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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Well, shades of Joe the Plumber propaganda! Nothing I’ve seen about Obama’s proposed tax cuts would affect any family making less than $250,000 a year. You obviously have inside information about the finalized details of Obama’s tax plan that ordinary citizens are not privy to. So – according to you – Obama is proposing tax increases instead of tax decreases for those making less than $250,000 a year.

I’ll start putting a little credence in Hudson Institute political shills when they start complaining about the estimated 50,000 wealthy oh so patriotic Americans with secret Swiss bank accounts that are dodging some $100 billion a year in U.S. taxes. Until then, you are not trustworthy enough to get anyone’s attention other than hard core cheats and liars that propagate the fictions.

Posted by Ray | Report as abusive

It is time to “Go Galt” on ‘em.

Posted by kelly p | Report as abusive

As above poster said, 250k is the cap where families get taxed an extra 3%.

It is also difficult to understand why any parent that earns 160k, who made a lifestyle choice to have a child, would not want at least one partner to spend her or his full time raising that child, if they as a family were living that comfortably. Where is society going if it puts family values second to a bigger paycheck?

Posted by Working Mother | Report as abusive

Give me a break, Working Mom. So, as a woman, if I have a child, stay at home when he is little, then decide I would like to go back to work (using the college education I earned), I’m going to be taxed as punishment. Glad to see you support ALL women and their desire to be equal (and as accomplished as men.)

Posted by Nicole | Report as abusive

First of all, I would like to congratulate Rick and Jeanne on their upcoming nuptials. I wish them a happy future together, one that has plenty of housing starts for Rick’s plumbing business and plenty of resources for Jeanne’s school, both of which in the current economic climate will require taxpayer support. Second of all, I would like to say that I am a working mother who pays taxes just like Rick and Jeanne. Two years ago, it might have played in Peoria to say that this couple should be allowed to keep more of their income. But the reason government policy can ask more of Rick and Jeanne is because….they can afford it! Presumably Jeanne would have a vastly different lifestyle living on her own making $50,000 than she will have when she combines her income with Rick’s. And the government allows her tax rate to go down when she has children because….children are expensive but the government thinks we will need them for our future. You don’t have to be chief economist at the Labor Department to see that people who have more disposable income might be called on to help support people who don’t. Some people might call it a marriage penalty. I call it common sense.

Posted by A responsible taxpayer | Report as abusive

Sorry, but as someone with an infant son and a spouse that doesn’t work, I have a hard time seeing the plight of upper-income married women. The three of us live on my salary, which is barely $30,000/year. Am I supposed to feel sorry for these people, because their taxes are going up 3%? Give me a break…If my salary increased eightfold, paying 3% extra in taxes would be the least of my concerns.

Posted by Kyle | Report as abusive

The taxable incomes you are referring to must be the adjusted gross incomes which is much less than gross income. You are talking about people with over $220,000 and $70,000 gross income. Please don’t try to confuse the public on this issue. President Obama will not raise taxes on couple making less than a combined $250,000 of gross income a year.

Posted by lee louis | Report as abusive

This tax increase is not an assault on women or working mothers or mothers in general. It is a tax increase plain and simple. I’m not saying I agree with it either. What I am saying is that by twisting it into something it is not is not good reporting.

Good job “Working Mother” pointing out that that when the family is very secure financially why it is so horrible to have the second parent stay home to raise the children. This is not possible for so many, it is a shame to see this opportunity wasted on people who don’t care enough about their children.
Oh – and I am a well-educated mother of 2.

Posted by Kristen | Report as abusive

I find it hard to feel too much sympathy for a man and woman making over 200K a year. They will not go hungry.

Posted by jimmy | Report as abusive

I get a real kick out of reading this right wing crapolla. the rich complaining about having to shoulder some of the burden for making big bucks in this country, to funny. if this keeps up, won’t be able to afford that new Mercedes, huh? wonder what Rick the plumber pays his workers? union? (hell no!) insurance?(hell no!)
geez, maybe some of these idiots should move to England where life is good.

Posted by naz dagg | Report as abusive

This story illustrates exactly why the “income tax” is so entirely regressive, and so obviously anti-family.

We are already paying motor fuel taxes, local and State property taxes, and so many more it would take all day to list them all. Many taxes are hidden from the consumer as they are imposed during the production and distribution of goods and/or services.

We are overtaxed and under-served. Enough.

Posted by Richard C. Green | Report as abusive

Given most people are doing quite well to pull in a living wage or managing to break six figures, I feel there’s absolutely nothing unreasonable about these alleged tax raises.

Talking about a $250,000 a year cap as if it affects a significant number of people is exactly the kind of disconnect that ensures those pushing tax-break policies will be completely out of touch with their electorate, and is incidentally also the kind of policy that results in wealth concentration at the expense of just about everyone else.

We cannot afford to continue to fly in the face of reality and pursue such socially irresponsible policies.

Posted by Andy | Report as abusive

If Ricks employee’s worked as hard as he did, and took the RISK he did in starting his own company, then maybee they could get the benz themselves. But they didn’t. It is his risk that put food on thier table.

Let me know where Gualts Gluch is and i’ll join you!!!

Posted by floridalibertarian | Report as abusive

Fine. Lets just all then pay the or 39% income tax and lets make everyone happy. if you make 30k a year you pay 39% and if you make 500K a year you still pay 39%. That should make everyone happy. At least this way you have a clear choice whether you are happy making 30k a year. Then you dont have to worry about why people who make more dont WANT to pay more of their income towards taxes.

Posted by Rozos | Report as abusive

It’s cute how the media keeps insisting that allowing Bush’s tax cuts to expire is the same as Obama inventing “new” tax hikes.

Things are going back to how they were under Clinton, when every income bracket did better than the years before, or after.

Helpful graphs here:

http://www.fivethirtyeight.com/2009/02/c linton-economic-record-and-rising.html

Also, you forgot to point out that sharing a house with someone is a whole lot cheaper than living alone.

The one thing that seems to be forgotten in this debate about the “richest” Americans is the cost of living. While $250k per couple would make a couple in Annistan Alabama or Altus Okalahoma very ewealthy, that same $250k is not so great in new York City, LA, or even Washington DC. Tax rates should be adjusted based on where the people live. It could be based on the same formula that is used to give federal government employees their cost of living adjustments.

Posted by Cliff | Report as abusive

Enough already. A family making $250K is a dream for a majority of us. We’re living in half or a quarter of that, sometimes much less.

I wish I could feel sorry for them, but I am in the process of taking out a 2nd or 3rd job just to keep food on the table. Paying all the necessary taxes and expenses that entails, yes. And no one is crying and whining about me or the taxes I pay.

Posted by xysea | Report as abusive

The author has a good understanding of what is happening in the tax system. Congress hasn’t extended the tax acts put into place in 2001 and 2003 to help us get through the effects of the terrorist attacks on the World Trade center. As a result the retired folks that have substantial dividend income are going to see tax increases this year if they have anything to tax. The rest of us will have substantial tax increases in 2011. Unless congress decides to extend the tax acts.
I prepare taxes for a living and I have a good understanding of how additional dollars earned affect taxes. The author is right that in too many cases with the extra cost of transportation, taxes, clothing lunches, child care and the cost of not having time together, sometimes a two earner family negates the extra income earned by one of the spouses.
If the spouses income is taxed by the federal government at the 39% rate, plus 7.65% Medicare and Social Security then you add state tax, in my state it would be about 7% she is already taxed at 53.65% of her income. We haven’t even considered the other costs she would have to be able to work.
No tax system is fair but ours does hit the working spouses very hard.

Posted by Craig Coal | Report as abusive

“If Ricks employee’s worked as hard as he did, and took the RISK he did in starting his own company, then maybee they could get the benz themselves. But they didn’t. It is his risk that put food on thier table. ”

hahahaha You make some wild assumptions. Rick’s employees don’t work as hard as he does, eh? Yeah, right. Take your ego somewhere else.

And risk? Rick isn’t assuming any risk, really. He can write it off if his business fails and can go into another career. He probably got a cut rate small business loan, or a loan from family and friends to get going anyway. I think that is called ‘the price of doing business’.

Small businesses are wonderful, and small business owners are great and we appreciate them doing what they do, but lets not deify them or canonize them. All they are doing is making a living, just like anyone else. They are not superhuman, or gods. They are just people – like the ones they employee, who also work hard and have families to support.

Stop making one group out to be ‘the other’ – lazy, irresponsible, etc. It’s just another way to marginalize them, dehumanize them and build yourself up. If you have that much of an esteem issue, I would suggest therapy.

Posted by amouat | Report as abusive

what is “fair”?

a family that earns $200K will pay TWICE as much taxes as a family making $100K even if they had the same tax rate! Is that fair? Tack on an additional 3%. Is that “more fair”? If 3% is “more fair” than why not make it 50% more?

maybe everyone should be limited to $30K of income. if they earn more, it should be seized by the government. if they earn less then the government should reimburse them for the difference. is that fair?

Posted by BJ | Report as abusive