Fiscal Fact No. 8
If lawmakers fail to extend into 2005 the full marriage penaltyA marriage penalty is when a household’s overall tax bill increases due to a couple marrying and filing taxes jointly. A marriage penalty typically occurs when two individuals with similar incomes marry; this is true for both high- and low-income couples. relief that taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payers 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 TaxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. 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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