In future parts of this series, I’ll examine the social and legal landscape that may have led to the marriage penalty. But first I want to give some more examples.
By the early 1980s, the marriage penalty started affecting couples at lower income ranges.
In 1982, John has taxable income of $14,000 and Jane has taxable income of $6,000, for combined taxable income on their married filing jointly tax return of $20,000. The tax on $20,000 is $2,773.
If John and Jane were single, John’s tax would be $2,100. Jane’s tax would be $528. Total tax owed between the two of them is $2,628.
Marriage would cost John and Jane would pay an additional $145 in taxes.
For context, $1 in 1982 is equal to approximately $2.38 today. So $14,000 is the equivalent of $33,300 today; $6,000 is the equivalent of $14,300 today; and $145 is the equivalent of $345 today.
In other words, John and Jane face a marriage penalty when their combined income is just $47,000.
Now let’s fast forward to 1988, when new tax brackets took effect after the tax reforms of 1986.
In 1988, John has taxable income of $25,000 and Jane has taxable income of $8,500, for combined taxable income of $33,500. Their total tax liability is $5,513.
If John and Jane were single, John’s tax liability would be $4,680, Jane’s tax liability would be $1,275, for a total tax liability of $5,955. There is no marriage penalty at their income level. For reference, $33,500 of income is equal to $65,000 today. The tax reform of 1986 eliminated the marriage penalty at the lower income levels.
The marriage penalty did still exist, but only at higher income levels. In running projections, I had to up John and Jane’s income to the equivalent of $116,000 in today’s dollars before the marriage penalty applied.
One thing that helped ease the marriage penalty was the fact that the tax brackets were simple in 1988. Here’s what the bracket looked like:
|Married Filing Jointly||Single|
|Marginal||Tax Brackets||Marginal||Tax Brackets|
|Tax Rate||Over||But Not Over||Tax Rate||Over||But Not Over|
But as the years passed, more levels were added back to the tax brackets, and the marriage penalty made a comeback at lower income levels.