Ahem. The so-called “marriage penalty.”
Initially, of course, it was meant as a marriage reward. The man worked, the woman did not. If they married, they got the benefit of lower taxes. Live ye not in sin; take the vows.
Now that both spouses in many families work, what was once a reward has become, for quite a few, a penalty.
(But not for all. Say CHRIS has $100,000 in taxable income and PAT has none. Unmarried, their combined tax would be about $4,000 higher than if they married and filed jointly — a $4,000 marriage reward. Even if CHRIS earns $80,000 and PAT earns $20,000, there is still a reward of about $1,000 for their hooking up. Only when the incomes are closer does the reward become a penalty.)
One way to eliminate the marriage penalty is to pass a big tax cut for double-wage-earning spouses, so they are rewarded for being married whether they both work or not. (This is the $180-billion-over-ten-years Republican plan that just passed in the House. It is so expensive because, unlike the President’s proposal, it not only eliminates the marriage-penalty on dual-income marriages, it increases the marriage reward for single-income marriages.)
Another way — to my knowledge not proposed — would be simply to do away with joint filing altogether. Everyone would pay tax on his or her own income, regardless of marital status. There would be no reward; there would be no penalty.
If that sounds simple and fair, it ignores the point: we are trying to encourage long-term committed relationships, as healthy for society. The thought being that love alone is not enough. The government should add a little carrot.
And that’s fine by me.
What’s not fine by me is the penalty on inter-racial couples who would like to marry but cannot because one of them is black or brown or yellow and the other one is white.
If they live together like any other married couple, sharing responsibilities, caring for each other, raising kids (or not), building a life . . . but if they are barred by the state from a legal civil marriage . . . why should they be penalized economically?
“Almighty God created the races white, black, yellow, Malay and red, and he placed them on separate continents,” a Virginia judge found in 1959, in sentencing an interracial couple for evading state law by marrying up the road in Washington. “And but for the interference with His arrangement there would be no cause for such marriages.”
That was 1959. As a nation, we were barely 183 years old, and were still months from putting a man on the moon. It was a primitive time. In 1967, the Supreme Court, declared laws against interracial marriage unconstitutional.
So in fact inter-racial couples are not penalized economically. Let me start again with a more current example: gay and lesbian couples.
The Vermont Supreme Court recently handed down a decision saying the Vermont legislature must either or allow marriage or find some other way to allow economic equality (a decision that Senator McCain last week on CNBC characterized as “ridiculous”).
But for now, in Vermont as elsewhere, there is a penalty.
Take the example of friends I’ll call Mike and John. They have been together for 16 years. They are raising an adopted son. They live quiet, affluent lives, made possible by a gigantic number of shares of stock in a company like Dell or Cisco or Microsoft or Intel that Mike was lucky enough to join straight out of college.
His net worth is now exceeds $30 million.
To Mike and John, the current “marriage penalty” discussion is trivial. Leaving aside their being excluded from the marriage “reward” that might apply in their case . . . and leaving aside John’s not qualifying for a dime of Social Security survivorship benefits . . . consider the small matter of the estate tax. If it were Mike and Jane, a $30 million estate would pass entirely free of tax to Jane. But because it’s Mike and John, the state and federal government would clip $18 million or so from it.
Now there’s a penalty.
Quote of the Day
That I'm their competition.~Famed hedge fund manager Michael Steinhardt, when asked the most important thing an investor could learn from him.
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