WASHINGTON (January 27, 2000) — In his State of the Union address this evening, President Clinton is expected to put forward a proposal to reduce the impact of the marriage penalty in the Tax Code. A marriage penalty arises when a two earner couple pays more federal income taxes by filing jointly than they would pay if each spouse could file as a single. (Only two earner couples suffer a marriage penalty, single earner couples are never affected; most, in fact, receive a bonus from the Tax Code by paying less than they would if single.)
In 1999, 25 million couples filing jointly paid a marriage penalty, 48 percent of all joint filers. Collectively, they paid $28 billion more in taxes because of the marriage penalty. The average "penalty" was $1,141 per couple.
The Clinton proposal would redress only one small area of the Tax Code that gives rise to the marriage penalty: the standard deduction. (The main cause of the marriage penalty is progressive tax rates.) In 1999, the standard deduction was $7,200 for couples and $4,300 for singles. Because the standard deduction for couples is less than twice the amount for singles, it produces part of the overall marriage penalty. The Clinton plan would make the standard deduction for couples exactly double that for singles.
The Clinton proposal would reduce federal taxes by $5 billion, about 18 percent of what is would cost to totally eliminate the marriage penalty. Thus one can say that it only eliminates 18 percent of the marriage penalty.
But in fact, it is less than that because raising the standard deduction for couples also helps many who pay no marriage penalty at all. Only 54 percent of the $5 billion cost of the provision actually goes to couples paying a marriage penalty, most of the rest goes to those that are receiving a marriage bonus from the Tax Code now. Thus the Clinton plan in fact eliminates less than 10 percent of the marriage penalty.
Finally, it should be noted that the Clinton plan is not without offsetting costs. It would increase the penalty that many single people now pay, because they pay more taxes than the equivalent married couple with the same income. Indeed, the penalty for singles would rise by $6.5 billion under the Clinton plan, far more than the reduction in the marriage penalty. (Note: This does not mean that taxes for singles are rising in any way, only that their relative position vis-a-vis married couples is deteriorating.)
In short, the Clinton plan is an extremely modest effort to redress the marriage penalty that is ill-targeted and will exacerbate the penalty suffered by single taxpayers."
Bruce Bartlett is a senior fellow at the National Center for Policy Analysis. He was deputy assistant secretary of the Treasury for economic policy from 1988 to 1993 and is a recognized expert on tax policy and the marriage penalty. He testified before the House Ways & Means Committee on the issue in 1998.