Over the last few years I’ve come to think that joint returns for married couples are not such a hot idea. One reason is all the innocent spouse cases I read and sometimes write about. The other is the drama over DOMA. Being able to file a joint return is probably not the most significant of the over 1,000 benefits that hinge on federal recognition of marriages, but it may be the one that affects the most people thereby creating the most tsoris . Basically, I think that the IRS has enough on its plate without having to worry about our family compositions. We have an individual income tax. Let it be on individuals and leave it at that.
I can hear some people right now yelling the words of one of my managing partners, God rest his soul, “That’s the stupidest idea I ever heard.” (Only I left out a word. Contributors guidelines you know. I think I managed to provoke that comment every other partners meeting for a couple of years.) Well when I thought it was just my idea, I would have put up with that, but it turns out that some really smart people have been thinking the same thing. This article, Updating the Welfare State: Marriage, the Income Tax, and Social Security in the Age of the New Individualism by Professor Anne Alstott of Yale University proves that.
It turns out that people who spend their time studying and thinking about tax policy, rather than being like me and taking the “It is what it is. Deal with it.” approach have identified something called the “trilemma” when it comes to taxing married couples.
The trilemma holds that an income tax cannot simultaneously maintain progressive marginal rates, impose equal taxes on equal-earning couples, and insist on marriage neutrality. In recent decades, the casebooks have added the feminist point that joint filing tends to perpetuate a traditional division of labor by penalizing two-worker couples and to imposing a high marginal tax rate on working wives.
The article traces the history of Congress addressing the trilemma. Up until 1948 there were no joint returns. Given the steeply progressive rates on high incomes, this created a strong incentive to figure out ways to income split between couples and also advantaged couples in community property states. Congress decided to let all married couples, in effect, income split. In 1969, a more favorable rate table was given to single people. Thus was born the “marriage penalty” for couples with little income disparity.
Nonetheless, the system worked pretty well in the mid-twentieth century, because marriage and a gendered division of labor was the norm across large sections of the population. Love and marriage went together like a horse and carriage
Haven’t seen so many carriages lately. Professor Alstott puts it this way:
Sociologists have a succinct and dramatic way of expressing these changes: marriage, they say, has become “de-institutionalized.” Marriage today is no longer the primary and normal state for adult Americans: it is no longer the expected route to maturity or the exclusive site for sex, romance, and child-rearing.
It is called the “new individualism” and Professor Alstott thinks it has implications for tax policy:
Depending on one’s normative perspective, the new individualism may mark a new era of personal freedom or a sign of cultural decay. But, whatever one’s stance, the new individualism should be integrated into tax policy design. The new shape of American family life renders some existing policies obsolete and require reforms that pose new challenges for law and administration.
Joint filing based on formal marriage is particularly ill-suited to the new patterns of marriage and child-rearing. In the mid-twentieth century, the prevalence, homogeneity, and exclusivity of formal marriage made it a convenient and perfectly sound proxy for “family.” Today, however, joint filing is not a plausible way of attempting to protect freedom or promote collective welfare.
She suggests that even if you think that the new individualism is a bad thing, continuing joint filing is not such a hot idea. Joint filing favors some married couple and disfavors other. If social conservatives want to use the Tax Code to encourage marriage, they should come up with something better.
The article has a similar analysis of the spousal benefit in social security, but dammit Jim, I’m a tax blogger, so you will just have to read that part for yourself.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com Mar 2nd, 2013