Jeb Bush tax plan wouldn't eliminate marriage penalties
GOP presidential candidate Jeb Bush offered聽聽last week that he says 鈥渆liminates the marriage penalty.鈥� But it may not help many low-income working families.
A married couple is penalized if it pays more tax filing a joint return than if each spouse could file individually. Conversely, marriage bonuses occur when marriage lowers a couple鈥檚 combined tax bill. Both situations result from the unavoidable conflict among three tax goals: 1) progressive rates, 2) levying the same tax on married couples with the same total income, and 3) imposing the same tax on a couple, regardless of marital status.
As I explained in a聽, since tax rules cannot achieve all three goals, the compromise creates both penalties and bonuses (which, by the way, some unmarried people view as 鈥渟ingles penalties鈥�). As long as we maintain joint filing for married couples, cutting penalties also boosts bonuses.
Tax cuts enacted during George W. Bush鈥檚 presidency reduced marriage penalties by setting the standard deduction and widths of the bottom two tax brackets for couples at twice those for single filers. That helped many low- and middle-income taxpayers but still left significant marriage penalties in place. Jeb would go further by letting a lower-earning spouse file as a single person with just his or her own earnings, leaving other income and all dependents, deductions, and credits with the higher earner.
Separate filing means that the lower earner鈥檚 taxes start in the 10 percent bracket rather than at the higher earner鈥檚 tax rate鈥攁s high as 28 percent in Jeb鈥檚 plan. For many couples, that鈥檚 enough to wipe out any marriage penalty. Take a couple claiming the standard deduction where one spouse earns $100,000 and the other makes $80,000. If they file jointly for 2015, their tax bill would be $27,861, a $246 penalty compared to the $27,615 they鈥檇 owe if they weren鈥檛 married and could file individually. Because it would tax the lower earner鈥檚 income separately, the Bush plan would leave their tax the same as if they were not married and thus would zero out their marriage penalty.
But the plan wouldn鈥檛 reduce marriage penalties on some tax credits. For example, low-income families could lose some or all of their聽聽(EITC) by choosing to marry. Under Bush鈥檚 plan, a single mother who earns $25,000 in 2015 and has three children owes no income tax of her own and could claim a refundable EITC of $4,769 plus refundable聽聽totaling $3,000. That would give a net refund of $7,769 (table). Her boyfriend who earns $40,000 would owe $2,470 of income tax, so together they鈥檇 get a net refund of $5,299.
If they marry and file jointly, their 2015 tax before credits would drop to $2,240. They would retain the child credits but lose all of the EITC, reducing their net refund to $760鈥攁 marriage penalty of more than $4,500, or 7 percent of their combined earnings.
Bush鈥檚 tax plan would mitigate that penalty. Stripping the wife鈥檚 earnings out of the family鈥檚 tax return would restore about a third of the lost EITC and raise their net refund to $2,370. That cuts their marriage penalty by roughly a third to about $2,900, 4.5 percent of their pretax income. That reduces their marriage penalty but, despite Bush鈥檚 promise, would not eliminate it.
Phasing out the EITC as family income rises makes sense鈥攁fter all, the credit is intended to help low-income workers. Few people would argue that a low-income single mother who marries a millionaire should continue to get EITC. But the phaseout can impose large marriage penalties on low-income families and the Bush tax plan fails to eliminate them, despite what the candidate promises.
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