A Profile of Couples Benefiting from Marriage Penalty Relief

 
 
April 27, 2004

Fiscal Fact No. 8

If lawmakers fail to extend into 2005 the full marriage penalty relief that taxpayers benefited from in 2004, 30 million married couples will see an average tax increase of $369 next year, according to the Tax Foundation's Individual Income Tax Model.

The fixing of the "marriage penalty" was one of the biggest parts of the original Bush tax cut. Congress estimated that the fix would reduce taxes so substantially for so many taxpayers that when they passed the tax cut, they postponed marriage penalty relief until 2005 and even then scheduled a slow phase-in so that it didn't take full effect until 2009.

In 2003, Congress thought better of that long delay, and at the President's suggestion, they "accelerated" the marriage penalty relief, making the maximum benefit that would have occurred in 2009 effective in 2003 and 2004. However, unless Congress acts this year to extend full tax relief, the marriage penalty will return on January 1, 2005, not quite to the level it was before, but married couples filing jointly would once again face a tax disadvantage.

Using the Tax Foundation's Individual Tax Model and Matched IRS/Census Database, Foundation economists were able to build a basic demographic profile of the 30 million couples, representing 85 million individuals, who currently benefit from the marriage penalty relief.

What is Their Income Profile? Tables 1 and 2 display income and tax data about the couples who benefit from the marriage penalty relief. Table 1 presents the average income tax liability for married couples at different income levels, quantifying the tax increase they can expect next year if the value of the marriage penalty relief is allowed to revert back to 2001 law.

Table 1: How Much Would a Failure to Extend Full Marriage Penalty Relief Raise Taxes for People in Different Income Ranges?

IncomeRange

Average Current Income Tax Liability

AverageTax Increase

Percentage Increase in Tax Burden

$10,000 to $15,000

$6

 $33

562.7%

$15,000 to $20,000

 $168

 $116

69.1%

$20,000 to $25,000

 $592

 $126

21.2%

$25,000 to $30,000

 $954

 $127

13.4%

$30,000 to $40,000

 $1,525

 $178

11.7%

$40,000 to $50,000

 $2,466

 $188

7.6%

$50,000 to $75,000

 $4,645

 $260

5.6%

$75,000 to $100,000

 $8,274

 $573

6.9%

$100,000 to $200,000

$17,585

$601

3.4%

$200,000 and over

$337,855

$619

0.2%

Source: Tax Foundation Individual Tax ModelTable 2: More Than 70 Percent of the Couples Who Benefit from Marriage Penalty Relief Earn Less than $100,000

IncomeRange

Percentage of 30 Million Couples in Each Income Range

$10,000 to $25,000

10%

$25,000 to $40,000

15%

$40,000 to $50,000

11%

$50,000 to $75,000

17%

$75,000 to $100,000

18%

$100,000 to $200,000

22%

Over $200,000

7%

Source: Tax Foundation Individual Tax Model

Table 2 shows that the great majority of taxpayers who benefit from marriage penalty relief are middle-income earners. More than 70 percent of these couples earn less than $100,000 per year.

What is Their Age Profile? Table 3 shows that most beneficiaries of marriage penalty relief—52 percent—are between the ages of 35 and 54. This indicates that the tax relief helps couples during their peak earning years. More than one-third of the taxpayers getting the marriage penalty relief are over 55. Thus, the tax relief is benefiting millions of couples nearing or in retirement.

Table 3: Most of the Couples Who Benefit from Marriage Penalty Relief Are in their Peak Earning Years

 Age Range

 Percentages of 30 Million Couples in Each Age Range

 18 to 24

 2%

 25 to 34

 13%

 35 to 44

 23%

 45 to 54

 29%

 55 to 64

 16%

 65 and over

 17%

Source: Tax Foundation Individual Tax Model

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