The marriage penalty after the JGTRRA.

• Author: Friske, Karyn Bybee
• Position: Jobs and Growth Tax Relief Reconciliation Act of 2003

Although recent marriage penalty reforms may not affect a couple's decision to marry, knowledge of the provisions might be useful in budgeting and planning. This article discusses recent reforms and the remaining penalty and bonus provisions, and provides examples of how they affect married taxpayers in various situations.

In the greater scheme of things, marital status would not seem to be a reasonable determinant of tax burden, nor tax burden a factor in the decision to marry or not. However, for many years, Congress has grappled with this linkage. At present, the tax system is not marriage neutral; a married couple's tax liability has long differed from the combined tax liabilities of two similarly situated unmarried individuals. Although relatively small differences in tax liability might not affect a couple's decision to marry or not, information on the couple's individual and married tax liabilities might help in budgeting and even affect the timing of a marriage.

The "marriage penalty" has been the subject of much public discussion and many bills introduced in Congress. Demographic changes have intensified the importance of this issue and led to small, quick fixes in the tax law, the most recent being the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). This article analyzes the effect of recent marriage penalty reforms, situations in which the penalty still exists and marriage and divorce bonuses allowed by the Code's current bracket structure.

Background

One goal of taxation is fair distribution of the cost of government by income classes (vertical equity) and among people in approximately the same economic circumstances (horizontal equity). Vertical equity would require individuals with a greater ability to pay to shoulder a greater tax burden than others less able. On the other hand, horizontal equity would require two individuals with equal incomes to pay equal taxes. Based on horizontal equity, a married couple and two single individuals with equal incomes should have the same tax liability. To maintain vertical equity, married individual would pay lower taxes because of the financial burden of caring for a family. These competing objectives may have been easier to achieve when the traditional wage earner was a married male with a wife who did not earn income. However, the American family now includes two earner families, single parents, traditional families and many variations. Congress has continually responded to equity issues by amending the tax law to accommodate the changing composition of the taxpaying public.

Since 1969, when the single rate schedule was restructured so that a single person's tax would never exceed 120% of the tax of a married couple with the same income, there has been some form of marriage...