The Marriage Tax Penalty: An Overview of the Issues

The Marriage Tax Penalty: An Overview of the Issues

Order Code RL30419
CRS Report for Congress
Received through the CRS Web
The Marriage Tax Penalty:
An Overview of the Issues
Updated June 12, 2001
Jane G. Gravelle
Senior Specialist in Economic Policy
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

The Marriage Tax Penalty: An Overview of the Issues
Summary
Both Democrats and Republicans have expressed interest in reducing the
marriage tax penalty. The House passed H.R. 6 in late March, 2001, which is similar
to legislation proposed and passed in 106th Congress but vetoed for budgetary
reasons. President Bush also proposed marriage penalty relief in the form of a
second-earner deduction. The final bill, H.R. 1836, which was signed into law by the
President on June 7, contains the provisions of H.R. 6. It eliminates the marriage
penalty for a large fraction of couples but at a cost of increasing marriage bonuses.
A marriage penalty arises for some families because family income is combined
and subject to progressive tax rates. Other couples, however, experience bonuses
because the exemption amounts and rate brackets are larger for the joint returns filed
by married couples than for singles’ returns. Approaches to addressing the marriage
penalty include expanding standard deductions and rate brackets for joint returns (the
approach in H.R. 6), optional separate filing, and second-earner deductions (the
President’s proposal). Marriage penalties at lower income levels also arise because
of the earned income tax credit (EITC).
It is not possible to measure the marriage penalty or bonus precisely because the
taxes a married couple would pay as two singles depends on the division of unearned
income, itemized deductions, and the custody of children. When children are allocated
based on typical observed behavior, the Congressional Budget Office has estimated
(before considering H.R. 1836) that 37% of married couples have penalties ($24
billion), 3% are unaffected, and 60% have bonuses ($73 billion). Even if children are
assigned in a way to minimize taxes, 43% of joint returns had penalties of $32 billion
and 52% had bonuses of $43 billion.

This analysis suggests that any proposal to reduce taxes for married couples
would increase horizontal inequities that generally tend to penalize singles, based on
an ability-to-pay standard and using the relative poverty scales to measure relative
ability-to-pay. (At high income levels, larger families with children pay the heaviest
taxes, but at low and middle income levels, the highest taxes are paid by single
individuals and the lowest are paid by families with children).
Our analysis also suggests that optional filing may be an efficient approach to
eliminating marriage penalties at the smallest revenue cost, but would add to tax
complexity. Expanding standard deductions and rate brackets (as was done but
limited to the first rate bracket in H.R. 1836) for joint returns is simple, but would
cost the most and would expand marriage bonuses. Second-earner deductions add
some minor complexity but, while not as target-efficient as optional filing would be
more targeted than general tax reductions for joint returns. Per dollar of revenue loss,
second earner deductions are most likely to reduce behavioral distortions with respect
to labor supply of married women, while joint return reductions are least likely to
reduce these benefits. This report will be updated as legislative developments occur.

Contents
How Marriage Penalties and Bonuses Arise . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Marriage Penalty or Bonus Cannot Be Precisely Measured . . . . . . . . . . . . . 5
Issues Surrounding the Marriage Penalty and Proposed Remedies . . . . . . . . . . . 6
Equity Across Family Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Simplicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
List of Tables
Table 1: Average Effective Income Tax Rates for Joint Returns and Unmarried
Couples, By Size of Income and Degree of Split, Prior to H.R. 1836 . . . . . 4
Table 2: Average Effective Income Tax Rates by Type of Return, Family Size, and
Income: Low and Middle Income Taxpayers, Prior to H.R. 1836 . . . . . . . . 8
Table 3: Average Effective Income Tax Rates by Type of Return, Family Size, and
Income: High Income Taxpayers, Prior to H.R. 1836 . . . . . . . . . . . . . . . . 9

The Marriage Tax Penalty:
An Overview of the Issues
The marriage tax penalty (the increase in taxes that can arise when two single
taxpayers marry) has been the subject of several legislative proposals. In late March,
2001, the House passed H.R. 6,which is similar to legislation passed in the 106th
Congress, but vetoed by President Clinton. These proposals, which would increase
the standard deduction and 15% rate brackets for joint returns to twice those of
singles, were originally expected to cost $216 billion from 2001-2011. However,
their cost would have been larger in the long run because of the slow phase-in. The
cost in 2011 was estimated at $39 billion. President Bush has also proposed marriage
penalty relief in the form of a second earner deduction, which is projected to cost
$112 billion from 2001-2011; it is also phased in and is projected to cost $16 billion
in 2001. The estimates are not strictly comparable because the second earner
deductions are estimated assuming the rate reductions in the President’s proposal are
already in place.1
H.R. 1836, which included the provisions in H.R. 6, will have a slower phase-in
and also a sunset. Because the estimates are calculated with a significant rate
reduction and child credit already in place, the cost will be smaller, reaching about $10
billion in the last full year of effect (2008). A large part of this effect is that more
individuals will be pushed into the Alternative Minimum Tax because of the rate
reductions and these individuals will not benefit from the marriage penalty relief. As
a result, many joint returns will not receive marriage penalty reduction benefits.2
Marriage penalties still exist for higher income taxpayers as well. However, the flatter
1This stacking order problem arises because the House considered parts of the President’s plan
independently.
2See CRS Report RL30485: The Individual Alternative Minimum Tax: Interaction with
Marriage Penalty Relief and Other Tax Cuts for a discussion of the AMT interaction with
rate cuts in general. The rate reductions in the regular tax alone would not be sufficient to
explain this differential of $39 billion.. There is a difference because of growth between the
two years that would account for about $5 billion. Comparing numbers from the same year
(2009), the cost of the expansion of the 15% bracket was $26 billion in H.R. 6 compared to
$4.7 billion in H.R. 1836. This provision would shift income from a 15% bracket to a 28%
bracket under current law and to a 25% bracket under the proposed rate revisions. Adjusting
for this effect would make the cost under the new rate structure 10/13 of the cost under the
old and reduce the estimate to $20 billion. About one fourth of the current 15% bracket is
being shifted to a 10% rate, lowering the cost of the standard deduction ($6.5 billion) to at
least 0.1375/0.15 under the new system compared to the old. But this adjustment would shift
the cost to $5.7 billion not the $3.1 billion reported. The cost of the earned income credit
provisions is actually higher under H.R. 1836 than under H.R. 6. The only remaining
explanation is that large numbers of joint returns will shift into the AMT because of the new
rate schedule and will not become eligible for full (or any) marriage penalty relief.

CRS-2
rates themselves would also reduce marriage penalties for those individuals who
remain on the regular tax.
This report is an overview of basic issues associated with the marriage penalty.3
The first section explains how the marriage penalty (and the marriage bonus) arises
and why it is not possible to achieve simultaneously the goals of marriage neutrality
and horizontal equity across families in a progressive tax system. The second section
discusses the size of the marriage penalty and bonus and, importantly, the notion that
the marriage penalty is not a precisely defined measure. The next section outlines the
basic issues of equity, efficiency and simplicity that are part of the framework for
evaluating policy and the final section discusses various legislative proposals in light
of these objectives.
How Marriage Penalties and Bonuses Arise
The U.S. system imposes taxes on a family basis, and thus combines the income
of married couples, who file joint returns. The tax system is also progressive,
allowing standard deductions and personal exemptions, and providing higher tax rates
as income rises (currently at 15%, 28%, 31%, 36%, and 39.6%). These two features
of the tax system mean that the tax system cannot be marriage neutral. For example,
for tax year 2001, the standard deduction for a single return is $4,550, while the
standard deduction for a joint return is $7,600. The first taxable income bracket
applies to taxable income up to $27,050 for a single return and $45,200 for a joint
return. If two single individuals using the standard deduction and with $30,000 of
income married, their tax liability would rise from $6,765 to $7,189, or by $424.
While their combined standard deduction before marriage was $9,100, their standard
deduction now would become $7,600. Moreover, combining their incomes would
result in some part of their income being taxed at the higher rate of 28%. (If they
itemized deductions, however, they would likely have no penalty at the typical ratio
of itemized deductions to income, around 19%). If, however, a single individual
earning $60,000 married another individual with no income, his or her tax liability
would fall from $11,198 to $7,189, or by $4,009. By marrying, the single individual
is now eligible for a larger standard deduction, an additional personal exemption of
$2,750 for the new spouse, and a wider 15% rate bracket.
In our current tax system, some married couples pay higher taxes than they
would if they were single (marriage penalties) and some pay lower taxes (marriage
bonuses). Bonuses are greatest when incomes of the two spouses are less equal,
while penalties become greatest when incomes of the two spouses are more equal.
These fundamental sources of the marriage penalty can also be used to
understand the three basic types of legislative changes considered recently (all of
which were introduced in the 106th Congress). (1) Some proposals would reduce
the taxes for joint returns by increasing the standard deduction (and in some cases
the bracket widths) to twice those of single returns. If all bracket widths were
3A more detailed report on this subject is CRS Report 98-653, The Marriage Penalty and
Other Family Tax Issues, by Jane G. Gravelle.

CRS-3
increased, all marriage penalties would be eliminated, but bonuses would be increased
(ignoring the earned income tax credit and the alternative minimum tax). If only the
standard deduction were increased, as proposed by some Democrats, the marriage
penalty would be eliminated for the 60% of joint returns whose income fell in the 15%
bracket, and reduced for others. If both the standard deduction and first rate bracket
were altered, as in H.R. 6, the penalty would be eliminated for about 86% of married
couples. Expanding the 28% bracket would eliminate the penalty (including those
whose highest marginal tax rate is the capital gains rate) for about 96% of taxpayers.
(2) Another alternative would be to allow optional single filing, so that individuals
could choose to file as singles. This approach was used in the Senate version of the
omnibus tax cut in the 106th Congress. In that case, all penalties would be eliminated,
but bonuses would not be increased. (3) A final option would be to allow a second-
earner deduction (a deduction of part of the earnings of the lesser earning spouse)
which reduces penalties and increases bonuses but does not affect one-earner couples.
This approach has been used in prior tax law and was included in the administration’s
proposals. A related option, contained in President Clinton’s proposals, was to
increase the standard deduction more for two-earner couples.
General rate reductions, as enacted in H.R. 1836, will also reduce marriage
penalties and bonuses. Bonuses will, however, be increased by the new 10% rate
bracket.4
There are some other complications of the system that affect the size of marriage
penalties or bonuses. If one or both of the individuals in the examples above had
children, then the penalties and bonuses would be different. Single parents are eligible
for head-of-household status. Heads-of-households have a standard deduction of
$6,650, larger than that for singles but smaller than that for joint returns. In addition,
the width of the tax brackets ($36,250 for the 15% bracket) is wider than that for
singles and smaller than that for joint returns. As a result, the marriage penalty would
be larger for two individuals with similar incomes. However, children can also make
the marriage bonus larger in some cases: if an individual marries someone who earns
no income or insufficient income to use up personal exemptions and child credits, the
marriage bonus would increase.
A second complication of the tax system is the earned income tax credit (EIC),
which affects the tax liabilities of low income individuals. The earned income tax
credit can add to marriage penalties, because the credit is phased out as income rises,
and marriage of two individuals with earnings can cause a quicker phase out. The
earned income tax credit can also result in a bonus, if a single individual marries
another individual with children but without earnings, or with very small earnings,
because the earned income credit is larger for families with children. There have been
some proposals to lessen the marriage penalty contained in the earned income tax
credit and H.R. 1836 included an increase in the phase-out range for the EIC which
reduced somewhat, but did not eliminate, the marriage penalty.

4 See CRS Report RL30963, Marriage Penalty Legislation: A Comparison of Alterative
Proposals, by Jane G. Gravelle.

CRS-4
Table 1 provides some calculations of the effective tax rate across different
income levels for different family circumstances, for married couples and singles with
the same combined income, under the law as it existed prior to H.R. 1836. The first
set of calculations shows the average effective tax rates for individuals without
children. At the lowest level, a $10,000 income, there is a significant benefit to
remaining single, with an even split, primarily because these individuals do not get
phased out of the EITC. That is, two single individuals, each with the same low
income are each eligible for the EITC, but if they marry, their combined income may
be too high and the EITC will be phased out in part or entirely. When only one
person earns the income, the phase-out of the EITC is not affected, but the single
taxpayer is penalized by the lower standard deduction of singles; as a result there is
a marriage bonus (tax liability would fall with marriage because the standard
deduction would increase and an additional personal exemption allowed). Through
most of the middle incomes, there is virtually no marriage penalty as a percentage of
income, but significant marriage bonuses.
Table 1: Average Effective Income Tax Rates for Joint Returns
and Unmarried Couples, By Size of Income and Degree of Split,
Prior to H.R. 1836
Income Level for a Family of Two
Type
$10000
$20000
$35000
$50000
$75000
$100000
$200000
No Child
Joint
0.00
0.06
0.10
0.10
0.13
0.16
0.20
Single
-0.07
0.05
0.09
0.10
0.12
0.14
0.19
50/50
Split
Single
0.05
0.10
0.13
0.15
0.17
0.19
0.23
100/0
Split
One Child
Joint
-0.18
0.02
0.08
0.09
0.13
0.16
0.22
Single
-0.19
0.02
0.06
0.06
0.12
0.14
0.19
50/50
Split
Single
0.07
0.10
0.13
0.15
0.17
0.19
0.23
100/0
Split*
*Individual without the child is assumed to be the earner. If the individual with the child is
the earner, the row would read -0.18, 0.03, 0.09, 0.12, 0.16, 0.18, 0.23.
Source: Congressional Research Service Report 98-653, The Marriage Penalty and Other
Family Tax Issues. Income levels are for 1997, but the effective tax rates would be virtually
the same at 2001 income levels because the tax system is indexed. Note that effective tax
rate does not always rise across incomes due to rounding.

CRS-5
The second set of calculations shows the effects of marriage between singles,
where one has a child. The individual with the child is assumed to be the non-earner
in the case of the 100/0 split; if the earner was assumed to have the child, the bonus
would be smaller because the single earner would be taxed at lower head-of-
household rates. The assumption that children remain with the non-earner reflects
the likelihood that children would remain with the non-working spouse, who is
typically the mother, in the event of divorce, or would have had custody of the
children if the couple were never married. According to the Census Bureau, 85% of
children who live with one parent live with their mother.5
Note that none of this discussion considers the effect of the alternative minimum
tax (AMT) which contains its own marriage penalty at some levels. Provisions
directed at the regular tax marriage penalty will not affect couples subject to the
AMT, and some couples may not receive full tax benefits because they will shift to the
AMT or have their credits reduced by the AMT. Moreover, more couples will be
affected by the AMT in the future because of rate reductions. H.R. 1836, however,
reduces the interaction beyond what it would otherwise be by permanently allowing
credits against the AMT.6
The Marriage Penalty or Bonus Cannot Be Precisely
Measured
Although people refer to the marriage penalty for a particular family situation or
the aggregate size of the marriage penalty, it is really not possible, in many cases, to
determine the size of the penalty or bonus. Only when a married couple has only
earned income, no dependent children, and no itemized deductions or other special
characteristics, and only if it is assumed that their behavior would not have been
different if their marital status had been different, can one actually measure the size
of the marriage penalty or bonus. There is no way to know who would have custody
of the children and therefore which of the partners might be eligible for head of
household status and for the accompanying personal exemptions and child credits.
The Congressional Budget Office has estimated, using an allocation that reflects
typical behavior of married couples with respect to child custody, that 37% of
married couples have penalties ($24 billion), 3% are unaffected, and 60% have
bonuses ($73 billion). (Itemized deductions and earned income were assigned in
proportion to earnings). The net bonus is $49 billion.7 However, in most of its
analysis, the CBO study relied on a measure of marriage penalties and bonuses that
5U.S. Census Bureau, Current Population Reports, Marital Status and Living Arrangements,
March 1997.
6 See CRS Report RL30485, The Individual Alternative Minimum Tax: Interaction with
Marriage Penalty Relief and Other Tax Cuts, for further discussion.
7 These and other numbers discussed in this paragraph are from an update of a study by the
U.S.. Congressional Budget Office, For Better or for Worse: Marriage and the Federal
Income Tax. Washington , DC, June 1997. These numbers were updated for 1999 in a
memorandum from Bob Williams and David Weiner of CBO dated September 18, 1998.

CRS-6
assumed child custody would be based on a tax-minimizing strategy. For example,
if parents of two children had similar individual earnings, each would be assumed to
have custody of one of the children so that both would be eligible for head-of-
household status. Even using that standard, net bonuses occur: 43% of married
couples had penalties amounting to $32 billion, and 52% had bonuses of $43 billion,
for a net bonuses of $11 billion. Nevertheless, as here noted, a significant proportion
of married taxpayers–between 37% and 43%–pay marriage penalties.
A study using Treasury data and other assumptions produced different measures
of the marriage bonus or penalty.8 Using an assumption that divorced parents
occupied the same residence, and thus only one could qualify for head of household
status, the authors found that 48% had a penalty ($28.3 billion) and 41% had a bonus
($26.7 billion), for a net penalty of $1.6 billion. This study also provided several other
ways of measuring penalties and bonuses, including estimating $30.2 billion in singles
penalties because these individuals could not use joint return rate schedules.
Interestingly, most of the Congressional proposals do not propose to allow married
couples the benefits of head-of-household status, which applies to a relatively small
group of individuals. Without head-of-household status, the Treasury found that 46%
of couples have bonuses ($36.6 billion), 43% have penalties ($20.8 billion) and the
net effect is a bonus of $15.8 billion.
An alternative measurement is the bonuses and penalties of single individuals
who are cohabitating, a much smaller group of people. In 1997, according to the
Census Bureau, there were 109.2 million married adults living with their spouses (55
million households), but only 4.1 million unmarried couple households. Thus,
assuming that these households were similar to married households, the “single
penalties and bonuses” measured by looking at unmarried cohabitating households
would be about 7% of the size of “marriage bonuses and penalties” measured by
looking at married households.
Issues Surrounding the Marriage Penalty and
Proposed Remedies

Concern about the marriage penalty reflects an obvious reservation about
discouraging a social institution such as marriage, and the possible incentives that the
law creates for couples to live together without marriage. This issue is likely to be
more important for couples without children and in general the legislative remedies
address differences between the tax treatment of single and joint returns. For these
individuals, the marriage penalty could, in theory, be eliminated by one of the methods
discussed above (reducing taxes on joint returns or optional filing). It could also be
eliminated, with no revenue cost, by simultaneously increasing the tax burdens on
single individuals. Indeed, the marriage penalty only dates from 1969; its development
8Nicholas Bull, Janet Holtzblatt, James R. Nunns, and Robert Rebelein. Assessing Marriage
Penalties and Bonuses. Proceedings of the 91st Annual Conference of the National Tax
Association, 1998, pp. 327-340. An updated version of this paper is published as Office of
Tax Analysis Paper 82, Defining and Measuring Marriage Penalties and Bonuses, November
1999 [http://www.ustreas.gov/ota/ota82_revised.pdf].

CRS-7
at that time was due to complaints by single individuals that they were being taxed too
heavily.
A major issue, therefore, is the equitable treatment of different types of families.
There are also, however, questions of administrative feasibility and of what types of
tax revisions would most reduce the distortions in the income tax system. In this
section, we discuss the issues of equity across families, efficiency, and administrative
feasibility. Different legislative approaches fare differently when measured by these
criteria. They also involve different revenue costs. For example, it is less expensive,
in terms of lost tax receipts, to eliminate the marriage penalty through optional joint
filing than it is to reduce tax rates on all joint returns, which would eliminate the
marriage penalty, but also transform penalties into bonuses and increase existing
bonuses.
Equity Across Family Types
One of the reasons for differences in the rate schedules for singles, heads-of-
households, and married couples is to adjust for ability- to-pay. Because of
economies of living together (e.g. sharing items), a couple requires more income, but
not twice as much income, to achieve the same standard of living as a single
individual. Our poverty programs recognize this and measures of the poverty line
adjust for this effect. Tax changes that lower taxes, for some or all joint returns,
would affect the equity of tax burdens across families. Thus, it is of some interest to
explore how existing tax burdens fall on families of different types. Tables 2 and 3
address this issue by using the relative levels of the poverty line to define families of
different sizes with equal abilities to pay and calculating effective tax rates. Note that
about 40% of returns are joint returns (representing, of course, two adults); about
44% are single returns, and 14% are heads of household. (The remaining 2% are
married couples filing separately). Thus, about 57% of adults file joint returns, 31%
file single returns and 10% file head of household returns.
In Tables 2 and 3, families in each column have the same ability to pay and under
a completely horizontally equitable system (if one could rely on the relative poverty
line as a measure of relative ability to pay), these families should have the same
effective tax rate; in a progressive system, the effective tax rate would, however, rise
across the rows. Looking just at families without children (the single return and joint
return with two members, a couple without dependent children), tax burdens tend to
be higher on single individuals than on married couples with the same standard of
living. Families with children at lower income levels receive better tax treatment
because of the child credit and the earned income tax credit, although this effect is
reversed at higher income levels. In this case, large families who are phased out of
these credits pay taxes at highest rates. But, in general, singles in most cases already
pay, by this measure, higher tax rates than those that are justified by ability-to-pay
measures. Therefore, one of the consequences of addressing the marriage penalty will
be to exacerbate this differential between singles without children and other taxpayers.
The difference between joint returns and heads of household are more varied.

CRS-8
Table 2: Average Effective Income Tax Rates by Type of Return,
Family Size, and Income: Low and Middle Income Taxpayers,
Prior to H.R. 1836
Income Level for Family of Two
Type-Size
$5000
$10000
$20000
$35000
$50000
Single - 1
-0.08
0.02
0.08
0.10
0.12
Joint - 2
-0.07
0.00
0.06
0.10
0.10
Joint - 3
-0.34
-0.18
0.02
0.08
0.09
Joint - 4
-0.40
-0.20
0.03
0.07
0.10
Joint - 5
-0.40
-0.13
0.02
0.07
0.11
Joint - 6
-0.37
-0.10
0.01
0.06
0.11
Joint - 7
-0.33
-0.08
0.00
0.06
0.11
H/H - 2
-0.33
-0.21
0.00
0.08
0.10
H/H - 3
-0.40
-0.30
0.00
0.07
0.10
H/H - 4
-0.40
-0.20
0.02
0.06
0.11
H/H - 5
-0.40
-0.14
0.01
0.06
0.13
H/H - 6
-0.37
-0.10
0.00
0.06
0.13
H/H - 7
-0.33
-0.08
-0.01
0.06
0.14
Source: Congressional Research Service. Data based on relative poverty levels for 1997, U.S.
Census Bureau ([http://www.census.gov/hhes/poverty/pre97siz.html]). The dollar amounts refer to
the income for a family of two; larger families in each column would have more income and singles
would have less income.

CRS-9
Table 3: Average Effective Income Tax Rates by Type of Return,
Family Size, and Income:
High Income Taxpayers, Prior to H.R. 1836
Income Level for Family of Two
Type-Size
$75,000
$100,000
$200,000
$1,000,000
Single - 1
0.16
0.17
0.21
0.30
Joint - 2
0.13
0.16
0.20
0.28
Joint - 3
0.13
0.16
0.22
0.28
Joint - 4
0.15
0.17
0.24
0.31
Joint - 5
0.16
0.18
0.25
0.31
Joint - 6
0.16
0.19
0.26
0.32
Joint - 7
0.17
0.20
0.27
0.32
H/H - 2
0.18
0.17
0.22
0.28
H/H - 3
0.15
0.17
0.23
0.29
H/H - 4
0.16
0.18
0.25
0.31
H/H - 5
0.17
0.19
0.26
0.31
H/H - 6
0.17
0.20
0.26
0.32
H/H - 7
0.17
0.21
0.27
0.32
Source: Congressional Research Service. Data based on relative poverty levels for 1997, U.S.
Census Bureau ([http://www.census.gov/hhes/poverty/pre97siz.html]). The dollar amounts refer to
the income for a family of two; larger families in each column would have more income and singles
would have less income.
Note also that some approaches to addressing the marriage penalty would
expand the differences between joint returns and all other returns (e.g. increasing the
bracket widths and standard deductions for joint returns). These changes would
lower tax rates of all married couples, and thus increase the disparity shown in Table
2 between singles and married couples without creating differences between married
couples. This approach was taken by H.R. 1836. Optional single filing would affect
only those with marriage penalties (some two earner families with more even income
splits), while second-earner deductions would affect all two-earner couples9. Only
these joint returns would experience tax reductions, and while provisions that only
9An argument can be made that one-earner couples are already favored by the additional
untaxed time of the non-working spouse who is able to use this time for a variety of purposes
including economizing on family costs of living. Two-earner couples with children may also
be favored if they are eligible for deductions for child care.

CRS-10
affect two-earner families would not exacerbate disparities between singles and one
earner families, they would create differences between married couples with different
degrees of income split. Low income families, however, may not be affected by these
changes or affected very little unless changes to address the marriage penalties in the
earned income tax credit (EITC) are adopted.
Efficiency
Efficiency can be viewed in two ways: expending the smallest amount of revenue
to obtain an objective (target efficiency) and making changes in ways that reduce tax
distortions in behavioral choice (economic efficiency).
The most target efficient approach to addressing the marriage penalty would be
to allow optional separate filing because it only reduces taxes for those with penalties.
It would be possible to restrict the options to singles rate structures and avoid the
complications and inefficiencies of allowing married couples with children to file as
heads of households. Indeed, it would be possible to have an alternative computation
on the joint return that would allow a tax credit for the difference between joint and
single rate brackets and standards deductions assuming only standard deductions, and
applying only to earned income.
The least target efficient approach would be increasing standard deductions and
rate brackets for all joint returns, as was done in H.R. 1836, which would benefit
many couples with marriage bonuses and create bonuses for couples who previously
had penalties. While not as target efficient as optional filing, a second earner
deduction would not benefit the one-earner couples who are responsible for much of
the marriage bonus. A variation of this approach can be found in President Clinton’s
proposal to increase the standard deduction for two-earner joint returns.
While economic efficiency is not the principal issue in the marriage penalty, it is
worth noting that there are some ways to alter the marriage penalty that could
increase efficiency more than others. For example, one of the distortions that might
be relieved by a second-earner deduction is the potential discouragement to work due
to the relatively high marginal tax rates faced by married women, who tend to be more
responsive to net wages than other workers. These marginal tax rates would also be
reduced, but by less per dollar of revenue loss, with provisions for optional single
filing. Relief granted to all returns, especially relief that does not affect marginal
deductions (such as increasing the standard deduction and, for higher income families,
widening the first rate bracket) would not contribute to economic efficiency.
Provisions that provided relief for the earned income tax credit would also affect work
incentives, but they would probably do so more effectively for relief provided by
disregarding a fraction of the secondary earner’s salary for purposes of the phaseout,
as opposed to electing separate filing or increasing the phaseout ranges for joint
returns.
While there is a lot of anecdotal evidence concerning the discouraging effect of
the marriage penalty on marriage and its encouragement of divorce, most studies have
concluded that these effects are relatively small. The relatively small number of
cohabitating couples compared to married couples also lend some support to this
view.

CRS-11
Simplicity
Reducing taxes on joint returns by increasing standard deductions and widening
rate brackets would have no effect on or simplify the tax law. Optional single filing,
however, would complicate tax compliance. Even if the option restricts filing to
single rates (eliminating the need to assign children for purposes of head-of-household
rates), the need to split unearned income and itemized deductions would add
complications and, perhaps, opportunities for tax planning. (It would be possible,
however, to provide a version of optional filing by providing a tax credit for the
difference between filing jointly and as singles on earned income assuming standard
deductions). A second-earner deduction would add another line on the tax return, but
would not be very complicated.
Conclusion
Any approach to addressing the marriage penalty seems likely to exacerbate or
create horizontal inequities based on ability to pay. It is difficult to evaluate alternative
proposals using this standard. Some proposals, such as optional separate filing, are
more target efficient than others, or contribute more to economic efficiency, but these
proposals also are likely to be the least simple. Increasing standard deductions and
bracket widths on joint returns, as was done for the 15% bracket under H.R. 1836,
is least efficient, but also the simplest approach. The second-earner deduction, which
was part of prior tax law, falls between the two alternatives in both target efficiency
and administrative complications.