Recently, there has been a great deal of activity in Congress directed at eliminating the so-called "marriage penalty". Bills have been introduced in both the House and Senate, proposing various ways to achieve this objective. Approaches presented so far involve changing the standard deduction, tax brackets, and adjustments to income and reporting of income. There are various possible outcomes for each approach.

Standard Deduction

Under current rules, the standard deduction for married couples is less than twice the amount available to a single taxpayer. If the two people choose to remain single and use the single filing status, they would receive the benefit of the full standard deduction for that filing status. If they marry and file jointly or separately, the standard deduction available to them is less than twice the single standard deduction. This would result in a higher combined taxable income than they would have if filing as single taxpayers. One proposed bill is H.R. 725, which would solve this problem by increasing the standard deduction for married couples to twice the amount for single taxpayers. This solution would solve part of the marriage penalty dilemma, but not all of it: There is still a potential marriage penalty because of higher tax brackets resulting from the combined income.

Tax Brackets

If two people marry and file jointly, one of their incomes would be effectively stacked on top of the others. If their combined incomes are high enough, some of their combined income would be taxed at a higher tax rate than if they filed single returns. One proposed bill is H.R. 6, which would address this problem by setting both the standard deduction and the tax rate bracket amounts for joint returns at twice the amount that applies to the single taxpayer.

Income Adjustments

The current rules give "marriage bonuses" to married couples where only one person is working, or where there are unequal incomes. The solutions based on adjusting the standard deduction or tax brackets would actually increase these bonuses. An alternative to these solutions is contained in the Senate's Marriage Tax Penalty Relief Act of 1999 (S.8). This bill would allow two-earner couples to claim a deduction equal to 20% of the earned income of the lower earning spouse. This deduction, however, would be reduced by one percentage point for each $1,000 of adjusted gross income over $50,000. This would cause the marriage penalty to remain in effect for couples with higher incomes.

Reporting

Another Senate bill would allow couples to compute a separate tax for each spouse by applying single tax rates to one-half of their joint taxable income. For non-itemizers, each spouse would have the single standard deduction available. Credits would be determined under the joint return rules and applied against the combined liability of the two spouses. This solution would effectively eliminate the marriage penalty caused by the standard deduction and tax brackets for spouses with equal incomes, but the results would not be as predictable if the spouses' incomes were unequal. I will report on developments regarding the marriage penalty and other tax-related developments in Congress as they arise.