Women, Taxes, and Social Security Chapter 13

Income Taxes Marriage Tax Marriage Subsidy Income Taxes Marginal Tax Rate Progressive Tax

Tax Schedules Similar to Those That Prevailed from 1948 to 1969 Table 13.1, p. 493 Single Tax Rate Schedule Married Tax Rate Schedule Income Marginal Tax Rate IncomeMarginal Tax Rate $0-10,0000%$0-20,0000% $10,001-30,00015%$20,001-60,00015% $30,001-60,000 30% $60, ,000 30% $60,001 and up40%$120,001 and up 40%

TAX REFORM ACT OF 1969 Introduced to correct the disparity in favor of married individuals At this time, women were not active participants in labor market New tax introduced to reduce marriage subsidy but as women entered into the labor market it introduced Marriage penalty

Simplified Version of 2002 Income Tax Table Table 13.2, p 494 Single Rate ScheduleMarried Rate Schedule Taxable IncomeMarginal Tax Rate Taxable IncomeMarginal Tax Rate Up to $6,00010%Up to $12,00010% $6,001-27,95015%$12,001-46,70015% $27,951-67,70027%$46, ,85027% $67, ,25030%$112, ,950 30% $141, ,050 35%$171, ,050 35% $307,051 and up38.6%$307,051 and up38.6%

Marriage Penalty Household with only husband working earning $80,000 Tax would be 10% of first 12,000 or $1,200 plus 15% of 12,001 to 46,700 or $5, plus 27% of 46,701 to 80,000 or $8, or a total of $15, or $15,396

Marriage Penalty Household with both spouses working each earning $40,000 or a combined income of $80,000 Tax would be 10% of first 12,000 or $1,200 plus 15% of 12,001 to 46,700 or $5, plus 27% of 46,701 to 80,000 or $8, or a total of $15, or $15,396 just as in the previous household

Marriage Penalty However, if these individuals were not married their individual tax liability would be: 10% of first 6,000 or $600 plus 15% of 6,001 to 27,950 or $3, plus 27% of 27,951 to 40,000 or $ for a total of $ or combined of $14, or $1, less in taxes

Marriage Penalty Furthermore, if they were to file married but each income was considered separately their tax liability would be 10% on first 12,000 or $1,200 and 15% on remainder or $4, for a total each of $5, or $5, for a combined tax liability of $10,800 which is $4, less than their current tax liability

Marriage Tax Penalty and Marriage Tax Subsidy Note that AGI is Adjusted Gross Income Income before itemizing or taking standard deduction This table is based on 1998 tax liability

Marriage Penalties and Subsidies for Hypothetical Couples, 1998 Table 13.2, p. 495 AGI of One Spouse AGI of Other Spouse (negative = marriage subsidy; positive = marriage penalty) $0$0 $20,000$40,000$60,000$80,000$100,000$150,000$200,000 $ ,834-3,764-4,113-4,713-6,119-7,197 $20, ,800-1,664 $40,000 1,477 1,284 1,4771,866 $60,000 1,6331,884 3,3883,777 $80,000 2,1352,7124,9505,339 $100,000 3,9466,2617,155 $150,000 9,08210,644 $200,000 12,075

2002 Tax Rates for Married Couple Filing Jointly Table 13.4, p. 501 Taxable Income LevelTax Rate for Married Couples Filing Jointly Up to 12,000 10% $12,001 to 46,70015% $46,701 to 112,85027% $112,851 to 171,95030% $171,951 to 307,05035% 307,051 or more38.6%

Marriage and Tax Liability There is debate on the true impact Nevertheless, it is clear that marriage can impose additional burden An attempt has been done with the 2001 Tax Relief Act which provides two provisions to attempt to reduce the tax penalty between

Marriage and Tax Liability 2001 Tax Relief Act ( ): Standard Deductions for married couples will increase as compared to single individuals (see next table) And the 15% Rate for married couples also will increase for those filing jointly (see next table)

Phase-In attempts to eliminate Marriage Tax Penalty from 2001 Tax Act table 13.5, p. 506 Calendar YearStandard Deduction for Joint Returns as Percentage of Standard Deduction For Single Returns End Point of 15% Rate Bracket for Married Couple filing Joint Return as Percentage of End Point of 15% Rate Bracket for Unmarried Individuals %180% %187% %193% %200% 2009 and later200%

Marriage and Tax Liability There is debate on the true impact Nevertheless, it is clear that marriage can impose additional burden In particular the Earn Income Tax Credit can in particular instances reduce the incentive to marry

EITC Benefit Schedule, 2002 Table 13.6, p. 510 Subsidy Rate Earnings Subsidy Threshold Maximum Credit Phase- Out Rate Maximum Income for EITC Eligibility No Children (recipient must be between the ages of 25 to 64) 7.65%$4,900$ % $11,060 (single) $12,060 (married) One child 34.0%$7,350$2, % $29,201 (single) $30,201 (married) Two or more children 40.0%$10,350$4, % $33,178 (single) $34,178 (married)

Social Security Regressive Tax It currently is set up to benefit mostly households where the income was obtained primarily from the husband

Average Monthly Benefit by Sex, December 1999 Table 13.8, p. 517 Type of BeneficiaryMenWomen Retired worker collecting own earnings record $951$729 Spouse$232$419 Widows/widowers$606$811

Costs and Benefits of Wife’s Work Under Social Security Table 13.9, p. 518 Family Earnings Pattern Increase in Social Security Taxes Attributed to Wife’s Working Increase in Social Security Benefits Attributable to Wife’s Working Husband high/wife average 43.3%1% Husband average/wife low 46.6%1.2% Husband low/wife low 103.6%15.2%

Poverty Rates by Age, Race/Ethnicity and Gender Table 13.10, p. 519 AgeAllBlackHispanicWhite Women Men Women Men Women Men Women Men 65 and over 12.2%7.5%25.8%17.1%19.6%17.6%10.8%6.5% 75 and over 14.0%8.2%29.1%22.4%21.8%13.1%12.9%6.7%