Some issues you may have never considered before
By Gerald E. Scorse, Progressive Charlestown contributor
Let’s
find out how and why the returns came to be, and what’s at the root of the
thievery. Let’s see how different parties, notably women, have been paying the
price. Lastly, let’s examine a newfound connection between joint returns and
America’s racial wealth gap.
The
modern personal income tax dates back to 1913, and it began with individual
returns. Taxes after all are levied on individuals, and that’s how they were
reported.
But
a shipbuilding magnate named Henry Seaborn decided to test the rules:
he sharply reduced taxes by splitting his income with his nonworking wife and
filing separate returns. The IRS retaliated by assessing a surtax for the
amount he’d saved. Seaborn paid up, then sued in federal district court to get
his money back.
He
won the district court case, and won again when an appeal by the IRS was denied
by the Supreme Court. Some states, though, didn’t allow income-splitting.
Congress ultimately nullified those rules with the Revenue Act of 1948, setting up
joint tax returns that effectively divided the incomes of all couples.
Overnight,
marital status became a major determinant of taxes. Different rates for singles
and married couples created specific winners and losers.
Traditional,
single-earner families were the big winners. The new joint returns were set up
to split total incomes in half and tax each half at the same marginal rates. On
the downside, singles were the first financial victims of joint returns. They
had to pay a singles penalty, higher taxes than married couples making the same
incomes.
Joint
returns changed, drastically, with a 1969 revision to
the Internal Revenue Code. Instead of taxing both incomes equally, the rate on
the second income would start where the marginal rate on the first income left
off. It was the beginning of the marriage penalty, higher taxes for
couples than singles making the same incomes.
Some
feminists, though, saw the marriage penalty as a penalty on women. Since wives
were almost always the secondary earners, their incomes were being taxed at the
highest rates—and the more they earned, the greater the penalty. A 1971 law
review article expanded
on the same theme, alleging that the revised tax code was tainted by sexism. In
2010, nearly four decades later, the article reappeared as
the opening chapter in a book on tax theory.
By then, though, strong cultural forces had taken the nation in a new direction. Dual-earner couples had become commonplace, and the top earners were often women. Today close to a third of working wives make more than their husbands. To the extent that joint returns are sexist, they’ve become less so: a tax inequity is now more equitably shared.
Sexism
of course totally disappears when both partners are the same sex. Some critics
of joint returns prefer a nongender term anyway, calling the inequity a
secondary-earner penalty.
Dorothy
A. Brown is a tax professor at the Georgetown University Law Center. She first
came across joint returns when she started preparing taxes
for her dual-income parents, both earning about the same. Joint returns, she
learned, offered the smallest benefits to precisely those couples. They also meant
that her mother and father had to pay the marriage penalty year after year.
That
made no sense whatever to their daughter. In her 2021 book The Whiteness of Wealth,
she explains why: “Marriage—which many conservatives assure us is the road out
of black poverty—is in fact making black couples poorer.” It’s not
just the marriage penalty, the book says, it’s one tax code provision after the
other.
The
2017 tax bill did away with the penalty for a wide swath of taxpayers, but
millions of others are still paying the price. As the CPA Journal put
it, other Congresses had “tried to eliminate the marriage penalty, but managed
to only alleviate it. [The latest attempt] is not much different.”
Lawmakers
could finish the job by time-travelling back to 1948 and reverting to
individual returns. If that’s too big a leap, they could at least make joint
returns fairer. There are plenty of ideas along those lines. Two examples are a
second-earner tax deduction for
low and moderate-income families, and an increase in the income limits for
tax credits—so that couples don’t have to worry about losing benefits (such as
the Earned Income Tax Credit) just because they get married.
Taxpayers
who don’t want to wait for Congress to act can always move to Canada. Our
neighbor has never had joint returns, and decided against income-splitting in
a 1957 case in
its own Supreme Court.
© 2023 Gerald E. Scorse