And another annoying marriage ritual...

[condign]

...tonight the wife and I will be recalculating what we need to put on our W-4s for withholding, as we will both be married and working full time this year, and paying approximately five figures more in taxes for the privilege of being wed. I was going to write a short summary of why this works--as I never did explain to lathany why a marriage penalty is

Comments

[bateleur]

(b) 100% of their income is, functionally, taxed at the highest bracket.

This seems to be a premise of the article you link, but mathematically it doesn't hold water. What's actually happening is that the last X% of the higher earner's salary is taxed more when circumstances (in this case the presence of a second income) indicate that their economic situation is improved by external factors

[condign]

Spoken as a true mathematician.

What's actually happening is that the last X% of the higher earner's salary is taxed more when circumstances (in this case the presence of a second income) indicate that their economic situation is improved by external factors.In all circumstances other than the economically relevant, you're right: the higher-earning spouse's paycheck gets a bigger chunk taken out of it as well, and if the partners divorce, the tax is assessed against both parties for purposes of figuring out who owned what. But from an economic perspective, the last dollar earned belongs to the person likely to scale back their income, because that's the marginal dollar

[bateleur]

can't be a particularly good thing for women

Oh, it isn't. But as with many political issues the question of long term policy design and the short term practicalities of fixing apparent problems may not intersect much.

For example, a woman who really wants to work can simply elect to work. Her and her spouse will share the tax burden, so it's not as though the penalty is applied in a gender-biassed manner. The partership will still bring in more money than if only one of them were working, so there's only a problem here if the money "lost" to taxation is sufficient to make the difference between wanting and not wanting to work.

You mention to undyingking below that the UK has "largely eliminated" the problem. But in fact what they've done is to make it compulsory for lower income families with kids to have two working parents. This can seem good to policy think-tanks who see it "making work" for childcare professionals and improving national productivity. What it actually amounts to is a lot of miserable and often low paid hard work being

[condign]

The real trick would be to come up with a taxation structure that provides incentive to socially benign working patterns.

This is roughly like saying, "It would be wonderful if they invented a hammer that would sew the button back on my shirt." Good tool, wrong job. ;)

[undyingking]

Surely the trouble is taxing marrieds on their joint income rather than as individuals -- the UK stopped doing this some years ago.

It opens up possibilities for tax avoidance by shuffling income from one partner to another, but it eliminates the iniquity that you describe.

Not quite

[condign]

It changes the nature of the problem. Taxing individuals rather than dual-earners means that two families with the same collective income will be taxed differently depending on whether they are two-earner or single-earner. This will hit lower-income families particularly hard.

As I pointed out to Lathany last time, the UK has largely eliminated the problem by reducing the number of brackets and making the tax system flatter. (It often surprises those used to criticizing the Bush administration to find that his tax system was more progressive than their own.)

Re: Not quite

[undyingking]

two families with the same collective income will be taxed differently depending on whether they are two-earner or single-earner. This will hit lower-income families particularly hard.

I don't think that is seen as a problem, rather it's an active aim of the policy. The idea of a low-income earner supporting a non-working partner has not been an appealing one to UK govts of either colour for some time now. They are AFAICS deliberately thus incentivized to get that partner out to work.

Re: Not quite

[onebyone]

Which is odd in a way, since non-working parents would on the face of it appear to be an excellent place to hide unemployment. Maybe the deviousness of both parties does know some bounds...

[lathany]

That's a good description - thanks for the link. I see the problem. I wonder if this discourages marriage? More specifically, I wonder if there are stats on that.

[undyingking]

AFAIK marriage rates have been falling for some time in both the US and the UK. But are still considerably higher in the US.

[condign]

There have been a lot of studies, mostly getting their own answers depending on what they want to measure. The short answer is, yes, it almost certainly discourages marriage, although so little one way or the other as to make little difference in comparison to other social trends. (As Postrel says, the economic effect on women's workforce participation is much more significant.)

That said, I know a number of two-earning lawyers who have specifically delayed getting married, whilst living together, for three or four years, basically getting hitched just before they're going to have a child. If one plays ones cards right, that means a five-digit savings in income tax over the three years, and if one family member intends to drop out of the workforce for a short while after the child is born, less than a 50% drop in salary. It's the most economically rational way to do it.

Now, if you believe that the social force of marriage itself tends to keep relationships together, then this might have some effect on overall marriage rates, I

[onebyone]

Out of interest, is there any tax advantage in the US to getting married at the point of having a child? Are these couples actually minimising their tax bill, or are they just delaying the inevitable sub-optimal tax decision until the cash cost is outweighed by the desire not to have a child out of wedlock?

[onebyone]

women still tend to "marry up," so that even high-earning women have higher-earning spouses, particularly in their early career

This appears to me to beg the question, so I must be missing something - women earn less than men, you say, because (together with another factor amplifying the asymmetry) women earn less than the men they marry. You explain one gender asymmetry in terms of another, which is progress without an answer.

So, why do women earn less than the men they marry? Would fixing that fix the problem? Or is the reason for the income disparity within couples something unfixable by public policy: for instance women marrying on average younger, and hence to men who on average earn more for no other reason than being a couple of years further into work?

[condign]

You've identified one of the reasons, of course: difference in age. There's also the fact that many women, for whatever reason, intend to work only until their childbearing years. For these couples, the traditional pattern--both working, but one member investing in the other's education, for instance, until children are contemplated--makes sense.

This is sort of bateleur's argument about how gender roles "should" be. (Presumably, based upon his argument above, he thinks gender differences in lifestyle preference should average out.) I don't believe that, so working towards a world where a man and a woman are equally likely to want to play a stay-at-home world seems unproductive to me.