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Because numbers are often rounded, their sums may not equal totals shown in tables, figures, and text. For simplicity of exposition, this paper sometimes uses the term "families" to refer to both families and individuals. Values for earnings are sometimes negative. People can have negative earnings if they lose money in self-employment and the losses exceed incomes from wages or salaries. |
This study examines the ways in which federal tax law affects the income taxes that married couples pay and how demographic and labor market changes over the last two decades have altered those effects. It also discusses a variety of possible changes in the federal tax code that would reduce the higher tax liabilities that married couples often incur because they cannot file individual tax returns. The Congressional Budget Office (CBO) prepared the study at the request of Representative Barbara Kennelly of the Committee on Ways and Means.
Roberton Williams and David Weiner of CBO's Tax Analysis Division wrote the study under the direction of Rosemary Marcuss and Frank Sammartino. A number of people inside and outside CBO reviewed drafts and provided valuable criticism and suggestions. They include Mark Booth, Albert Davis, Theresa Devine, Daniel Feenberg, Diana Furchtgott-Roth, Amy Rehder Harris, Richard Kasten, Pearl Richardson, and Eugene Steuerle.
Sherwood Kohn edited the manuscript and Marlies Dunson provided editorial
assistance. Simone Thomas produced drafts of the study. Kathryn Quattrone
and Jill Sands prepared the report for publication.
June E. O'Neill
Director
June 1997
ONE - MARRIAGE PENALTIES AND BONUSES
TWO - SOURCES OF MARRIAGE PENALTIES AND BONUSES
THREE - MAGNITUDES OF MARRIAGE PENALTIES AND BONUSES
FOUR - LABOR MARKET AND DEMOGRAPHIC CHANGES AFFECTING MARRIAGE PENALTIES AND BONUSES
FIVE - REDUCING MARRIAGE PENALTIES
APPENDIXES
A - Tax Treatment of Married
Couples in Other Countries
B - Treatment of Married Couples
Under State Income Taxes
C - Characteristics of Married
and Unmarried Couples, 1995
D - Additional Supporting
Tables
E - Sources of Data
F - Estimated Marriage Penalties
and Bonuses Under a Divorce Model
G - The Income Distribution
of Families
H - Comparison of Demographic
Changes for Working-Age Couples and All Married Couples
| TABLES | |
| S-1. | Distribution of Joint Tax Returns and Marriage Penalty or Bonus as a Percentage of Adjusted Gross Income, by Adjusted Gross Income of Couple and Penalty or Bonus Status, Projected 1996 |
| S-2. | Joint Tax Returns by Penalty or Bonus Status and Division of Earnings Between Spouses, Projected 1996 |
| S-3. | Effective Individual Income Tax Rates of Married Couples Filing Individual or Joint Returns, Projected 1996 |
| S-4. | Alternative Approaches to Reducing Marriage Penalties |
| 1. | Effects on Marginal Tax Rates of Married Couples Filing Jointly Rather than Individually, Projected 1996 |
| 2. | Marriage Penalties and Bonuses for Married and Unmarried Couples, Simulated 1995 |
| 3. | Factors Determining Whether Couples Face Marriage Penalties or Bonuses, 1996 |
| 4. | Total Value of and Tax Returns with Marriage Penalties and Bonuses Under Alternative Measures, Projected 1996 |
| 5. | Couples Receiving Marriage Penalties and Bonuses by Adjusted Gross Income, Projected 1996 |
| 6. | Marriage Penalties and Bonuses by Adjusted Gross Income of Couple, Projected 1996 |
| 7. | Joint Tax Returns by Penalty or Bonus Status and Division of Earnings Between Spouses, Projected 1996 |
| 8. | Marriage Penalties and Bonuses by Penalty or Bonus Status and Division of Earnings Between Spouses, Projected 1996 |
| 9. | Effective Individual Income Tax Rates of Married Couples Filing Individual or Joint Returns, by Adjusted Gross Income and Division of Earnings Between Spouses, Projected 1996 |
| 10. | Distribution of Working-Age Married Couples, by Division of Earnings Between Spouses in 1969, 1979, 1989, and 1995 |
| 11. | Percentage of Working-Age Married Couples with Two Earners, by Total Income in 1969, 1979, 1989, and 1995 |
| 12. | Percentage Distribution of Working-Age Married Couples, by Division of Earnings Between Spouses and Total Income in 1969, 1979, 1989, and 1995 |
| 13. | Percentage of Working-Age Married Couples with Two Earners, by Age of Older Spouse in 1969, 1979, 1989, and 1995 |
| 14. | Percentage Distribution of Working-Age Married Couples, by Division of Earnings Between Spouses and Age of Older Spouse in 1969, 1979, 1989, and 1995 |
| 15. | Percentage of Working-Age Married Couples with Two Earners, by Number of Children in 1969, 1979, 1989, and 1995 |
| 16. | Percentage Distribution of Working-Age Married Couples, by Division of Earnings Between Spouses and Number of Children in 1969, 1979, 1989, and 1995 |
| 17. | Percentage Distribution of Families with Children, by Type and Number of Earners in Married Couples in 1969, 1979, 1989, and 1995 |
| 18. | Simulated Effects of Demographic Change on Marriage Penalties and Bonuses, 1969 and 1996 |
| C-1. | Distribution of Married and Unmarried Couples by Total Income, 1995 |
| C-2. | Distribution of Married and Unmarried Couples by Age of Older Spouse, 1995 |
| C-3. | Distribution of Married and Unmarried Couples by Number of Children, 1995 |
| C-4. | Simulated Marriage Penalties and Bonuses for Married and Unmarried Couples, 1995 |
| D-1. | Factors Determining Marriage Penalties and Bonuses by Adjusted Gross Income, Simulated 1996 |
| D-2. | Married Couples by Earnings of Each Spouse, Simulated 1996 |
| D-3. | Married Couples with Marriage Penalties or Bonuses and Average Penalty or Bonus by Earnings of Each Spouse, Simulated 1996 |
| D-4. | Distribution of Marriage Penalties and Bonuses by Number of Earners, Simulated 1996 |
| F-1. | Marriage Penalties and Bonuses for Married Couples Under Alternative Assumptions about Distribution of Children Between Spouses, Simulated 1996 |
| G-1. | Percentage Distribution of Families by Income Category and Family Type, 1995 |
| G-2. | Distribution of Working-Age Married Couples with Earnings by Income Category in 1969, 1979, 1989, and 1995 |
| H-1. | Selection of Married Couples for Analysis Based on Age and Earnings, 1995 |
| H-2. | Percentage of Couples with Two Earners: All Married Couples and Working-Age Married Couples with Positive earnings in 1969, 1979, 1989, and 1995 |
| H-3. | Distribution of Working-Age and All Married Couples by Division of Earnings Between Spouses in 1969, 1979, 1989, and 1995 |
| H-4. | Percentage Distribution of Working-Age and All Married Couples with Two Earners, by Total Income in 1969, 1979, 1989, and 1995 |
| H-5. | Percentage Distribution of Working-Age and All Married Couples by Division of Earnings Between Spouses and Total Earnings in 1969, 1979, 1989, and 1995 |
| H-6. | Percentage Distribution of Working-Age and All Married Couples with Two Earners by Age of Older Spouse in 1969, 1979, 1989, and 1995 |
| H-7. | Percentage Distribution of Working-Age and All Married Couples by Division of Earnings Between Spouses and Age of Older Spouse in 1969, 1979, 1989, and 1995 |
| H-8. | Percentage Distribution of Working-Age and All Married Couples with Two Earners by Number of Children in 1969, 1979, 1989, and 1995 |
| H-9. | Percentage Distribution of Working-Age and All Married Couples by Division of Earnings Between Spouses and Number of children in 1969, 1979, 1989, and 1995 |
| FIGURES | |
| 1. | The Conflict Among Goals of Income Taxation |
| 2. | Earned Income Tax Credit by Number of Children and Earnings, 1996 Tax Law |
| 3. | Marriage Penalties and Bonuses Resulting from the Earned Income Tax Credit, 1996 Tax Law |
| 4. | Marriage Penalties and Bonuses by Number of Children and Earnings Split, 1996 Tax Law |
| 5. | Work Patterns of Married Couples, 1969-1995 |
| 6. | Distribution of Families and Unrelated Individuals by Type, 1969-1995 |
| 7. | Projected 1996 Marriage Penalty Relief Under Alternative Proposals, Basic Measure of Marriage Penalty |
| 8. | Projected 1996 Target Efficiency of Alternative Proposals to Relieve Marriage Penalties, Basic Measure of Marriage Penalty |
| BOXES | |
| 1. | A Marriage Penalty |
| 2. | A Marriage Bonus |
| 3. | 1996 Marriage Bonuses Resulting from Tax Brackets for One-Earner Couples |
| 4. | 1996 Marriage Penalties Resulting from Tax Brackets for Two-Earner Couples in Spouses Have Equal Earnings |
| 5. | A Marriage Penalty for a Low-Income Couple with Children |
| 6. | Alternative Measures of Marriage Penalties and Bonuses |
| 7. | Setting Tax Brackets and Standard Deductions for Joint Filers to Twice Those for Single Filers |
| 8. | The Two-Earner Deduction |
| A-1. | Tax Treatment of Earned Income in OECD Countries, 1993 |
| B-1. | Treatment of Married Couples Under State Income Taxes, 1993 |
