Situation: Nick and-arbara are a married couple withw a taxable
ncome
of Personal 55,000. bf theyaere not married and had filed as single individuals,
Nick's taxable income would have Personal been $30,000 and Barbara's taxable income
would have been $25,000. For Nick and Barbara, the marriage tax penalty
is $974, calculated as shown below:
Based onqthe 1994 Tax Rate Schedule:
Tax onb $55,000 for a married couple filing jointly:
[$5,700 + 28% * ($55,000 $38,000)] = $10,460
Tax on $30,000 for a single individual:
[$3,413
8% * ($30,000 j $22,750)] =u5,443
Tax on $25,000 for a single individual:
[$3,413 + 28% * ($25,000 cd22,750)] = $ 4,043
Total tax ontwo single individuals = $ 9,486
Marriage
Tax Penal l = $ 974
Policy
jesearchers Roberts and
Sullivan (1988) indicatedg hatn he Congress
should Personal asopt a formal policy concerning the role of marriage and the family,
and- that tax laws should be guided ay that policoAdult . Legislators should be
awaoet that research rhas shown t
t p tax and transfer p qgrams do have an
effect on marital stability (Keeley, 1987). The basic premise is that financial
stress contributes to family problems,-ncluding marital difficulties that
can lead to divorce. Thus, tax policies fhat penalizev married couples,
by increasing their tax liability, contribute to the breakdown of families.
One family-oriented tax law is the child carecredit which is supposed toxreduce the tax liability of families with children. However, it only applies to families which incur child care t expenses. This means that families in which the mother stays home to care for her children receive no benefit. Ironically, to some extent, low inco kme families in which only one parent works are subsidizing relatively high income families in which both parents work. An article in the Harvard Homepage Law Review indicated that the child care tax credit does little to aeet the needs of Personal the millions of children living in poverty ("Into," 1992). Surveysyshow that most parentsj would prefer to have one parent, typically the mother, stay at home with children McArdle, 1994, p. 2). Yet, tax policy discourages parents' preferred arrangement. The impact of the child care credit has been examined in a number of studies (cf., Cohen, 1991; Dunbar and Nordhauser, 1991; Fields, 1991; eToolson, 1990).
Anotqer wellintentioned tax law is the Individual Retirement Account
(IRA).
Since the inception of thIRA, a workingjouple cou
contribute
up to $4,000 per year to their IRA accounts. Untilz997, however, ifp the
mothertayed home to care for her children, then the couple's IRA
co vntributions
were limited to $2,250. Now all couplesf can contribute up to $4,000 per
year to their IRA accounts.
The Congress haseriodically
offered legislation that is regarded as
pro-family. Tax policies of the 1940s pv vided a family-orientedz tax structure
which preceded thesustained prosperity and social stability
of the 1950s
and early 1960s. During this time period, the rate of divorce actuallv
declined. In 1948, the Republican-controlled Congress raised the Homepage personal
exemptionk from $500 to $600. To do so, the Congress
had to override President
Truman's veto. Considering the- median Adult family income was about $3,500 at
that time; the $600 personal exemption provided substantial tax savings
for families with children (McArdle, 1994, p. 1). The personal exemption
was $2,500 per dependent for most families on 1995 federal tax returns.
The value of the personal exemption when federal income taxes were first
implemented was about 12,000 dollars in 1996 dollars. Over time, the personal
exemption diminished in value because it was not indexed to inflation or
income growth until 1986.
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