The typical wedding ceremony, reception, and honeymoon can cost tens of thousands of dollars. Although all of it may be paid for up front, soon afterward, or during the first year of marriage, some couples continue to pay throughout their married life because of the marriage penalty in the tax code.
A marriage penalty or bonus results when the combined income tax liability of a married couple is higher or lower than what their combined income tax liability would have been if they had remained single. According to the Tax Foundation,
Marriage penalties and bonuses have a significant impact on the combined tax burden of couples. Marriage penalties affect taxpayers at very high and very low incomes, and marriage bonuses affect many middle-income couples with disparate incomes. Taxpayers with children also face large penalties and bonuses for marriage.
The marriage bonus typically occurs when two individuals with disparate incomes marry.
Marriage penalties typically occur when two individuals with equal incomes marry.
The degree to which the marriage penalty or bonus affects any given couple depends on the level of their combined income, the extent to which their individual incomes are similar, and the number of children they have.
Because the loss of welfare benefits generally results in a significant marriage penalty among low-income individuals who marry, the marriage penalty has the unintended consequence of encouraging couples with children to cohabit instead of getting married. As many studies have pointed out, over the last 50 years, marriage rates have fallen by more than 50 percent and single parenthood has increased by more than 100 percent. This decline is most pronounced among lower-income Americans who have received means-tested tax and transfer programs. Therefore, and because recent changes to the tax code have largely eliminated marriage penalties for most upper-income families, the proposed solutions to welfare marriage penalties are what I want to focus on.
The U.S. House of Representatives passed a resolution (H.Res.399) on June 21, 2017, “expressing the sense of the House of Representatives that welfare programs discourage marriage and hurt the institution of the family in the United States.” On April 10, 2018, Donald Trump issued Executive Order #13828, “Reducing Poverty in America by Promoting Opportunity and Economic Mobility,” to “promote economic mobility, strong social networks, and accountability to American taxpayers.”
In response, the Office of Family Assistance (OFA), an operating division of the U.S. Department of Health and Human Services’ (HHS) Administration for Children and Families (ACF), designed a two-phased approach to address the problem of marriage penalties in the tax code “that may inhibit economic independence and mobility, perpetuate poverty, and weaken family bonds by discouraging marriage among American parents.” In the first phase, the OFA “convened a group of experts to discuss the issues of marriage penalties and explore actions that the federal government could take to minimize them.” The second phase consisted of a paper, dated October 2019, coauthored by Bradford Wilcox, Chris Gersten, and Jerry Regier, and titled Marriage Penalties in Means-Tested Tax and Transfer Programs: Issues and Options that was submitted to Robin Y. McDonald, Division Director in the OFA.
The paper identifies and explores “marriage penalties related to specific means-tested programs serving a large number of people.” It is particularly concerned with
(a) understanding how marriage penalties may discourage stable marriage among parents; and
(b) identifying possible policy reforms that would eliminate or minimize marriage penalties facing families with children.
The paper makes it clear that the recommendations it expresses “are not endorsed by the ACF, but rather are a synthesis of ideas that warrant further exploration and consideration.”
After the introduction, the paper is divided into three parts. Part one discusses marriage and marriage penalties. Part two explores the top nine public assistance programs that impact marriage through marriage penalties and offers recommendations for reform. These programs are:
- Temporary Assistance for Needy Families (TANF)
- Earned Income Tax Credit (EITC)
- Supplemental Security Income (SSI)
- Supplemental Nutrition Assistance Program (SNAP), formerly called food stamps
- HUD Rental Assistance Programs
- Child Support Enforcement (CSE)
- Social Services Block Grant (SSBG)
- Child Care and Development Fund (CCDF)
Part three groups the recommendations for each welfare program in part two “under more general action principles for reform” and summarizes them. The principles are:
1) Create an ongoing advisory group to inform and ensure continued discussion of marriage penalties in means-tested programs and work to assist in implementing solutions.
2) Use waivers and existing grant programs to experiment with solutions including credits, income disregards, transitional periods of adjustment through state waivers, experimental program grants, and bonus points in grant applications to foster proposals; and,
3) Communicate support from the nine highlighted means-tested programs to state, local, and governor’s offices providing clarity of allowable use of program funds for overcoming financial disincentives to marriage.
These generalities are the wrong solution to welfare marriage penalties, as are the specific solutions offered, such as replacing “the EITC with a working parent’s wage supplement with a monthly payout that would not penalize marriage.”
First of all, the welfare marriage penalty is actually worse than it seems. Although unemployment benefits are taxable, and Social Security benefits are sometimes taxable, regular welfare benefits are neither taxable nor considered income. According to page 42 of the 1040 tax form instructions for tax year 2019,
Any refund you receive as a result of taking the EIC can’t be counted as income when determining if you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. These programs include Temporary Assistance for Needy Families (TANF), Medicaid, Supplemental Security Income (SSI), and Supplemental Nutrition Assistance Program (formerly food stamps). In addition, when determining eligibility, the refund can’t be counted as a resource for at least 12 months after you receive it.
That results in a two-fold disincentive for cohabiting couples to marry.
Second, it is not the proper role of government to have a welfare program or a safety net; to pay to feed the hungry, heal the sick, or provide for the disabled; subsidize anyone’s housing or childcare; or to give people “refunds” of taxes that they never paid in the first place. In one of the appendices to Marriage Penalties in Means-Tested Tax and Transfer Programs: Issues and Options, there is a list of 89 federal means-tested welfare programs. House Resolution H.Res.399 states that “the Federal Government funds 126 separate programs that have a stated purpose of fighting poverty, 72 of which provide either cash or in-kind benefits to recipients, 17 of which are food-aid programs, and over 20 of which are housing programs.” Yet, regardless of whether the number is 72 or 126, not a one of the programs is authorized by the Constitution. Get rid of the welfare and you get rid of the welfare marriage penalties.
And third, since it is an illegitimate purpose of government to have a welfare state, it is an illegitimate purpose of government to tax Americans to fund it. Although all taxation is government theft, the income tax is particularly onerous. As Old Right stalwart Frank Chodorov explained in his classic book The Income Tax: Root of All Evil (1954), the income tax means that the state says to its citizens,
Your earnings are not exclusively your own; we have a claim on them, and our claim precedes yours; we will allow you to keep some of it, because we recognize your need, not your right; but whatever we grant you for yourself is for us to decide.
The amount of your earnings that you may retain for yourself is determined by the needs of government, and you have nothing to say about it.
Get rid of the income tax and you get rid of the welfare marriage penalties.
Welfare benefits and tax burdens should never influence the decision to marry.