Congress Lost In Marriage Penalty Maze

Efforts to eliminate the marriage penalty suggest the difficulty and even futility of attempting to correct the income tax maze piece by piece.

The penalty exists in spite of political orations about its inequity and the contention of moralists and others that it violates a sacred underpinning of society.

Briefly, the penalty refers to the payment by married couples of more tax than if they were single individuals. Last year it involved more than 21 million married couples and an average penalty of $1,400.

It works both ways: Less publicized, but equally irrational, is the fact that 25 million married couples found that joint filing decreased their tax bills by about $1,300. But penalty or bonus, why should the disparity exist?

Congress regularly asks the question. In fact, it’s been asking since it built the tax-rate schedules back in 1948, when the intention was to make sure married couples never paid more. That’s right, never paid more.

It didn’t work out, of course. In spite of good intentions, Congress did what the maze builder did: It constructed a system from which its creator couldn’t escape. And attempts to do so worsened the problem.

Greg Jenner, national tax policy director for Coopers & Lybrand’s, the accounting firm, describes the effort: In 1969, Congress attempted to remedy any inequities for singles by limiting their tax liability to no more than 20 percent above married couples with the same total income. But the result was the creation of penalties for some married couples and bonuses for others.

Complaints from two-earner couples led Congress to make an attempt at correcting the situation. And so, it enacted a two-earner deduction as part of the 1981 tax act. But in 1986, it was repealed by a new tax act.

As related by Jenner, the 1986 act also raised the standard deduction and collapsed tax rates and brackets for couples on the assumption it would reduce, although still not eliminate the problem.

The thicket became more tangled. The 1990 and 1993 tax increases again exacerbated the marriage penalty, especially for two-income couples with substantial income.

Ditto the 1997 tax package.

Congress isn’t through. Rep. John Kasich, R-Ohio, would permit married couples to file a joint return but calculate their tax separately using the same rate schedule as singles.

Presumably, says Jenner, this flexibility to choose filing status would fix the marriage penalty without jeopardizing the marriage bonus. But, as you are entitled to suspect, the problems do not end there.

Unfortunately, Jenner reminds us, the Treasury’s revenue loss could be substantial because individuals would be allowed to elect the method that provides the best results - for them.

The option could also increase compliance costs, and raise Internal Revenue Service’s administrative burdens.