Higher taxes hit working wives
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 email@example.com.