The Supreme Court's debate about the legality of DOMA is riveting. At stake are real and practical federal benefits.
The government provides all sorts of protections for married couples, as well as actual monetary rewards. Filing joint tax returns, in many cases, can save some dollars. There are estate taxes and social security benefits.
My single friends sometimes gripe that the government should not be giving any benefits to married people of any sexual orientation. They feel that the workplace gives families too many perks without providing similar provisions to single people. Why should single people have to double up on their workload when others take maternity or paternity leave? Shouldn't all people have to pay the same taxes, regardless of their marital status? Shouldn't a niece who inherits a house from a deceased aunt be exempt from a hefty estate tax?
What do you think?
Apt. 11d 
I think inheritance taxes should be extremely moderate, no matter what the relationship is between the persons.
1. If there is a $5 million business, it’s a bad idea to force the sale of it to pay taxes every time the owner dies. It’s healthier for everybody (not least of all the employees) to encourage stability in ownership and management. The sale of a business is not infrequently followed by mass firings.
2. I think that inheritance taxes should be less if the estate is split up into many pieces. If Bill Gates gives one billion people one dollar, that one dollar should not be taxed at the highest inheritance tax rate. (Or probably more properly, the billion dollars should not be taxed at the highest rate before being split into a billion slices.)
3. A high inheritance tax (and high taxes generally) encourage all sorts of perverse and stupid behavior, including by people who are not affected by the law. This isn’t directly the fault of the federal government, but you would not believe the number of people who do really stupid things in the belief that they are somehow avoiding taxes. They’ll put kids on deeds, not realizing that that actually increases taxes. There’s also an insurance business based on panicking high earners into bad life insurance policies, in the belief that that somehow saves their heirs money.
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I’d be willing to look at arguments for privileging married people financially, but as a single person I’m inclined to say, reserve all those tax breaks for people (married or single) with kids. I don’t have kids, but I’m happy to help pay for a healthier, happier, better-educated next generation. Probably for that reason, I’m fine with maternity/paternity leave.
From what I recall, it’s almost impossible to structure the tax code so that there’s not usually either a “single penalty” or a “married penalty” in some way. I don’t understand why, but I read it somewhere reliable. But in principle I see no reason at all to make life cheaper or easier for married couples without kids.
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Society has an interest, discussed on this blog at length, in promoting policies that allow for the creation, nurturing, and stabilizing of families, without which society will become extinct within one generation. Policies giving benefits to married couples have at least a rational relationship to the furtherance of this interest, even if the correlation is not perfect. (For example, the single people might respond that not all married couples have children, and it’s probably true that not all married couples will have, or even intend to have, children.) Still, policies that favor families, such as benefits for married couples and family-friendly leave policies, are a legitimate and desirable use of the state’s power. If you are single and do not like this, use your political power to change the current political thinking. I doubt that you’ll have much success, outside (possibly) some urban areas.
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I see these benefits differently, not benefiting married couples or couples with children, but recognizing that married couples, practically, function as one economic unit. In a conversation with an insurance company recently, I was asked who our car was registered to, and I couldn’t remember. (I do have the info written down, but we do not think of our property that way.)
That’s why marriage isn’t always a “benefit” too — because the government awards the benefit under the assumption that the marriage is a single economic unit.
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“In a conversation with an insurance company recently, I was asked who our car was registered to, and I couldn’t remember. ”
This happens to us all the time. In fact, I think the car I drive regularly is registered under my husband’s name, since it was a gift/hand-me-down from his father, and the car my husband drives is registered in my name because I was the one who was available to go to the RMV to register it.
My sisters and I do a lot of things to help wrangle my mom’s finances, but we never mix up our ownership of things the same way. That said, I think my dad’s name was on a lot of his mom’s finances in the years before she died, but he just took over her billpaying because she was pretty incompetent at it. (And also had a Home Shopping Network addiction.)
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Are the single people planning to remain healthy and working until age 95? Do they own any property? The property market depends upon the next generation being willing to buy existing houses. Most people’s primary asset is their home. If there are fewer members of the next generation, there will be less demand for everything, including places to live. (Mind you, we are apparently already facing this, due to the Baby Boomers entering retirement. When a really, really large cohort wants to downsize at the same time, funny things happen.)
When there are fewer younger people to work, the scarce labor supply will not choose to change adult Depends if they have any other choice, or they’ll only do it at exorbitant rates.
If one chooses not to have children, one is dependent upon other people for elder care.
If marriage did not exist, think-tanks would invent it. It provides a stable, economical method to raise the next generation of law-abiding, taxpaying workers, at little cost to the state.
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We pay much higher taxes for the privilege of being married, and really don’t get anything extra from the government in return. Obviously, it’s different for traditional families like Laura’s. So I’d be happy to see marriage abolished as a legal concept, but that would operate to the severe detriment of SAHMs.
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“We pay much higher taxes for the privilege of being married”: can someone (briefly) explain how this works, in the case of people without kids? can’t you just file separately? It seems like everyone is concentrating exclusively on the rights of people who are married and currently have dependent children, as if other kinds of married people don’t exist.
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“can someone (briefly) explain how this works, in the case of people without kids? can’t you just file separately?
You have to look at the actual numbers, but it happens when the two earners earn roughly the same amount of money, pushing the family into higher task brackets. You cannot resolve the situation by filing separately, because an individual in a married couple filing separately has different cut-offs for different rates (roughly half the married value). So, as a made up example, the 35% tax bracket starts at 400K for a married couple, and, also at 200K for each member of that married couple. If they were unmarried, each would enter the higher tax bracket, at, say 300K. Those are made up numbers; the complicated version requires looking at exactly where different tax brackets begin, and how deductions are affected.
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When you are married and file a joint return, in essence the first dollar of the second income is taxed at the highest marginal rate of the first income. So the second earner loses the benefit of the lower tax rates on the first $80,000 or so of income. For two earner married people who want the lower rates to be allocated to the two different income, you can elect to file married, filing separately, but those rates are still higher than the rates an individual pays. A married person may not file an individual return.
If you are in a family and have one health insurance policy that covers all of you (for a single family rate), that is an economic benefit of being married. If you were unmarried (and thus filing separate individual returns) it is likely that you’d have to pick a second health-insurance policy. That may reduce, if not eliminate, the marriage penalty you think you are paying. Mileage may vary, based on income and how much of an out-of-pocket cost you face for health insurance.
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Also, the “marriage penalty” effect is donuty — it happens when combined income crosses tax bracket thresholds. It’s not the “SAHM” who benefits from the tax treatment for marriage, specifically, but couples with unequal incomes where the sum of individual incomes results in a benefit from the higher threshold for the new tax rate for the married couple (i.e. the lower earning spouse contributes “extra” bracket space).
I once had a spreadsheet comparing the tax brackets to look at the marriage “penalty/benefit”, but it’s based on an old tax code.
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“If you are in a family and have one health insurance policy that covers all of you (for a single family rate), that is an economic benefit of being married.”
It also comes into play for capital gains exceptions (say for property), which at least one of the issues under the DOMA provision argued yesterday.
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Just to be clear, we are a very untraditional family, with two earners who have approximately equal incomes, each with health insurance, and each expecting to have enough wealth to support ourselves in retirement. So I really can’t think of a legal benefit that we receive from being married that is remotely worth the extra income taxes we pay. (I mean, with the tax savings from being single, we could certainly hire someone to prepare health care proxies, deeds to turn our tenancy by the entireties into a joint tenancy, etc.)
Maybe if the Supreme Court decides against gay marriage, we’ll get divorced and tell everyone it’s a protest against marriage inequality, and if they legalize, we’ll do the same and tell everyone it’s a protest against judicial disregard of the democratic process. Saving money and sanctimony too, what’s not to like?
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Hmh, hadn’t looked at the tax brackets recently. Here’s a concrete example: If you’re a married couple in 2012, each of which makes $388,351 (the cap before the 35% rate is reached for a married couple, or for a single person, and assuming this is your AGI after all the adjustments to income), you pay $240,000 in taxes. If you were both single, and you each made the same income, you’d pay $210,000 in taxes, together (because each of you would max out at the 33% tax rate). Combining the income means that income over $388,351 is taxed at 35%. On the other hand, this married couple pays a bit less in taxes than the single person earning the same household income ($8000 less) and pays the same taxes as the other married couple where one spouse earns all the income. The way the math works out depends both on who earns the income and the level of that income.
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PS: The medicare surcharge (of 0.9%) also creates a marriage tax penalty, since it applies to income over 250K for a married couple, but income over 200K for singles.
(Oh, and for extra fun, one could consider the effect of investment income)
https://www.fidelity.com/viewpoints/personal-finance/new-medicare-taxes.
(hmh, tax divorces seem like they do make economic sense for some, no?)
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I think that companies should hire replacements when you’re out on mat/pat leave – mine did. Leave policies should also be open to deal with bereavement, health and parental/relative care needs. Health care’s provincial, although my supplementary gives us all great dental, etc. Since Canada recognizes gay marriage, those are all available to anyone who’s partnered, hetero or gay.
I don’t get a big tax break with marriage here in Canada – kids aren’t really making us any deductions, either, but that might change with tuition starting in September!
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Having been on both the employee and employer side of maternity leaves, I strongly believe these different types of long leaves (bereavement, maternity/paternity) should be covered nationally, much like unemployment insurance. It’s really a huge burden to put on the employer, and in the case of maternity leave it actively contributes to smaller employers avoiding female employees of a certain age/stripe. Also – let’s face it, we all as a nation benefit from the caregiving done during these leaves. We should support them.
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y81, I don’t recommend divorcing for tax purposes–unless you’re both immortal.
If a spouse dies, the surviving spouse does not pay estate taxes on the joint estate until death. The estate tax exclusion is portable. More information here: https://www.fidelity.com/viewpoints/personal-finance/estate-taxes-2013.
Contrast that with living together without marriage. 40% estate tax, after the estate tax exclusion amount. Or gift tax?
Now, there is common law marriage in 10 states. http://www.investopedia.com/financial-edge/0210/marriage-vs.-common-law-what-it-means-financially.aspx
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cranberry, I had thought of that. But each of us has enough separate wealth to fund retirement, so our estate plan doesn’t necessarily involve leaving lots of money to each other.
Just to be clear, I meant the whole thing is a joke. Although as I have thought about it, I wonder if people ever do such divorces. You wouldn’t have to tell anyone, so you could live together publicly as man and wife (unless you are in a common law marriage jurisdiction), and it would only affect your tax filing status. The number of people for whom it would make sense is small–as I said, ours is an untraditional arrangement–but who knows what such people might be doing?
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“Although as I have thought about it, I wonder if people ever do such divorces.”
My old Russian tutor in the Far East suspected her ex-husband of doing a fake divorce from his most recent wife in order to reduce his child support obligations to the kids from his previous relationships.
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“Although as I have thought about it, I wonder if people ever do such divorces.” – a high school friend of mine and her now husband lived together for YEARS unmarried because they were so pissed off about the marriage penalty, and after squirrelling away a lot of money they had saved by this means, finally tied the knot a few years ago. Sort of confusing for their families…
Woody Guthrie and his wife divorced to move the cost of his Huntington’s Chorea treatment off the family dime and onto the state.
My guess is that a really huge phenomenon of the next twenty years will be young women with hundred thousand dollar student debts shacking up with guys who don’t want to make payments for them, and being stay-at-home judgement proof moms.
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“My guess is that a really huge phenomenon of the next twenty years will be young women with hundred thousand dollar student debts shacking up with guys who don’t want to make payments for them, and being stay-at-home judgement proof moms.”
Very clever, dave s.
Technically, that’s already possible, as only the signer (rather than the spouse) is liable for the student loans. I’ve already heard of cases involving married couples who are doing roughly what you mention–husband working, judgment-proof SAHM wife defaulting on loans. Marriage is not what triggers the problems–having joint assets (for instance a house) is the problem, as creditors could force the sale of the house. (I’m not a lawyer, etc.) It’s a heck of a way to live, though, and as a long-term plan it leaves a lot to be desired.
I would also expect to see a lot of long-term living-together couples where one of the members of the couple just doesn’t want to be involved in the other’s financial drama. (I recently heard a case from the Dave Ramsey show where the new wife was calling in about her chiropractor husband’s $25k annual income and $270k student loans.)
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We always use Easter to plot how to drop loans also. Happy Easter.
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We had a hard time explaining Easter to the little one who, on hearing we weren’t planning on going out to breakfast today, asked why today was a holiday.
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And the grown up asked what exactly the Easter bunny was supposed to do today.
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Happy Easter!
Baby has her first illness (102.6), so I didn’t even make it to church today. Our eggs are only half-done, but we are going to have a beautiful cake (yellow box mix and a cream cheese/coconut frosting).
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