you honestly think you have enough shells for your constitutionally-protected assault rifle to kill that many “deserving” people when the riots start … ?

As for the left, do you think that by increasing government income through taxes creates effective government? Get over yourselves! I knew a government worker with a TV in her office so she could watch the daytime soaps, and she’s not exceptional by any stretch. What percentage of that tax revenue do you think makes it through the juggernaut of government bureaucracy to actually do anything useful?

Posted by Jon | Report as abusive