marriage_tax - "Marriage Tax" It is impossible to have a...

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“Marriage Tax” It is impossible to have a tax system that achieves these three goals simultaneously: •(A) progressivity - average tax rates rise as family income rises •(B) across-family horizontal equity - families with equal incomes would pay equal taxes •(C) across-marriage horizontal equity - a couple would pay the same amount in total taxes whether or not they married (marriage neutrality) Example 1 - government taxes married couples on an individual basis Taxable income Marginal tax rate $0- $10,000 0% >$10,000 25% Taxes before married Taxes after married Sam→ $0 Sally→ $100,000 Total Taxes before married Taxes after married John→ $50,000 Joan→ $50,000 Total achieves A (progressivity) achieves C (across-marriage horizontal equity) violates B (across-family horizontal equity)
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Example 2 - government taxes married couples on a family basis Taxable income Marginal tax rate $0- $10,000 0% >$10,000 25% Taxes before married Taxes after married Sam→ $0 Sally→ $100,000 Total ●Do Sam and Sally face a “marriage tax” when they get married? Taxes before married Taxes after married John→ $50,000 Joan→ $50,000 Total ●Do John and Joan face a “marriage tax” when they get married? achieves A (progressivity) achieves B (across-family horizontal equity) violates C (across-marriage horizontal equity) could achieve both B and C simultaneously by implementing a proportional tax (no deductions)- but then violate A (progressivity) 2
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Politicians often deride the “marriage tax.” Dick Armey (R, Tex in 2001)- “…if you fall in love and get married, we will punish you.” Example 3
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This note was uploaded on 09/13/2009 for the course PAM 2040 taught by Professor Lewis during the Spring '07 term at Cornell University (Engineering School).

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marriage_tax - "Marriage Tax" It is impossible to have a...

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