[Congressional Record Volume 144, Number 48 (Monday, April 27, 1998)]
[Senate]
[Pages S3654-S3655]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. FORD:
S. 1989. A bill to amend the Internal Revenue Code of 1986 to
increase the standard deduction amount to reduce the marriage penalty,
simplify the filing of individual tax returns, and provide tax relief
for lower and middle income individuals, and for other purposes; to the
Committee on Finance.
The Marriage Penalty Reduction Act
Mr. FORD. Mr. President, it is the time of the year when we are
certain to hear more ideas for tax reform. We're certain to hear many
colleagues discuss the unfairness of our current tax code. Although
taxes in this country remain lower than major competitors like the
United Kingdom, Japan, and Germany, many families feel their tax burden
has been increasing.
One of the interesting reasons why some individuals feel squeezed is
the changing nature of the tax burden over the last few decades. For
example, individual income taxes--both as a percentage of all federal
taxes paid and as a percentage of gross domestic product--are at
roughly the same levels as they were in 1970. Yet during that same time
period the so-called social insurance taxes or payroll taxes have risen
dramatically, primarily to fund Social Security and Medicare. And the
portion of revenues collected from corporate income taxes has fallen by
an equally dramatic amount. For example, in 1960, we collected $1.89 in
individual income taxes for every $1.00 in corporate income taxes. By
1980 this ratio has risen to $3.78 in individual income taxes for every
$1.00 in corporate income taxes. And today we collect $4.02 in
individual income taxes for every $1.00 in corporate income taxes. It
is no wonder individuals feel squeezed.
As we begin to debate several tax reform proposals this year, perhaps
none will receive as much attention as the so-called marriage penalty.
The marriage penalty refers to the aspect of the tax code, which
results in many married couples paying more in taxes than they would if
both spouses remained single. Yet few will discuss--and I found this to
be very interesting--that 51 percent of married couples actually
receive a marriage ``bonus'', meaning they pay less in federal taxes as
a result of being married.
Let me repeat that. Fifty-one percent of married couples--a majority
of married couples--pay less in federal taxes than they would if both
spouses remained single. Last June CBO found that 51 percent of married
couples receive a marriage bonus averaging $1,300 per couple. If they
were required to file as single individuals, federal revenues would be
$32.9 billion greater each year.
CBO also found that 42 percent of married couples are subject to a
marriage penalty, paying an average of $1,400 more per couple in taxes
than if both were single, for a total of $28.8 billion per year in
additional revenues. In other words, fully eliminating the marriage
penalty costs $28.8 billion per year. However, if both marriage
penalties and marriage bonuses were eliminated, there would actually be
a net increase in federal revenues of $4.1 billion per year. Forty-two
percent of married couples would receive a tax cut, but 51 percent of
married couples would receive a tax increase.
There is no way to make a statement about income tax exciting. There
is nothing you can talk about that brings you out on the edge of your
seat. I am not going to try to do that. So I am going to put into the
Record several examples of how couples, both making $20,000 a year and
filing jointly or filing single, and then one breadwinner making
$200,000 while his spouse stays home and cares for the children--how
much less they would pay than the married couple making $40,000.
I think you can already see the trend is to try to take care of that
lower income and not increase the bonus, as S. 1285 does.
CBO found numerous causes for these differentials in tax treatment.
However, two major factors explain most of the reason why married
couples are treated differently: (1) the standard deduction, and (2)
the tax rate schedules. In each case, the cutoff for married couples is
about two-thirds higher than for single individuals.
For example, in 1998, the standard deduction is $4,250 for singles
and $7,100 for married joint filers--about 67% higher, but applying to
two people instead of one. This has significant implications for
married couples who do not itemize their deductions. For a couple where
one spouse earns all the income, this means a deduction of $2,850 more
than if both spouses were single, giving them a marriage bonus.
However, for a couple where both spouses have significant income, the
result is a deduction of $1,400 less than if both were single.
Similar results occur when comparing tax rates. In 1998 the 15%
bracket extends to incomes of $25,350 for singles, and $42,350 for
married joint filers--about 67% higher. Most one-income couples receive
a marriage bonus because an additional $17,000 is taxed at the lower
15% level. However, many dual-income married couples will find that
less of their income is taxed at the 15% level.
So it is far more complex than some have been led to believe. For
instance, many married couples currently receiving a marriage bonus
have the impression that all married couples are penalized. Many
married couples are unaware that there is such a thing as a marriage
bonus. But remember--51 percent of all married couples currently
receive a marriage ``bonus'' and pay an average of $1,300 LESS in taxes
than if they were single, according to CBO. They tried to eliminate the
so-called marriage penalty. But they increased the marriage bonus we
now have for over 50 percent of our filers. Therefore, I think that is
a little bit unfair for a $200,000-a-year filer to receive an
additional tax cut where we are just trying to make it even for those
who make $40,000 or less.
I believe we should consider taking reasonable steps to address the
marriage penalty. However, I strongly disagree with the approach taken
in the leading Senate bill proposed on this topic--S. 1285. S. 1285
would allow married couples to file ``combined'' returns where income
can be split 50-50, and each spouse taxed at single rates.
S. 1285 would add significantly to the complexity of the current Tax
Code. Last year we went through all of this. ``We are going to reduce
the Tax Code; we are going to make it simpler.'' We only added almost
900 pages to the Tax Code last year. We go out here and beat our chest
and say, ``Oh, we have reformed the Tax Code. We have made it simpler,
we have given some tax cuts with 900 additional pages.'' No wonder H&R
Block and CPAs are doing business. We made it so complicated even the
smartest minds do not want to fool with it.
S. 1285 would add significantly to the complexity of the current tax
code, requiring many couples to calculate their taxes under both the
traditional ``married filing jointly'' category and also under the new
``combined'' category. But even more troubling, it goes well beyond
what is necessary to address the marriage penalty. The costs of the
bill appear astronomical--somewhere in the neighborhood of $40 billion
per year. For many couples who currently face a marriage penalty under
S. 1285 their tax burdens would now be even lower than if they were
both single. In other words, many couples currently facing a marriage
penalty would find that S. 1285 would not only eliminated the penalty
but create a new marriage bonus as well.
And beyond the impact on the marriage penalty, S. 1285 would have the
effect of actually increasing the marriage bonus for many couples who
already receive a marriage bonus. Let me provide an example.
Consider a young, affluent family of four. Spouse No. 1 makes
$200,000 while spouse No. 2 stays at home to raise their two children.
They have $30,000 in deductions. According to estimates supplied to me
by Citizens for Tax Justice, this family currently receives a marriage
``bonus'' of $3,161, but under S. 1285 the marriage ``bonus'' would
grow to $4,807.
[[Page S3655]]
Mr. President, I understand the marriage penalty, I also understand
the appeal of this issue politically. But why in the world would we
pass a bill to give a couple making $200,000 the chance to pay $4,807
less in taxes than if they were single, and claim we are doing this in
the name of fighting the marriage penalty? It seems that S. 1285 would
give very generous tax cuts to wealthy married couples who currently do
not face any marriage penalty whatsoever, Why would we do this?
I believe there is a much more logical approach. It is a simpler
approach. It would significantly reduce the marriage penalty,
especially for lower and middle income families. And it would simplify
the tax code at the same time. And perhaps most importantly it would
not give huge tax windfalls to wealthy couples who already receive a
marriage ``bonus'' under current law.
Mr. President, today I am introducing the Marriage Penalty Reduction
Act. My legislation would significantly increase the standard
deduction, to $6,000 for singles, $9,000 for heads of households, and
$12,000 for married couples. For many lower and middle income married
couples who face a marriage penalty, the current standard deduction is
the single most important reason. Under my proposal, the standard
deduction would no longer have any role in creating a marriage penalty.
None.
There are several advantages to this approach. By setting the
standard deduction for married couples at exactly twice the level of
singles, no marriage penalty can occur.
Mr. President, 70 percent of all individual tax filers currently take
the standard deduction. In other words, only 30 percent itemize their
deductions. For married couples who currently take the standard
deduction, my proposal will grant them a tax cut of at least $735,
significantly reducing any existing marriage penalty. If this $12,000
deduction were in effect in 1998, along with the current personal
exemption of $2,700, a family of four would find that their first
$22,800 would not be subject to income taxes.
Let me give a second example. Couple No. 2 is a young, newlywed
couple. Each makes $20,000 per year, for a total of $40,000. They take
the standard deduction. Under current law they owe $4,125 in income
taxes as a married couple, but would only owe $3,915 in combined income
taxes if both remained single. In other words, current law imposes a
``marriage penalty'' of $210 on couple No. 2.
Under S. 1285, couple No. 2 would, in fact, be able to eliminate
their entire marriage penalty. Their tax bill would be reduced by $210.
However, under may proposal, since the standard deduction would also be
raised overall, couple No. 2 would see their overall tax bill decline
by $765. My proposal would completely eliminate the marriage penalty,
and also provide tax relief for this moderate income couple.
There are advantages for some of those who currently itemize
deductions as well. Of the 30 percent who do itemize, the average
amount of deductions is about $16,000. However, for married couples
with itemized deductions under $12,000, they will no longer have to go
to the trouble of making calculations under the legislation I am
proposing today. They can simply take the higher standard deduction.
For many, this will greatly simplify the process of doing their taxes.
And my proposal will cost significantly less than S. 1285. Most who
have looked at the issue of tax relief in 1998 understand that S. 1285
is far more than we can afford. My approach costs far less. I intend to
ask the Joint Committee on Taxation for an official estimate of this
proposal. If we are to debate a tax package later this year with a
significant component devoted to the marriage penalty, it is my hope
that the proposal I am introducing today can form the basis for a more
logical, more rational approach, to the issue. It is also an approach
which costs less and simplifies the tax code at the same time.
Mr. President, I ask unanimous consent that a copy of this
straightforward proposal appear in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 1989
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Marriage Penalty Reduction
Act''.
SEC. 2. INCREASE IN STANDARD DEDUCTION AMOUNT.
(a) Standard Deduction Amount.--Section 63(c)(2) of the
Internal Revenue Code of 1986 (relating to the basic standard
deduction) is amended--
(1) by striking ``$5,000'' and inserting ``$12,000'' in
subparagraph (A),
(2) by striking ``$4,400'' and inserting ``$9,000'' in
subparagraph (B),
(3) by striking ``$3,000'' and inserting ``$6,000'' in
subparagraph (C), and
(4) by striking ``$2,500'' and inserting ``$6,000'' in
subparagraph (D).
(b) Indexing of Amount.--Subparagraph (B) of section
63(c)(4) of the Internal Revenue Code of 1986 (relating to
adjustments for inflation) is amended--
(1) in clause (i)--
(A) by striking ``(2) or'', and
(B) by striking ``and'' at the end,
(2) in clause (ii), by striking the period at the end and
inserting ``, and'', and
(3) by adding at the end the following new clause:
``(iii) `calendar year 1998' in the case of the dollar
amounts contained in paragraph (2).''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
1998.
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