The treatment of marriage provides an important example of how difficult it is
to achieve horizontal equity in practice. Consider two couples who are exactly
the same except that one couple is married and the other couple is not. A peculiar
feature of the U.S. income tax code is that these two couples pay different
taxes. The reason that marriage affects the tax liability of a couple is that the tax
law treats a married couple as a single taxpayer. When a man and woman get
married, they stop paying taxes as individuals and start paying taxes as a family.
If the man and woman have similar incomes, their total tax liability rises
when they get married.
To see how this “marriage tax” works, consider the following example of a
progressive income tax. Suppose that the government taxes 25 percent of all income
above $10,000. Income below $10,000 is excluded from taxation. Let’s see
how this system treats two different couples.
Consider first Sam and Sally. Sam is a struggling poet and earns no income,
whereas Sally is a lawyer and earns $100,000 a year. Before getting married, Sam
pays no tax. Sally pays 25 percent of $90,000 ($100,000 minus the $10,000 exclusion),
which is $22,500. After getting married, their tax bill is the same. In this
case, the income tax neither encourages nor discourages marriage.
Now consider John and Joan, two college professors each earning $50,000 a
year. Before getting married, they each pay a tax of $10,000 (25 percent of
$40,000), or a total of $20,000. After getting married, they have a total income of
$100,000, and so they owe a tax of 25 percent of $90,000, or $22,500. Thus, when
John and Joan get married, their tax bill rises by $2,500. This increase is called
the marriage tax.
to achieve horizontal equity in practice. Consider two couples who are exactly
the same except that one couple is married and the other couple is not. A peculiar
feature of the U.S. income tax code is that these two couples pay different
taxes. The reason that marriage affects the tax liability of a couple is that the tax
law treats a married couple as a single taxpayer. When a man and woman get
married, they stop paying taxes as individuals and start paying taxes as a family.
If the man and woman have similar incomes, their total tax liability rises
when they get married.
To see how this “marriage tax” works, consider the following example of a
progressive income tax. Suppose that the government taxes 25 percent of all income
above $10,000. Income below $10,000 is excluded from taxation. Let’s see
how this system treats two different couples.
Consider first Sam and Sally. Sam is a struggling poet and earns no income,
whereas Sally is a lawyer and earns $100,000 a year. Before getting married, Sam
pays no tax. Sally pays 25 percent of $90,000 ($100,000 minus the $10,000 exclusion),
which is $22,500. After getting married, their tax bill is the same. In this
case, the income tax neither encourages nor discourages marriage.
Now consider John and Joan, two college professors each earning $50,000 a
year. Before getting married, they each pay a tax of $10,000 (25 percent of
$40,000), or a total of $20,000. After getting married, they have a total income of
$100,000, and so they owe a tax of 25 percent of $90,000, or $22,500. Thus, when
John and Joan get married, their tax bill rises by $2,500. This increase is called
the marriage tax.
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