On Thursday, Utah Senator Mitt Romney sent a letter, signed by him and 34 of his Republican colleagues, to Senate Majority Leader Chuck Schumer and Finance Committee Chair Ron Wyden. In the letter, he objects to marriage penalties built into the House’s reconciliation bill, marriage penalties, he claims, that are exacerbated by the changes made to the earned income tax credit (the “EITC”). He concludes his letter saying, “We believe that marriage is a vital social good. It is misguided and unfair for the government to build bigger barriers for couples to marry.”So is Sen. Romney right? Does the reconciliation bill (available here) increase marriage penalties and disincentivize marriage?
If you’ve followed my writing, or if you’re familiar with attorneys or academics, I’m sure you know my answer: yes. Kind of. Under certain circumstances. But the letter leaves out important context, both within the law and within the political process.
Before we can dig into the claim about marriage penalties and the EITC, though, we should probably figure out what exactly a marriage penalty is and why and how the EITC works. (Feel free to skip these discussions if you are already familiar with marriage penalties and/or the EITC.)
Marriage Penalties
In its simplest construction, a marriage penalty occurs when two people would pay more collectively in taxes married than they collectively pay unmarried. (I’m not going to spend time on it here, but the opposite of a marriage penalty is a marriage bonus, where two people pay less collectively in taxes married than they would unmarried; under current tax law, in most circumstances, marriage bonuses are both more likely and are higher than marriage penalties.)
How does a marriage penalty happen? Leaving aside special cases like the EITC, it happens when the tax bracket for taxpayers filing jointly aren’t at least double the size of tax brackets for unmarried taxpayers. To illustrate, we can look at some older tax brackets from the Internal Revenue Code:
So let’s say we have a couple who each earn $20,000. Under these tax brackets, if they are unmarried, each would owe taxes of $3,000, for a collective tax liability of $6,000. But if they married, they would owe $6,403. Marriage would raise their collective tax bill by $403. In other words, they face a $403 marriage penalty.
It’s worth noting that, as of the 2017 tax changes, two people would have to collectively earn more than $500,000 (adjusted for inflation) to the possibility of this type of marriage penalty to apply. And even still, in many cases, a marriage bonus remains more likely than a penalty. (These particular brackets go away as of 2026, unless Congress makes them permanent.)
EITC
The EITC is, in the words of the Congressional Research Service, “the largest need-tested antipoverty program that provides cash to families.”
The EITC was first signed into law (as a temporary measure) by Pres, Ford. It was later expanded under Pres. Reagan, who considered it “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”
While in practice the EITC is tremendously complicated, its underlying function can be described simply: it is a refundable tax credit that is measured as a percentage of an individual’s income up to a ceiling. It stays at the ceiling amount for a while and then phases out as income rises even more. (Tax credits reduce tax liability by the amount of the liability. A “refundable credit,” means that if you have less tax liability than the value of the credit, the government sends you a check.)
Essentially, the goal of the EITC is to give low-income individuals incentive to work by supplementing the amount they earn up to a maximum amount. And the phaseout is to ensure there’s no cliff effect: if you got, for instance, $1,000 up to $20,000 of income but lost the whole amount when you earned $20,001, you would not only have no incentive to earn more than $20,000, but you’d have a very powerful incentive not to make any more money.
And how much is the supplement? It depends on how many children you have. The more children (up to 3), the higher your ceiling and the higher the phaseout starts. The Congressional Research Service has a chart that illustrates this better than I could hope to:
A couple things to note here: first, the EITC already has a strong potential for a marriage penalty. The phaseout for EITC begins at a higher income level for married taxpayers than unmarried, but it isn’t double.
The second thing is, the EITC functions mostly as a benefit to low-income parents. Low-income taxpayers without children barely rise to the level of afterthought.[fn1] One child provides a maximum EITC of $3,618 and it doesn’t fully phase out until income of more than $40,000 for an unmarried individual.
By contrast, the most a taxpayer without children can receive is less than one-seventh of that amount. And an unmarried individual’s EITC is entirely gone at right around $15,000 of income.
The Reconciliation Bill
Actually, let’s start before the reconciliation bill: as part of the American Rescue Plan Act of 2021, Congress temporarily increased the credit percentage, the ceiling, and the start of the phaseout for taxpayers without children. Under these changes, Congress doubled (from 7.65% to 15.3%) the credit for which a taxpayer without children qualified. It increased the income ceiling from $4,220 to $9,820. And it increase the beginning of the phaseout from $5,280 to $11,610. In chart form, the new EITC looks like this:
The ARPA only increased the unmarried EITC for 2021, though. In the reconciliation bill, the House makes it permanent. (It also makes a couple other changes that are beyond the scope of this blog post.)
About That Marriage Penalty
In his letter, Romney claims that under 2019 law, a dual-income couple with two children in which one spouse earns $12,000 and the other earns $30,000 faced a $1,578 marriage penalty. Under the reconciliation bill, he says, they could increase their marriage penalty to $2,713. Is that true?
Honestly, I don’t know. He doesn’t show his math or his assumptions, so was going to try to recreate it as best I could using 2021 numbers. But after doing a bunch of math, I realized that the interactions between tax rates, increased refundable child tax credits, and changes to the EITC make it stunningly difficult to actually recreate his numbers without seeing his math.
So for purposes of this blog post, let’s assume he’s right and the changes increase the marriage penalty.
At this point, it’s necessary to point out that ARPA and the reconciliation bill only change the EITC as it applies to childless individuals; everything else stays the same. So to the extent it increases the marriage penalty, that’s because it is actually giving more support to individuals who don’t have children.
So What?
So does the expansion of the EITC harm society?
I mean, it’s a question of balancing. To really answer that, we’d need to know how much the marriage penalty reduces marriage rates. I’m not an empiricist or an economist, but I’m good with the Google. The largest estimate I can find is that every $1,000 additional cost may have reduce the probability of a couple marrying by as much as 2.7 percentage points for those at the lowest educational levels. If we go with Romney’s numbers, then, the increase in in the marriage penalty will reduce the probability of a couple marrying by just over 2.7 percentage points.
On the other hand, the change substantially benefits low-income individuals and couples without children. The EITC is our largest cash transfer program and it feels unseemly to largely exclude childless low-income Americans from benefiting from it.
But What If I Think Marriage and Childless People Are Important?
I’m with you! And honestly, this is largely where Romney’s letter starts to feel like political theater to me. He and his cosigners raise an issue, but they don’t offer any solutions to the issue. (Why does that feel like political theater to me? I’ll answer that in just a minute.)
It seems like there are at least two possible solutions here if you consider the marriage penalty a problem. One is to let the expanded childless EITC go away after the end of this year. But that seems like a bad solution—to ensure that people have an incentive to marry, we’re going to refuse to help people without children who need help?
The second is, we could also expand the other parts of the EITC, raising the ceiling and the threshold for the phaseout. By expanding that, we not only reduce or eliminate the marriage penalty (a good thing!), we also provide additional support to parents and children who could use that support and to childless people and families who could use that support!
But here’s the thing: the Democrats realistically couldn’t do that kind of expansion in the reconciliation bill. Why not? It has to do with Senate rules: reconciliation is a way to avoid the filibuster and pass legislation with 51, rather than 60, votes. But the Senate has rules about how much a reconciliation bill can cost. The budgetary cost of the 1-year extension of the childless EITC was pegged at $11.9 billion. Expanding the EITC for childless individuals and families and for individuals and families with children would presumably have a significantly higher price tag, one that may not fit within the reconciliation rules.
And this is why I see Romney’s letter as largely political theater: because he could do something about it. If he and his 34 Republican colleagues were willing, they could offer to pass legislation broadly expanding the EITC along the lines I sketched above. With 35 Republicans, they would only need 25 Democrats to sign on to get the 60 votes to overcome the filibuster. And if it were enacted outside of the reconciliation route, reconciliation’s budgetary considerations would be moot.
Which is to say, if Romney and his colleagues are really serious about not making the marriage penalty worse, the ball is in their court.
Thanks to frequent commenter Bro. B who brought Romney’s letter to my attention. Even though you’d think it would show up in my regular news sources, it didn’t.
Photo by Sandy Millar on Unsplash
[fn1] Actually, “without children” is not entirely true. A taxpayer who does not live with their children, who has custody for less than 6 months of the year, or who lives with certain nonbiological children is treated as childless for EITC purposes.
By Common Consent, a Mormon Blog 
And note that I’m leaving aside the question of whether the federal government should encourage (or at least refrain from discouraging) marriage. For the sake of this analysis, I am willing to assume he’s right about that. But it isn’t an incontestable proposition.
Congress could choose to make the kinds of EITC changes you suggest within the current reconciliation bill. Few people believe Biden’s claim that it will not cost a cent. Apparently, the reconciliation bill is vague enough that one cannot put a fixed deficit target on it, but I’m seeing estimates between $600 and $750 billion over 10 years. And if they’re going to increase the deficit, the EITC can be part of that (setting aside Joe Manchin’s apparent veto power).
But, under the Byrd rule, they cannot do it permanently. Anything that increases the deficit outside the 10-year budget window must be offset by revenue increases or spending cuts. So the reconciliation bill will be loaded up with goodies that expire at nonsensical times, leaving it to a future Congress to either extend to them (perhaps under another reconciliation biill) or explain to their constituents why they didn’t.
I take it that a married couple cannot simply file taxes separately to avoid the marriage penalty? I’m not sure how that works.
Anyway, my take on Romney is that he has been taking every chance he can to try to show his conservative bona fides ever since the January impeachment vote. He gets a lot of hate on every Facebook post he makes from the Trumpublicans for being disloyal. Everything he does right now is aimed at soothing that anger.
Thanks for your take on this, Sam, and for the clear illustrations. I knew you’d have the chops to take on these questions. Glad I could point out the letter to you.
I’m sure it’s really difficult to back into Sen. Romney’s tax calculation example, but I tend to agree with you that he’s voicing an objection without offering a solution. Is it really a penalty to marrieds if you help singles? I’d like to see congress make the kind of changes you mention that would help everyone in the lower income brackets who could really use it.
The “marriage” penalty probably doesn’t affect the average LDS couple much, because they’d be unlikely to consider cohabitating or, postponing marriage because of the tax code. Am I wrong? But the proposed legislation would help single people under a certain income level, and now we’re hearing that the Church is over 50% single. As we discussed, I remember an interview of former Utah State Senator Scott Howell. During his time in office he’d had a conversation with a member of the Q12. He said Scott, with every piece of legislation, we ought to focus on how it will affect families. Now with the current demographic of the Church and I’m sure the U.S. in general, maybe that should be moderated.
Bro B it is a penalty to marrieds. People can be partnered and sharing a home, children, and their entire lives and pay less if they do not marry each other.
Sam, thank you for elucidating (and wonderfully muddifying) this latest version of this issue. When I read about the Repubs’ open letter, my immediate involuntary physical response was a tight stomach and shaking of my head, and I heard myself saying (again), ‘-why- is the tax code inserting itself into marriage and family at all?’ (And I’m sure you could give me a helpful history there if I were asking a historical rather than hypothetical question in frustration.)
I realize that I’m heading into the very question you’ve stated is beyond the scope of your current analysis, but I’m going there anyway (and Bro B’s appreciated question/comment encourages me there).
I was not aware how much I was affected by the tax code as a single person until a couple gay friends who had lived together were eventually able to marry by law, and thus be recognized by the tax code as ‘married filing jointly.’ One described how different their taxes were that year, and the thousands upon thousands of additional dollars they had been taxed previously. ‘Why should it make a difference?’ I thought, and then subsequently I wondered how much I’m being penalized monetarily for my singledom. I still don’t know. I think it may be healthier for me not to know.
A couple mini-rants (you’ve been warned):
#1
Faithful members of the church already have a number of financial incentives to marry (if every general conference and CES address and institute class weren’t enough). Putting two people under one roof sharing many of the same fridge items etc is already far more cost effective than living alone or even with a roommate (the latter of which is often an unstable situation anyway, that can’t be depended on for long-term financial planning). (Anyone who’s watched their milk or cheese or salad mix go bad because they’re the only one eating it as my witness.) And it’s not only easier to pay for and invest in a larger home with more than one income (for those who do), it is also psychologically more palatable to do so if there’s a reason—harder if not. I got bishop-shamed a number of years ago for living in my little 1000-sq ft box (and I realize for some that’s a castle) because it was “just you?” he said. At the time, I could have afforded a larger home, and indeed I looked at many, but couldn’t bring myself to do so without a good reason (ie no kids). Now, I realize how much I missed out on an immensely far better financial investment. I’d be $150,000+ more secure financially now, in equity alone, had I bought any of the houses I couldn’t bring myself to buy then, which were not much more expensive at the time. (Of course, I realize there are flip sides to all of these challenges for various family circumstances. Just sayin’ that taxes may not need to be in the marriage incentivizing business, esp for church members—concurring w Bro B.)
Rant #2:
How is it that (some) church leaders can say out of one side of their mouths that they care about single members, they recognize the challenges of their lives, (a few) have even acknowledged that -the majority- of adult members are single, and yet they (other side of mouth) push marriage (in the temple) as the only acceptable life-option (and therefore possibly support incentivizing it even through govt tax breaks, per Bro B’s anecdote), when they are fully aware of the grossly lopsided female-male ratio of active single members. But let’s tell our single members the only meaningful life is marriage, family, kids, so get married in the temple, and if you don’t, your life is worthless (and you gotta pay for it too).
Oh, and if you’re LGBTQ, celibacy. No living with either the opposite or the same gender. And again, yo’ gonna pay.
Rockwell, married filing separately is, in almost every circumstance, the most disadvantageous filing status. There are a handful of reasons to file separately, but under almost all circumstances, they’ll pay more in taxes that they would have unmarried or filing jointly.
E, it’s a lot more complicated than that; in most circumstances, marriage is advantageous from a tax perspective (that is, marriage bonuses are more likely than and bigger than marriage penalties). The EITC is an exception to the general rule.
CMBR, I’m so sorry. I could give you the history of married-filing-jointly, but I’ll leave it with this: when it comes to marriage, there are three policy goals we shoot for (marriage neutrality, horizontal equity, and progressivity). But we can only hit two of them, which means that, at least under some circumstances, marriage is going to affect the amount of taxes we pay. But that doesn’t do anything to affect the pressure the church and society at large put on marriage, and the lack of empathy we see toward people who are not married.
Sam, your response is so kind, in the face of a comment I probably should have run through a filter or two.
And now (I’ve decided) I do ask literally: Is there any way you can offer further explanation on marriage neutrality, horizontal equity, and progressivity? And how they might interact so as to accomplish two but not all three? (In 100 words or less?)
I always appreciate your illuminating, thorough, and balanced insights.
Good work, as usual. Thanks, Sam.
I see political theater. Partly because I start there, in this season and the current configuration of Congress. Also because for something more than positioning I look for calculations, multiple examples, and a proposal.
Having once upon a time in the classroom wrestled to ground the conflicting objectives that will forever make the “marriage penalty” topic ripe for political positioning, I am nowadays interested in how our system, including tax, welfare, child care and child welfare, public education, home ownership and mortgage lending, and more (including patterns of church participation and support), is built around an assumed model of family—usually a nuclear family with school children and one outside the home wage earner. As that model is more and more obviously a minority and shrinking reality, are the rest of us entitled to a rethink and realignment?
(If it’s not obvious, that’s a rhetorical question. My form of political theater.)
If I’m reading the post right, single parents get a better deal than married parents. I wonder if that is because single parents need more help. Regardless, let me make one comment on political theater. Anytime you see 35 Republicans sending a letter together, it can’t help but be political theater. That’s just the nature of the beast. When it’s one Romney standing alone against his whole caucus, say on impeachment, that is not theater; it is conscience.
Thanks for the well thought-out and processable review, Sam. Really informative!
How about just a flat tax across the board, for everyone, say about… um… 10%. Sounds oddly familiar for some reason.
What I have seen from doing taxes for a living is that the EITC does discourage marriage for people willing to live together and have children together without marrying. I have met the multiple teenage children they bring to their tax interviews who do not even know the meaning of the word spouse. Some of the parents have been together for decades and wear wedding rings but insist they are single. They also sometimes insist they did not live together the last six months of the year when they are married so they can claim head of household. I have no answer except maybe the reinstitution of shame, which had some value in society, even though at a high cost to the unfortunate children of these unions. Perhaps just shame for the dishonesty and the constant justification for tax fraud.
Sam states that (for income tax purposes) “under current tax law, in most circumstances, marriage bonuses are both more likely and are higher than marriage penalties”. A May 2021 article in Bloomberg Tax gives a contrary view.https://news.bloombergtax.com/daily-tax-report/the-unfairness-of-the-marriage-tax-penalty.
The Bloomberg article makes its case against marriage penalties, but does not even mention marriage bonuses, so it cannot be cited as evidence against Sam’s claim. To oversimplify, marriage bonuses associated with progressive rates occur when two spouses have very different income levels–the more equal their incomes are, the smaller the bonus or greater the penalty. The article specifically mentions the SALT deduction as a source of penalty. That is correct and it is not related to progressive rates so there is no corresponding bonus. At high income levels, the $10,000 limit on SALT deductions shifts more taxpayers into the penalty situation. Most studies I have seen on marriage penalties vs. marriage bonuses were done before the SALT limit was enacted, so it is plausible that taxpayers in a penalty situation now outnumber those in a bonus situation–at least at high income levels. But the Bloomberg article provides no data to support that and it is completely irrelevant to the EITC debate, which concerns only low-income taxpayers.
The Bloomberg article does not mention two additional marriage penalties: (1) .9% medicare tax on earned income and (2) the next investment income tax of 3.8%. These penalties in addition to the limitation of the mortgage interest deduction, taxation on social security, the progressive tax rates for higher income individuals all penalize married individuals filing jointly v. unmarried single individuals living together filing single returns. (lastlemming correctly identifies the SALT deduction unfairness to married tax payers) Again Sam’s statement that “under current tax law, in most circumstances, marriage bonuses are both more likely and are higher than marriage penalties” is problematical.