The Fallacy of the Marriage ‘Penalty’

In his State of the Union address, President Clinton pulled off another political master stroke by joining George W. Bush and other Republicans in calling for a special tax cut for two-earner married couples. Clinton wants to increase the standard deduction for two-earner couples. Bush also wants to increase the amount that two-earner couples can deduct from their taxable income. Under either plan, most two-earner couples would see their tax bills reduced by about $300 to $600 per year. Clinton and Bush say that their goal is to reduce the tax code’s “marriage penalty,” in which many two-earner couples pay more in taxes when they are married than they would have paid as two single individuals.

The marriage penalty is a problem, but this proposed solution would end up doing marriage more harm than good. Since two-earner couples are typically more affluent than one-earner couples, the Clinton-Bush approaches would markedly increase economic inequality. And by shifting a greater share of the overall tax burden onto one-earner couples in which one spouse (usually the mother) is at home with children, this change would create yet another economic disincentive for at-home parenting and all other nonmarket labor on behalf of family and community. Call it the Clinton-Bush homemaker penalty.

Bush’s advisors say that special tax breaks for two-earner couples do no harm to one-earner couples. They are ignoring the long-term impact of economic incentives, however. What if we gave a $300- to $600-per-year tax break to everyone who drinks Coke? Wouldn’t Pepsi-Cola officials worry, with good reason, that such a tax scheme would influence consumers to switch from Pepsi to Coke? Of course they would. Similarly, when Bush--and now Clinton--proposes a $300- to $600-per-year financial incentive for the second parent to enter the paid labor force, the result over time will almost certainly be a cultural devaluation of at-home parenting and a reduction in the number of at-home parents. And this is good for marriage and family life?

A bit of history. Special tax breaks for two-earner couples is an idea that originated on the feminist-labor left in the 1970s. The main goal of these reformers was to encourage paid employment and financial independence for women. During the 1980s, the same idea was adopted by conservative “supply-side” economists in the Reagan administration. Their primary goal was to foster economic growth by encouraging more college-educated mothers to enter the labor force. During the 1990s, the idea was trumpeted by Newt Gingrich and other congressional Republican leaders, but this time as a somewhat gimmicky way to flash their pro-family credentials. Then it was taken up by candidate Bush. And now Clinton.

What an odd journey for one idea. Such a diversity of advocates, such varying public rationales. Yet in each version, the underlying goal is to reward participation in the market economy and penalize participation in child-rearing and other nonmarket activities. That’s always been the basic idea; most of the late-arriving marriage rhetoric surrounding this proposal is either irrelevant or misleading. Selling this idea today primarily on the grounds that it strengthens marriage and family life would be funny if it weren’t so sad.

Among the leading presidential contenders, there is one good guy on this issue: Al Gore. On some issues, I am no fan of Gore’s. Yet his proposal to increase the standard deduction for all married couples, both single and dual earners, avoids the problems in the Clinton-Bush approaches and is a good first step toward eliminating the anti-family bias in today’s tax code.

None of the presidential contenders have endorsed the only fair way of eliminating the marriage penalty, which is to treat the married couple as a single, tax-paying unit, permitting the spouses to share their income for purposes of taxation. For example, if one spouse earns $50,000 and the other stays at home with the baby, they earn, for tax purposes, $25,000 each. This policy, called income-splitting, benefits all married couples because it maximizes the amount of family income taxed at lower rates.

Until someone stands up for this approach, however, Gore’s proposal is the best in town. At least it won’t make things worse, which is more than can be said of the proposals now being touted by Clinton and Bush.