How Big Is The Marriage Tax Now We Know

Economists, tax specialists and even ordinary people have long known that public policies can make marriage very unattractive. At the lower end of the income spectrum, marriage can lead to a significant loss of entitlement benefits. At the high end, couples who marry may face substantially higher income taxes. There are many reasons to care about this. Academic studies find that marriage stabilizes relationships, improves children’s outcomes and facilitates the development of labor market skills for the adults. In general, marriage is correlated with economic well-being. One study reports that married couples’ average per capita wealth is more than twice that of the never-married. Until recently researchers have not had the tools to fully measure the full extent of government-created marriage penalties. A new study by Boston University economist Laurence Kotlikoff and his colleagues gives us the most accurate estimate to date. The study includes more than 30 different federal and state entitlement programs – all of which condition benefits on the beneficiaries’ incomes. In addition to federal income and payroll taxes, it includes the tax rates in the 50 states and the District of Columbia. And it includes the effects of marriage on such elderly entitlement benefits as Social Security and Medicare. No previous study comes close to this level of careful measurement. One finding: young adults with low- or middle-income jobs pay a heavy price if they marry. When higher tax rates are combined with a reduction in welfare/entitlement benefits, the economic loss from marriage is equal to between one-and-a-half and two years of income, on average. Take two people between the ages of 26 and 40:· If both individuals earn $10 an hour, getting married will lower their lifetime income by more than $70,000, on average.· If they earn $15 an hour, the lifetime losses will climb to more than $107,000.· At $20 an hour, their loss will be more than $142,00. Note that these are only averages. Some couples face marriage burdens that are much higher. In the worst case researchers discovered, getting married has a lifetime cost that is equal to 20 years of income! This occurs when marriage makes a family’s income too high to qualify for Medicaid, but too low to qualify for an Obamacare subsidy in states that have not expanded Medicaid. The marriage tax differs depending on where people live and what entitlement programs they enroll in. Programs such as Medicaid, for example, vary a lot from state to state in terms of eligibility and the generosity of benefits. To take one example, the overall marriage penalty in Hawaii is twice the size of the one in New Mexico. One finding of the study is not very surprising: the marriage penalty affects low-income couples more than high-income couples. Take individuals with incomes between $26,000 and $40,000.

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