Tax Administration: Income Tax Treatment of Married and Single
Individuals (Letter Report, 09/03/96, GAO/GGD-96-175).

Pursuant to a congressional request, GAO provided information on certain
income tax code provisions that result in marriage penalties or marriage
bonuses, focusing on: (1) those income tax provisions that depend on
taxpayers' marital status for their applicability; and (2) the number of
taxpayers affected by marriage penalties or bonuses.

GAO found that: (1) there are 59 provisions in the income tax code where
tax liability depends at least partially on the taxpayer's marital
status; (2) the provisions on the tax rate, the standard deduction, and
the earned income credit are most commonly discussed in connection with
marriage penalties and bonuses; (3) nine provisions, such as those on
the tax rate and social security taxation, make some adjustment for the
differences between joint and single income, but adjustments for married
couples filing jointly are less than twice those allowed to single
taxpayers; (4) those tax provisions limiting capital losses and the home
mortgage interest deduction have only one limitation that applies
equally to married and single taxpayers; (5) nine other provisions, such
as those on the personal exemption, treat married couples as if they are
single individuals or provide couples with twice the benefit allowed a
single person; (6) 26 provisions treat a married couple as a unique,
indivisible unit for tax purposes; (7) 56 of the 59 tax provisions could
result in a marriage penalty or bonus depending on the taxpayer's
individual circumstances; (8) the single most important factor that
determines the provisions' effect on married couples is how income is
divided between spouses; (9) couples with disparate incomes generally
could enjoy a marriage bonus, while couples with equivalent incomes
generally incur a marriage penalty; (10) other factors affecting
couples' tax liability include which spouse owns property, has capital
gains or losses, and is qualified for tax deductions and credits; and
(11) the impact of marriage penalties and bonuses varies widely, both in
terms of the number of taxpayers affected and the dollar amounts
involved, but existing data is insufficient to quantify these numbers.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-96-175
     TITLE:  Tax Administration: Income Tax Treatment of Married and 
             Single Individuals
      DATE:  09/03/96
   SUBJECT:  Personal income taxes
             Taxpayers
             Tax administration
             Tax law
             Tax credit
             Fines (penalties)

             
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Cover
================================================================ COVER


Report to the Honorable
Orrin G.  Hatch, U.S.  Senate

September 1996

TAX ADMINISTRATION - INCOME TAX
TREATMENT OF MARRIED AND SINGLE
INDIVIDUALS

GAO/GGD-96-175

Tax Treatment of Married Individuals

(268730)


Abbreviations
=============================================================== ABBREV

  AGI - adjusted gross income
  IRA - individual retirement account
  IRC - Internal Revenue Code
  IRS - Internal Revenue Service

Letter
=============================================================== LETTER


B-272101

September 3, 1996

The Honorable Orrin G.  Hatch
United States Senate

Dear Senator Hatch: 

This report responds to your request for information on income tax
provisions in the Internal Revenue Code (IRC) that potentially create
"marriage penalties" or "marriage bonuses" with respect to the tax
liability of married couples.  As defined herein, a marriage penalty
results when two married individuals have a greater tax liability
than two similarly situated single individuals, i.e., individuals
with the same total income.  Conversely, a marriage bonus results
when a married couple owes less taxes than two similarly situated
single individuals.  This report (1) summarizes the current income
tax provisions in the IRC whose applicability depends upon whether a
taxpayer is married or single, (2) identifies those provisions likely
to result in marriage penalties or marriage bonuses or both, and (3)
discusses the feasibility of quantifying the numbers of taxpayers
affected by the marriage penalties and bonuses. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Current federal income tax law divides individual taxpayers into two
major groups--those who are married and those who are single. 
Married people can file jointly with their spouse or can elect to
file separately ("married filing separately").  Single people file
either as an unmarried taxpayer or as an unmarried taxpayer
maintaining a household with dependents ("head of household").  A
married person may file as a single person only under limited
circumstances.\1 For the most part, married taxpayers file jointly
with their spouse.\2

Traditionally, the tax treatment of married and single taxpayers has
involved trade-offs among three basic principles:  (1) there should
be progressive tax rates, with successively higher income brackets
taxed at increasingly higher rates; (2) families with equal income
should have equal tax burdens, notwithstanding how the income is
divided between spouses; and (3) individual tax liability should not
change when people marry (the tax system should be "marriage
neutral").  The trade-offs among these principles exist because, as
public finance experts have long recognized, a tax system cannot
satisfy all three principles simultaneously. 

An example of the trade-offs is our current tax system, which has
progressive tax rates and taxes married couples with the same income
equally.  However, this can result in the income of some married
couples falling into different tax brackets than would be the case if
they were to file as single individuals.  Therefore, the present tax
system is not "marriage neutral" and two married people may not have
the same tax liability as two similarly situated single people. 
Generally, large income differences between spouses can lead to
marriage bonuses while roughly equal incomes can lead to marriage
penalties. 

The equity of the comparative treatment of married and single people
under the income tax laws has been the subject of debate for nearly
the past 50 years.  In 1948, Congress permitted married couples to
split their income between spouses if they reported the income on a
joint return.  For most married couples at the time, this change led
to lower tax liability.\3 Since that time, most married people have
elected to file jointly, while most unmarried people file as single
individuals. 

In general, the debate over the most equitable way to deal with
married and single taxpayers has focused on the tax rate structure. 
Beginning in 1948, the rate schedules were structured so that the tax
liability for married taxpayers was never more than--and could be up
to 42 percent less than--that of similarly situated single people. 
To correct the apparent inequity in the tax rate for single people,
Congress enacted a separate rate schedule for single taxpayers in
1969, providing that the tax liability for a middle- income single
person could be no more than 20 percent greater than that for a
married couple with the same total income.  This rate change,
however, created a new "marriage penalty" for certain married couples
if both spouses earned approximately the same income.\4

Notwithstanding the focus on the rate structure, many other
provisions of the income tax code take into account the fact that one
large group of people reports jointly as a household, while the other
large group reports as single earners.\5 This adds complexity to the
income tax code, and the continuing possibility of tax breaks for
some, under certain circumstances, and tax penalties for others,
under different circumstances.  Over the years, various proposals
have been made for dealing with these inequities.  We summarize the
major proposals in appendix VI of this report. 


--------------------
\1 A married taxpayer can file as a single taxpayer or as a head of
household if he or she is legally separated under a decree of divorce
or separate maintenance, or if he or she qualifies as an "abandoned
spouse" under IRC section 7703(b).  To be considered an abandoned
spouse, the taxpayer must have maintained a household for a dependent
child, provided over 50 percent of the household expenses for the tax
year, and lived apart from his or her spouse for the last 6 months of
the tax year. 

\2 In 1992, about 95 percent of all married taxpayers filed jointly. 
At present, the income tax rates are structured to discourage married
taxpayers from electing to file separate returns.  Under current law,
such an election would lead to higher taxes in most cases. 

\3 The change came about after inequities arose between married
taxpayers in "community property" states and those in "common law"
states.  Because community property states required spouses to split
income between one another, typically the tax liability for taxpayers
in these states was less than that of taxpayers in common law states. 
By allowing all married couples to split their income when reporting
jointly, the differences in federal tax liability were effectively
eliminated. 

\4 With the new rate schedule, married taxpayers were not allowed to
file as single individuals.  If, therefore, two married people with
roughly equivalent incomes were bumped up into a higher tax bracket
than either would be in had each filed individually, the new law
provided no relief. 

\5 In 1992, 42 percent of taxpayers filed jointly with their spouse,
while 43 percent of taxpayers filed as single individuals. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

We identified 59 provisions in the income tax code where tax
liability depends, at least in part, on whether a taxpayer is married
or single.  These provisions include three IRC sections most commonly
discussed in connection with marriage penalties and bonuses:  the
sections on the tax rate, the standard deduction, and the earned
income credit.  The remaining 56 provisions are less frequently
discussed and include many different types of tax law provisions,
such as those dealing with taxation of social security benefits,
limitations on capital losses, and the home mortgage interest
deduction. 

When enacting these varied provisions, Congress has dealt with the
equities between income reported jointly by most married couples and
the single income reported by most single people in different ways,
which we categorize into four groups.  One of these groups
encompasses nine provisions, such as those on the tax rate and social
security taxation, for which Congress has created different sets of
requirements for married and single people, making some adjustment
for the differences between joint and single income.  For a second
group encompassing 15 other provisions, such as those limiting
capital losses and the home mortgage interest deduction, the laws
include only 1 limit for both married and single taxpayers.  For a
third group of nine provisions, like that allowing a personal
exemption, Congress has treated married couples as if they were
single individuals, or provided them with twice the benefit allowed a
single person.  A fourth group consists of 26 provisions under which
married people are considered a unique unit for the purpose of the
tax code section. 

The different ways that married and single people are treated under
the income tax code could lead to situations where the tax liability
of married taxpayers is not the same as that of two similarly
situated single taxpayers.  As defined in this report, these
situations may result in either a marriage penalty (married couple
owes more tax) or a marriage bonus (married couple owes less tax).\6
All but 3 of the 59 income tax provisions we identified could result
in a marriage penalty or a marriage bonus, depending on the
individual circumstances of the taxpayer. 

The marriage penalties and bonuses associated with the various
provisions discussed in this report follow several patterns, but all
hinge upon the individual circumstances of the married couple.  The
single most important factor in these situations is how income is
divided between spouses.  Generally, disparate income between spouses
could lead to marriage bonuses, while equivalent income could result
in marriage penalties.  Thus, where one spouse has a high income and
the other spouse has little or no income, tax rates for the married
couple filing jointly would be lower than had each spouse filed
individually--a marriage bonus.  If, though, both spouses earn
roughly the same income, their combined income may increase their tax
rate beyond what either would have had as a single filer--a marriage
penalty. 

Marriage penalties and bonuses related to many provisions, though,
are tied to other individual factors, such as which spouse owns
property and which spouse is qualified for tax deductions and
credits, in addition to the split of income between husband and wife. 
For example, current law limits deduction of capital losses from
ordinary income to $3,000 for either a married couple or a single
taxpayer.  If husband and wife have capital losses of $3,000 each,
the law leads to a marriage penalty--the couple would be able to
deduct $6,000 as single taxpayers instead of $3,000 filing jointly. 
On the other hand, if one spouse has $8,000 in capital losses and the
other has $8,000 in capital gains, the capital loss completely
offsets the capital gain, leading to a marriage bonus. 

The impact on taxpayers of marriage penalties and bonuses is widely
varied, both in terms of the numbers of taxpayers potentially
affected by the provisions and in terms of the dollar amounts
involved in the tax liability.  To assess the comparative importance
of these many different provisions, we attempted to quantify the
number of taxpayers potentially subject to the specific marriage
penalties and bonuses.  However, when we examined the information
available, we determined the current data insufficient to make such
an assessment. 


--------------------
\6 Public finance experts have long recognized alternative views in
determining when tax schedules are "neutral" with respect to
marriage.  As one example, if two can live together cheaper than two
people alone, then a couple living together may be viewed as having a
greater ability to pay taxes than two people living alone with the
same combined income.  According to this view, therefore, imposing
the same tax burden on a married couple as on two single individuals
living apart results in a marriage subsidy or bonus. 


   ANALYSIS OF THE INCOME TAX
   TREATMENT OF MARRIED AND SINGLE
   TAXPAYERS
------------------------------------------------------------ Letter :3

In the first 4 appendixes to this report, we discuss the 59 income
tax provisions we have identified.  The four appendixes group the
provisions according to the general tax treatment of married and
single taxpayers, and each appendix lists various provisions,
describing how each provision operates, how it affects married
taxpayers, and what potential marriage penalties and bonuses may
arise through the operation of the provision. 

Appendix I describes nine income tax provisions, including two--on
the tax rates and the standard deduction--which potentially affect
most taxpayers.  These nine provisions adjust the income levels and
deduction amounts to account for joint and single income.  However,
the adjustments for married couples filing jointly are less than
twice those allowed to a single person.  Thus, the tax rate for
single people in tax year 1995 was 28 percent for taxable income over
$23,350, while married people are taxed at a rate of 28 percent when
taxable income exceeds $39,000--less than twice the income level of
the single taxpayer. 

Generally, all these provisions potentially could lead to either a
marriage penalty or a marriage bonus, depending on the relative
income of the two spouses.  With the tax rates, for example, there
would be a marriage penalty if each spouse earns $21,000--their joint
taxable income of $42,000 would be taxed at a marginal rate of 28
percent, even though if each filed as single individuals their
highest tax rate would be 15 percent.  On the other hand, there would
be a marriage bonus if one spouse earns $34,000 and the other spouse
earns $2,000--the married couple would be taxed at a rate of 15
percent although the spouse with $34,000 in taxable income would have
a marginal tax rate of 28 percent filing as an individual. 

Appendix II shows 15 income tax provisions that provide the same
income or deduction level, whether the taxpayer is filing jointly as
a married couple or as a single individual.  For instance, the home
mortgage interest deduction is limited to the interest on a mortgage
balance not exceeding $1 million; this limit is the same for a
married couple as for a single person. 

Overall, the tax treatment of married and single people in these
provisions leads to a mixed impact on married taxpayers.  These
provisions produce both penalties and bonuses, depending on the
individual circumstances.  With the home mortgage interest deduction,
for example, two married taxpayers may both own houses with mortgages
of $600,000 each, for a combined mortgage of $1.2 million--over the
$1 million limit.  As a married couple, the taxpayers would not be
able to deduct interest attributable to the mortgage amount over $1
million.  As single taxpayers, though, each could deduct the interest
on the two individual mortgages.  However, suppose that one of the
married taxpayers owns a home with a mortgage balance but has little
or no income; in this case, the mortgage interest could be used to
offset the other spouse's income, a tax advantage unavailable to two
unmarried taxpayers. 

Appendix III examines nine provisions that provide full adjustment
for joint and single income, either by treating married taxpayers as
single taxpayers or allowing them twice the tax benefit allowed a
single person.  Thus, married taxpayers are each allowed to deduct
the same personal exemption as a single person--$2,500 per spouse. 
For the most part, these provisions could only result in a tax bonus
to the married couple.  For example, even though one spouse has
little or no income, a married couple would be eligible for two
personal exemptions of $2,500, and both exemptions could be used to
offset the income of the other spouse. 

Appendix IV describes 26 income tax provisions that treat married
couples as a unique unit in the case of certain special situations
between husband and wife.  In one such provision, the law provides
that a husband (or wife) cannot deduct losses on a sale of property
to a spouse because they are considered "related parties."
Technically, many of these provisions could create tax penalties for
married couples.  For instance, where the loss on the sale of
property between two spouses is nondeductible, such a loss would be
deductible in a sale involving an unmarried couple.  On the other
hand, some provisions, such as IRC section 7872 on below-market
loans, free married people of the tax consequences of financial
dealings between spouses. 


   INSUFFICIENT DATA AVAILABLE TO
   MEASURE THE COMPARATIVE
   SIGNIFICANCE OF THE DIFFERENT
   TAX PENALTIES AND BONUSES CITED
   IN THIS REPORT
------------------------------------------------------------ Letter :4

We found that tax data, as currently reported by taxpayers and
compiled by the Internal Revenue Service (IRS), did not contain data
elements that would permit the identification of the numbers of
people potentially affected by all the marriage penalties and bonuses
described in this report.  Such data would be necessary, for example,
to rank the comparative significance of the individual provisions. 
Assessment of the numbers of taxpayers potentially affected by these
penalties and bonuses would require identification of the married
taxpayers whose individual tax situations include a marriage penalty
or bonus.  Information on numerous individual factors, the most
important of which is division of income between spouses, would be
critical to attribution of a specific penalty or bonus to a married
couple. 

Current IRS tax data do not contain information on how income is
split between spouses.\7 Even with information on how income is split
between spouses, though, much other necessary information-- for
example, the amount of a couple's home mortgage balance or which
spouse owns assets resulting in capital gains or losses\8 --is not
available.  Although some studies\9 have been done making assumptions
as to how to allocate certain common tax items, such as itemized
deductions, other types of tax items, such as those identified above,
would be difficult, at best, to estimate and allocate without further
information. 

To add some perspective to the many different provisions we describe
in this report, appendix V includes a list showing the numbers of
married and single taxpayers filing under some of the provisions
discussed herein; specifically, those provisions for which we could
quantify the number of taxpayers filing using IRS' public tax files. 
However, these numbers do not in any way indicate the number of
taxpayers actually affected by the marriage penalty or marriage bonus
possible in application of the provision; as we have indicated above,
other factors must be considered before it can be determined that an
individual married couple is subject to a marriage penalty or bonus. 


--------------------
\7 At the current time, taxpayers do not generally report information
on how income is split between spouses.  The last time taxpayers
reported such information was in tax year 1986 on Schedule W,
Deduction for a Married Couple When Both Work.  IRS is adding
information on earned income and other types of income to its
compilation of Statistics of Income tax data for tax year 1993;
however, this information will not be available until, at the
earliest, the beginning of next year. 

\8 A married couple may be penalized because the amount of mortgage
interest deductible on a joint return is limited to that attributable
to a mortgage balance of less than $1 million; although the tax
return reports the total amount of interest deducted by the couple,
it provides no information on the total amount of the mortgage held
by the couple.  Similarly, with capital gains and losses, the tax
return does not provide information on which spouse owned the
property sold for a capital gain or loss. 

\9 See, for example, Daniel R.  Feenberg and Harvey S.  Rosen,
"Recent Developments in the Marriage Tax," National Tax Journal 48
No.  1 (March 1995):  91-101.  In this article, the authors look at
the marriage tax for three IRC sections--on the tax rates, the
standard deduction, and the earned income credit.  To calculate the
marriage tax, they assumed that itemized deductions would be reported
by the spouse with the higher income. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :5

Our objectives were to (1) identify provisions in the income tax code
that treat married and single taxpayers disparately, determining how
each section operates, and how its treatment of taxpayers varies
depending on marital status; (2) analyze each provision to determine
whether the provision can create a marriage penalty or marriage
bonus, or both; and (3) quantify, to the extent possible, the number
of taxpayers potentially affected by marriage penalties or marriage
bonuses. 

To identify the income tax code provisions, we conducted a computer
search of the IRC using certain key words such as "joint," "married,"
and "spouse," and we examined the available literature on the
subject.  Through this research we also determined how each section
operated, and how it dealt with married and single taxpayers.  From
this analysis, we identified whether the specific treatment of
married and single taxpayers could lead to marriage penalties or
bonuses. 

To determine the extent to which we could quantify the number of
taxpayers potentially affected by marriage penalties and bonuses, we
reviewed data available in IRS' public file on Statistics of Income,
a compilation of tax data from a sample of individual tax returns. 
We also interviewed IRS staff responsible for research on individual
returns.  In addition, we researched the relevant literature to
determine whether other theoretical models could provide sufficient
information to estimate the numbers of taxpayers affected by IRC
sections described in this report. 

We did our work in Washington, D.C.  between March 1996 and July 1996
in accordance with generally accepted government auditing standards. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We requested comments on a draft of this report from the Commissioner
of Internal Revenue or her designated representative.  At a meeting
held August 2, 1996, representatives of the IRS Office of Chief
Counsel suggested technical revisions to this report.  We revised the
report as suggested. 


---------------------------------------------------------- Letter :6.1

We are sending copies of this report to the Chairmen and the Ranking
Minority Members of the House Committee on Ways and Means, the Senate
Committee on Finance, and various other congressional committees; the
Secretary of the Treasury; the Commissioner of Internal Revenue; and
other interested parties.  Copies will be made available to others
upon request. 

The major contributors to this report are listed in appendix VII.  If
you have any questions, please contact me on (202) 512-9044. 

Sincerely yours,

Natwar M.  Gandhi
Associate Director, Tax Policy
 and Administration Issues


MARRIAGE PENALTIES AND BONUSES
ASSOCIATED WITH INCOME TAX
PROVISIONS ALLOWING SOME
ADJUSTMENT FOR JOINT AND SINGLE
INCOME
=========================================================== Appendix I

In this appendix, we describe nine income tax provisions that have
some type of tax adjustment (generally, a higher income limit) for
the combined income of married taxpayers filing jointly relative to
single taxpayers.  The adjustments in this category, though, are
always less than twice the limit allowed to single taxpayers.  These
sections include provisions that affect large numbers of taxpayers. 
For example, section 1 sets the rate schedules for all taxpayers,
section 63 determines the standard deduction, and section 86 defines
when social security benefits are taxable. 

Generally, all these sections have one pattern for a penalty and one
for a bonus--both of which are derived from the relative incomes of
the two spouses.  A married couple may have a tax penalty if both
spouses have relatively equal income--in that case, their combined
income may put them into a higher rate bracket or give them a lower
deduction, even though individually each taxpayer would have been
eligible for a lower tax bracket or a larger deduction.  However,
where the husband and wife have larger disparities in individual
income, the couple may get a marriage bonus--in this case, the spouse
with the higher income may owe less in a joint return than if he or
she were to file as a single taxpayer. 

To illustrate these tax penalties and bonuses, table I.1 shows how
the tax rate under IRC section 1 affects the tax liabilities of two
hypothetical married couples with the same household taxable income. 
For couple A, the husband and wife have the same taxable income while
for couple B, the wife earns all the household income.  To indicate a
tax penalty or bonus, we compare the tax liability of these couples
as joint filers with that of unmarried individuals. 



                               Table I.1
                
                  Comparison of How the 1995 Tax Rate
                  Schedule Affects Two Married Couples
                     Filing Jointly and as Singles


                                 Husband      Wife   Husband      Wife
------------------------------  --------  --------  --------  --------
Income                           $30,000   $30,000         0   $60,000
Combined income                  $60,000             $60,000
Tax if filed jointly              $8,503              $8,503
Tax if filed as single            $3,580    $3,580         0   $11,980
Combined tax as singles           $7,160             $11,980
Amount joint tax differs from     $1,343             -$3,477
 tax as singles
Marriage penalty or bonus        Penalty               Bonus
----------------------------------------------------------------------
Source:  GAO analysis of IRC section 1, assuming use of the standard
deduction. 

As shown in table I.1, couple A are penalized $1,343 by filing a
joint return because their combined income puts them in a higher tax
bracket than if they were each taxed as single individuals.  On the
other hand, couple B receive a $3,477 tax bonus by being able to file
a joint return because the wife's $60,000 income is taxed at a lower
rate filing jointly than it would have been had she been allowed to
file as a single individual. 

Table I.2 describes nine income tax provisions that have some type of
tax adjustment. 



                                    Table I.2
                     
                       1995 Income Tax Provisions With Some
                      Adjustment for Joint and Single Income

                            Treatment of
Code                        married           Basis for
section   Description       taxpayers         penalty           Basis for bonus
--------  ----------------  ----------------  ----------------  ----------------
1.        Tax rates are     Except for the    Relatively equal  Relatively
Section   set according to  highest tax       income between    unequal income
1: Tax    personal status:  rate, the income  two spouses--     between two
Imposed   married or        level at which    tax rate would    spouses--tax
on        single. Income    tax rates are     be less if each   rate would be
Individu  tax rates are     increased is      filed as single   greater if filed
als (tax  progressively     higher for        than if filed     as single than
rates)    increased at      married couples   jointly.          if filed
          various income    than single                         jointly.
          levels,           people. However,
          depending on      it is not twice
          personal status.  the level of the
          The tax rates     single income
          range from 15     level. Thus, the
          percent at the    tax rate for
          lowest income     married couples
          levels to 39.6    is increased
          percent at the    from 15 to 28
          highest income    percent when
          levels.           joint taxable
                            income is over
                            $39,000, while a
                            single person
                            pays 28 percent
                            if taxable
                            income is over
                            $23,350. Married
                            filing
                            separately is
                            taxed at 28
                            percent when
                            taxable income
                            is $19,500. At
                            the highest
                            income rate
                            (39.6 percent),
                            the income level
                            of $256,500 is
                            the same for
                            both married
                            couples filing
                            jointly and
                            single people.

2.        If over 65 or     The income        Relatively equal  Relatively
Section   disabled,         levels at which   income between    unequal income
22:       taxpayer is       the credit is     two spouses--     between two
Credit    eligible for      reduced or        credit would be   spouses--credit
for the   credit of up to   eliminated are    greater if each   would be less if
Elderly   $1,125 for        higher for        filed as single   each filed as
and the   married couples   married couples   than if filed     single than if
Permanen  and $750 for      than single       jointly.          filed jointly.
tly and   singles.          people, but not
Totally   However, the      double. The
Disabled  amount of the     credit for
(elderly  credit is         married couples
credit)   reduced (and      with both
          potentially       spouses eligible
          eliminated) by    is eliminated
          amounts one-      when either tax-
          half of tax-      free social
          free social       security or
          security and      other nontaxable
          pensions          income is $7,500
          received by the   or more or AGI
          taxpayer, and by  is $25,000 or
          amounts the       more; for single
          taxpayer's        people, the
          adjusted gross    figures are
          income (AGI)      $5,000 and
          exceeds certain   $17,500,
          limits.           respectively. A
                            married couple
                            must file
                            jointly to get
                            credit unless
                            couple is
                            legally
                            separated or
                            taxpayer
                            qualifies as an
                            "abandoned
                            spouse."\a

3.        Total amount of   The operation of  Relatively equal  Relatively
Section   tax credits from  this provision    income between    unequal income
38:       11 various        is dependent on   two spouses--     between two
General   business credits  two other         credit would be   spouses--credit
Business  cannot exceed     provisions,       greater if each   would be less if
Credit    either the        section 55 on     filed as single   each filed as
          tentative         the alternative   than if filed     single than if
          alternative       minimum tax and   jointly.          filed jointly.
          minimum tax or    section 1 on tax
          25 percent of     rates. For both
          regular tax       these latter
          liability over    provisions, the
          $25,000,          income levels
          whichever is      for the tax
          greater.          rates are higher
                            for married
                            couples than
                            single people,
                            but not double.
                            If married
                            filing
                            separately,
                            level is one-
                            half of married
                            filing jointly
                            unless one
                            spouse has no
                            credit or
                            carryover or
                            carryback of the
                            credit.

4.        Taxpayer who      The income        Relatively equal  Relatively
Section   gets certain      levels for the    income between    unequal income
55:       special           minimum tax are   two spouses--     between two
Alternat  deductions and    higher for a      tax rate would    spouses--tax
ive       credits may be    married couple    be less if each   rate would be
Minimum   subject to an     than a single     filed as single   greater if each
Tax       "alternative      person, but not   than if filed     filed as single
Imposed   minimum tax" if   double: married   jointly.          than if filed
(alterna  income exceeds    people are taxed                    jointly.
tive      certain levels.   if income is
minimum                     over $45,000,
tax)                        while single
                            people are taxed
                            if income is
                            over $33,750. If
                            married filing
                            separately,
                            level is
                            $22,500.

5.        Rather than       The amount of     Both spouses      One spouse's
Section   itemize           the deduction     have income over  income is less
63:       individual        for a married     $6,400 and would  than $6,400 and
Taxable   deductions,       couple is higher  elect to file     the spouse would
Income    taxpayer can      than for a        individually      not file
Defined   take "standard    single person,    with the          individually.
(standar  deduction." The   but not twice as  standard
d         amount of the     much: married,    deduction.
deductio  deduction         $6,550; single,
n)        depends on        $3,900. If
          personal status.  married filing
                            separately,
                            deduction is
                            $3,275 and the
                            other spouse may
                            not itemize.

6.        Social security   Threshold limits  One spouse's      Relatively
Section   income may be     at which social   taxable income    unequal income
86:       taxed if          security is       may require       between two
Social    taxpayer has      taxed are higher  other spouse's    spouses--tax on
Security  other types of    for a married     social security   individual
and Tier  income. To be     couple than a     benefits to be    benefits would
I         taxed, the sum    single person,    taxed.            be more than tax
Railroad  of the other      but not double:                     on combined
Retireme  income plus one-  if married, up                      income.
nt        half of social    to 50 percent of
Benefits  security          benefits will be
(social   benefits must     taxed if
security  exceed certain    threshold
benefits  limits.           exceeds $32,000,
)                           while if single,
                            $25,000. If
                            married filing
                            separately, any
                            other income
                            will result in
                            taxable social
                            security, unless
                            legally
                            separated, or an
                            abandoned
                            spouse, or live
                            apart from
                            spouse the
                            entire year.

7.        Taxpayer who      The limits at     Relatively equal  Relatively
Section   redeems U.S.      which the         income between    unequal income
135:      savings bonds to  exclusion is      spouses--         between spouses-
Income    pay college       phased out are    exclusion would   -exclusion would
from      expenses can      higher for a      be greater if     be less if filed
U.S.      exclude from      married couple    filed             individually
Savings   income the        than a single     individually      than if filed
Bonds     amount of         person, but not   than if filed     jointly.
Used to   interest earned   double: for       jointly.
Pay       on the bonds.     married couple,
Higher    The exclusion is  phased out if
Educatio  phased out when   modified AGI is
n         the taxpayer's    $63,450 and
Tuition   modified AGI      eliminated at
and Fees  exceeds certain   $93,450; for
(savings  limits.           single, the
bonds                       figures are
for                         $42,300 and
educatio                    $57,300,
n)                          respectively.
                            Married person
                            (unless
                            "abandoned
                            spouse") cannot
                            qualify unless
                            files jointly or
                            is legally
                            separated.

8.        Taxpayer can      The deduction     Relatively equal  Relatively
Section   deduct $2,500     begins to be      income between    unequal income
151(d)(3  for each          phased out at     spouses--         between spouses-
):        personal          higher AGI for    exemptions would  -exemption for
Phaseout  exemption--for    married couple    not be phased     higher-income
of        taxpayer,         than single       out if each       spouse would be
Allowanc  spouse,           person, but not   filed             phased out if
e of      dependents. The   double: if        individually.     each filed as
Deductio  deduction is      married, over                       single rather
ns for    phased out if     $172,050; if                        than as married.
Personal  AGI is above      single, over
Exemptio  certain limits.   $114,700. If
ns                          married filing
(persona                    separately,
l                           deductions
exemptio                    phased out over
n                           $86,025.
phaseout
)

9.        Taxpayer can      The deduction     Relatively equal  Relatively
Section   deduct up to      begins to be      income between    unequal income
219(g):   $2,000 per year   phased out at     spouses--         between spouses-
Retireme  in tax-free       higher AGI if     deduction would   -deduction would
nt        individual        filing joint      not be phased     be phased out if
Savings   retirement        return than       out if each       each filed as
(individ  account (IRA).    filing as single  filed             single rather
ual       However, if also  person, but not   individually.     than as married.
retireme  in employer       double the
nt        pension plan,     amount of the
account   deduction is      single taxpayer:
with      reduced over      if married,
employer  certain modified  phased out
plan)     AGI levels.       beginning at
                            modified AGI
                            over $40,000; if
                            single,
                            beginning at
                            modified AGI
                            over $25,000. If
                            married filing
                            separately, will
                            be phased out
                            when AGI exceeds
                            zero, unless the
                            married couple
                            lives apart for
                            whole year.
--------------------------------------------------------------------------------
\a See footnote 1 on page 1.  A taxpayer who qualifies as an
"abandoned spouse" is not considered married for the purposes of the
IRC.  Such a taxpayer may file as a single person or as a head of
household.  This option is applicable for all code sections discussed
in this report. 

Source:  GAO's analysis of IRC provisions. 


MARRIAGE PENALTIES AND BONUSES
ASSOCIATED WITH INCOME TAX
PROVISIONS THAT MAKE NO ADJUSTMENT
FOR JOINT AND SINGLE INCOME
========================================================== Appendix II

In this appendix, we describe 15 income tax provisions that each
allow some type of tax benefit--a credit, a deduction or an
exclusion--which is limited either in the amount of the benefit or by
the amount of total taxpayer income.  For all these provisions, the
benefit and income limits are the same whether for two married
taxpayers or for one single taxpayer. 

Each of these provisions offers the possibility of tax penalties to
married couples and, generally, there are two patterns of potential
marriage penalties.  First, there would be a penalty when the joint
income exceeds the limit for the tax benefit, even though
individually one or both of the spouses could qualify for the
benefit.  As an example, consider a husband and wife who each earn
$14,000, for a combined adjusted gross income (AGI) of $28,000. 
Because IRC section 32 on the earned income credit limits the earned
income credit for 1995 to those taxpayers--married or single--with an
AGI less than $26,673, the couple would be ineligible for the credit. 
However, if each had filed as a single taxpayer, both may have
qualified for the credit. 

Another type of penalty is possible where the tax benefit is limited
to one amount--for either a married or single taxpayer--and the
married couple would have reported more than that amount if they had
each filed as single taxpayers.  For instance, if two taxpayers each
have $3,000 in capital losses, for a total of $6,000 in losses, the
deduction limit of $3,000 in IRC section 1211 imposes a tax penalty
on a married couple. 

However, nine of these provisions, including IRC section 1211 on
capital losses, offer possible tax advantages to a married couple
that are unavailable to two similarly situated single people.  With
joint returns, taxpayers could pool their income and deductions,
using any available deductions to offset their combined income. 
Thus, where one spouse has a deduction (or a loss), that amount could
be applied to reduce the income (or gains) of the other spouse. 

Table II.1 shows the tax consequences of the marriage penalties and
bonuses related to section 1211 on capital losses.  Couple A is a
hypothetical married couple where each spouse has sold property, each
losing $8,000 in long-term capital losses.  With couple B, though,
the wife has incurred a long-term capital loss of $8,000 but the
husband has sold property for a long-term capital gain of $8,000. 



                               Table II.1
                
                    Comparison of 1995 Tax Liability
                 Involving Capital Losses and Gains of
                 Two Married Couples Filing Jointly and
                               as Singles


                                 Husband      Wife   Husband      Wife
------------------------------  --------  --------  --------  --------
Taxable income (before capital   $30,000   $30,000   $30,000   $30,000
 gains or losses)
Capital gains (or losses)       ($8,000)  ($8,000)    $8,000  ($8,000)
Capital loss deduction if       ($3,000)                   0
 filed jointly ($3,000
 maximum)
Tax if filed jointly             $10,897             $11,737
Capital gains (or losses) if    ($3,000)  ($3,000)    $8,000  ($3,000)
 file as singles ($3,000
 maximum loss deduction)
Tax if filed as single            $4,532    $4,532    $7,612    $4,532
Combined tax as singles           $9,064             $12,144
Amount joint tax differs from     $1,833               -$407
 tax as singles
Marriage penalty or bonus        Penalty               Bonus
----------------------------------------------------------------------
Source:  GAO analysis of IRC section 1211. 

As can be seen in table II.1, couple A's tax liability as a married
couple is $1,833 greater than their liability had they filed as
singles.  As single taxpayers, they could deduct $6,000 in capital
losses, while they could deduct only $3,000 as a married couple. 
Couple B, though, received a tax bonus when they filed jointly.  As
married taxpayers filing jointly, they could use the wife's capital
loss to offset the husband's gain.  As single taxpayers, however, the
husband would have had to report the full $8,000 as capital gain, and
the wife could have deducted only $3,000 of her capital losses from
ordinary income. 

Table II.2 describes 15 income tax provisions that allow some type of
tax benefit. 



                                    Table II.2
                     
                        1995 Income Tax Provisions With No
                      Adjustment for Joint and Single Income

                            Treatment of
Code                        married           Basis for
section   Description       taxpayers         penalty           Basis for bonus
--------  ----------------  ----------------  ----------------  ----------------
1.        Taxpayer who      Income limits     The combined      Full-time
Section   maintains more    are the same for  income of both    student without
21:       than 50 percent   a married couple  spouses may       earned income
Expenses  of household      as for a single   reduce credit,    but otherwise
for       expenses is       person. A         even though       eligible for the
Househol  allowed a credit  married couple    individually one  credit, will be
d and     for child-care    must file         or both spouses   able to take
Dependen  expenses of up    jointly to get    may be eligible   credit if
t Care    to $720 for one   credit, unless    for larger        married.
Services  child, $1,440     taxpayer is       credit.
Necessar  for two or more.  legally
y for     Credit is for     separated or
Gainful   20-30 percent of  qualifies as an
Employme  expenses,         abandoned
nt        depending on      spouse. Unless
(child-   AGI, but cannot   one spouse is a
care      exceed            full-time
credit)   taxpayer's        student, both
          earned income.    spouses must
          The reduction of  work, and credit
          the percentage    cannot exceed
          begins at AGI in  either spouse's
          excess of         earned income.
          $10,000 and ends  If spouse is a
          at AGI over       full-time
          $28,000.          student, the
                            spouse is
                            considered to
                            earn $200 per
                            month.

2.        Low-income        Income limits     The combined      Person with no
Section   taxpayer with     are the same for  income of both    children but
32:       earned income     a married couple  spouses may       with income less
Earned    allowed credit.   as for a single   reduce or         than limit
Income    With two          person. A         eliminate         marries person
Credit    children, credit  married couple    credit, even      with children
          up to $3,110,     generally must    though            and little or no
          but eliminated    file jointly to   individually one  earned income.
          if AGI greater    get credit,       or both spouses
          than $26,673.     unless taxpayer   may be eligible
          With no           qualifies as an   for larger
          children,         abandoned         credit.
          allowed up to     spouse.
          $314, but
          eliminated at
          AGI of $9,230.

3.        Performing        Income limits     The combined      Married couples
Section   artists whose     are the same for  income of both    can pool income
62(b)(2)  AGI without       a married couple  spouses may       and deductions-
:         regard to this    as for a single   eliminate         -spouse eligible
Certain   deduction is      person. A         deduction, even   for deduction
Trade     $16,000 or less   married couple    though            has little or no
and       may deduct        must file a       individually one  income.
Business  certain business  joint return,     or both spouses
Expenses  expenses to       unless taxpayer   may be eligible.
of        determine AGI,    lived apart from
Qualifie  rather than as a  spouse for
d         miscellaneous     entire year or
Performi  itemized          qualifies as an
ng        business          abandoned
Artist    deduction.        spouse.
(perform
ing
artist
expense)

4.        If AGI exceeds    Income limits     The combined      None
Section   $114,700,         are the same for  income of both
68:       certain itemized  a married couple  spouses may
Overall   deductions (not   as for a single   require
Limitati  medical,          person. If        reduction in
on on     investment        married couple    deductions, even
Itemized  interest,         elect to file     though
Deductio  casualty loss,    separately,       individually one
ns        or gambling       limit is          or both spouses
(itemize  loss) are         $57,350.          would not be
d         reduced.                            required to
deductio                                      reduce
n limit)                                      deductions.

5.        Taxpayer over 55  Exclusion amount  Two unmarried     None
Section   who sells         is the same for   taxpayers would
121:      principal         married couple    be eligible for
One-      residence may     as for single     twice the amount
Time      exclude up to     person. Married   of the total
Exclusio  $125,000 in gain  couples must      exclusion.
n of      from the sale.    jointly elect to
Gain      Taxpayer may      exclude the gain
from      elect to exclude  whether filing
Sale of   gain only once    jointly or
Principa  during lifetime.  separately. Once
l                           having elected
Residenc                    to exclude gain,
e by                        must jointly
Individu                    revoke to
al Who                      revise. Married
Has                         filing
Attained                    separately may
Age 55                      exclude up to
(one-                       $62,500.
time
resident
ial sale
exclusio
n)

6.        Taxpayer can      Limit on          Two unmarried     None
Section   exclude employer  exclusion is the  taxpayers would
129:      benefits for      same for married  be eligible for
Dependen  child-care, up    couple or single  twice the amount
t Care    to either $5,000  person. Married   of the total
Assistan  or the amount of  couple is         exclusion.
ce        earned income,    limited to the
Programs  whichever is      smaller amount
(employe  smaller.          of earned income
r child-                    by either
care                        spouse, and if
benefits                    filed
)                           separately,
                            total exclusion
                            cannot exceed
                            $2,500.

7.        Taxpayer can      Limit on          Two unmarried     Married couple
Section   deduct interest   mortgage          taxpayers would   can pool income
163(h)(3  costs on          principal is      be eligible for   and deductions-
):        mortgages from    same for married  twice the amount  -spouse with
Qualifie  one or two        couple or single  of the total      deduction has
d         residences and    person. If        deduction.        less income than
Residenc  on home equity    married couple                      deduction
e         debt. The         files                               amount.
Interest  mortgage balance  separately, loan
(mortgag  cannot exceed $1  limits are
e         million, and the  reduced to
interest  amount of the     $500,000 for
deductio  home equity loan  mortgage and
n)        cannot exceed     $50,000 for home
          $100,000.         equity, and each
                            spouse can only
                            deduct interest
                            from one
                            residence unless
                            other spouse
                            consents in
                            writing.

8.        Taxpayer can      Limit on loss     Two unmarried     Married couple
Section   deduct losses of  deduction is      taxpayers would   can split
165(l):   uninsured         same for married  be eligible for   deductions--
Losses    financial         couple as for     twice the amount  spouse with
in        deposits as a     single person.    of the total      lower income can
Insolven  miscellaneous     If married        deduction.        file separately
t         itemized          filing                              to meet AGI
Financia  deduction, to     separately, the                     percentage.
l         the extent that   limit is reduced
Institut  losses are over   to $10,000, with
ions      2 percent of      respect to each
(uninsur  AGI, up to        financial
ed        $20,000, with     institution.
financia  respect to each
l         financial
deposit   institution.
loss)

9.        The cost of       Limit on          Two unmarried     Married couple
Section   certain tangible  deduction is      taxpayers would   can pool income
179:      personal          same for married  be eligible for   and deductions-
Election  property used     couple or single  twice the amount  -spouse with
to        over 50 percent   person. If        of the total      deduction has
Expense   for business can  married filing    deduction.        less income than
Certain   be treated as     separately, the                     deduction
Business  expense and       limit would be                      amount.
Assets    immediately       automatically
(section  deducted. The     divided between
179       deduction is      the spouses,
assets)   limited to        unless otherwise
          $17,500.          agreed.

10.       Certain costs of  Limit on          Two unmarried     Married couple
Section   maintaining       deduction is      taxpayers would   can pool income
194:      timber property   same for married  be eligible for   and deductions-
Amortiza  can be amortized  couple or single  twice the amount  -spouse with
tion of   over 7-year       person. If        of the total      deduction has
Reforest  period. However,  married couple    deduction.        less income than
ation     taxpayer is       files                               deduction
Expenses  limited to        separately,                         amount.
(refores  $10,000 per       limit is reduced
tation    year.             to $5,000.
deductio
n)

11.       Taxpayer can      Deduction         Two unmarried     Married couple
Section   deduct losses     amounts and AGI   taxpayers would   can pool passive
469:      from rental real  limits are the    be eligible for   gains and
Passive   estate against    same for married  twice the amount  losses--loss
Activity  ordinary income   couple as for     of the total      from one spouse
Losses    only if taxpayer  single person.    loss; also,       will offset gain
and       is "active        However, married  combined income,  from other
Credits   participant."     filing            but not           spouse; also,
Limited   Deduction is      separately        individual        generally can
(passive  limited to        cannot take       income, reduces   pool income and
activity  $25,000 per       deduction if the  or eliminates     deductions--
loss)     year, and is      spouses lived     amount of loss    spouse with
          reduced if AGI    together any      deduction.        deduction has
          exceeds $100,000  time during the                     less income than
          and eliminated    tax year. If                        deduction
          if AGI is over    lived apart the                     amount.
          $150,000. Excess  entire year,
          losses can be     deduction
          deferred to       limited to
          future years.     $12,500, reduced
                            if AGI is over
                            $50,000, and
                            eliminated if
                            AGI is over
                            $75,000.

12.       Taxpayer can      Limits are same   Two unmarried     None
Section   elect to roll     for married       taxpayers would
1044.     over gain from    couple as for     be eligible for
Rollover  sale of public    single person.    twice the amount
of        stock if gain is  If married        of the rollover
Publicly  reinvested in a   couple files      gain.
Traded    small business    separately,
Securiti  licensed by the   rollover amount
es Gain   Small Business    is limited to
into      Administration.   $25,000, or
Speciali  The tax basis of  $250,000 reduced
zed       the small         by amount
Small     business stock    previously
Business  (which is used    rolled over,
Investme  to calculate      whichever is
nt        gain or loss on   smaller.
Companie  a later sale of
s (small  that stock) is
business  reduced by the
rollover  rolled over
)         gain. Limit on
          rollover is
          $50,000 a year,
          or $500,000
          reduced by
          amount
          previously
          rolled over,
          whichever is
          smaller.

13.       Beginning in      Exclusion limit   Two unmarried     None
Section   1998, a taxpayer  is same whether   taxpayers would
1202:     can exclude 50    for married       be eligible for
50        percent of the    couple or single  twice the amount
Percent   gain from sale    person. If        of the total
Exclusio  of stock in       married couple    exclusion.
n for     qualified small   files
Gain      business if       separately,
from      purchased at its  taxpayer is
Certain   original issue    limited to $5
Small     and held for 5    million reduced
Business  years. Gain is    by amounts
Stock     limited to $10    previously
(small    million reduced   excluded or 10
business  by amounts        times the
stock     previously        taxpayer's basis
exclusio  excluded or 10    in the business,
n)        times the         whichever is
          taxpayer's basis  greater.
          in the business,
          whichever is
          greater.

14.       Taxpayer can      Deduction limit   Two unmarried     Married couple
Section   deduct a net      is same for       taxpayers would   can pool capital
1211:     capital loss of   married couple    be eligible for   gains and
Limitati  $3,000 against    or single         twice the amount  losses--loss
ons on    ordinary income.  person. If        of the total      from one spouse
Capital   Excess over       married couple    loss.             can offset gain
Losses    $3,000 can be     filing                              from other
(capital  carried forward   separately,                         spouse.
loss)     into future       annual deduction
          years.            is limited to
                            $1,500.

15.       If estimated      AGI limit is      Combined spousal  None
Section   quarterly         same for married  income, but not
6654:     payments are      couple as for     individual
Failure   based on last     single person.    income,
by        year's tax,       If married        increases amount
Individu  taxpayer with     couple files      of estimated tax
al to     AGI under         separately, must  to be paid
Pay       $150,000 must     pay quarterly 25  quarterly.
Estimate  pay quarterly 25  percent of last
d Income  percent of 100    year's tax if
Tax       percent of last   AGI is $75,000
(estimat  year's tax. If    or less. If AGI
ed        AGI is over       is over $75,000,
income    $150,000,         taxpayer must
tax)      taxpayer must     pay quarterly 25
          pay quarterly 25  percent of 110
          percent of 110    percent of last
          percent of last   year's tax.
          year's tax.
--------------------------------------------------------------------------------
Source:  GAO's analysis of IRC provisions. 


MARRIAGE PENALTIES AND BONUSES
ASSOCIATED WITH INCOME TAX
PROVISIONS THAT FULLY ADJUST FOR
JOINT AND SINGLE INCOME
========================================================= Appendix III

The nine IRC provisions described below fully adjust for joint and
single income.  The operations of these tax provisions are widely
different.  Some of these provisions effectively treat married
taxpayers the same as if they were single people.  IRC section 6017,
for example, requires that self- employment tax be calculated
separately on each spouse's individual self- employment income. 
Section 213 allows a married taxpayer filing separately to report
medical deductions with the same limitations allowed a single
taxpayer.  Other sections allow a married couple twice the benefit
allowed a single person.  Thus, section 1244 permits married couples
to deduct $100,000 in losses, while a single person is limited to
$50,000. 

For the most part, these sections can only result in the same, or
less, tax liability for married taxpayers than for single people. 
Thus, the self- employment tax assessed on two married people should
always be the same as that assessed for a similarly situated
unmarried couple.  Three sections-- section 213 on medical
deductions, section 165 on nonbusiness losses, and section 172 on net
operating losses--require that married taxpayers file separately to
take full advantage of the tax bonuses possible for a married couple. 
When married taxpayers file separately, many tax provisions reduce or
eliminate the tax benefits available to the taxpayer.  To take full
advantage of these three sections, therefore, a married taxpayer may
have to forgo other possible tax benefits, leading to a possible tax
penalty. 

We illustrate the impact of a tax provision that allows married
taxpayers twice the benefit provided to single people in table III.1
below.  In this table, we show how income tax section 1244, which
allows married taxpayers to deduct up to $100,000 on the sale of
certain small business stocks, would affect two married couples
filing jointly and as singles.  Each spouse in couple A holds $50,000
in small business stock losses, while for couple B, the husband has
incurred $100,000 in losses by himself. 



                              Table III.1
                
                  Comparison of How Section 1244 Loss
                 Deductions Affect Two Married Couples
                 Filing Jointly and as Singles in 1995


                                 Husband      Wife   Husband      Wife
------------------------------  --------  --------  --------  --------
Taxable income (before 1244      $60,000   $60,000   $60,000   $60,000
 losses)
1244 losses                      $50,000   $50,000  $100,000         0
1244 loss deduction if filed    $100,000            $100,000
 jointly ($100,000 is maximum
 loss)
Tax if filed jointly              $3,004              $3,004
1244 loss deduction if filed     $50,000   $50,000   $50,000         0
 as single ($50,000 is maximum
 loss)
Tax if filed as single            $1,504    $1,504    $1,054   $13,876
Combined tax as singles           $3,008             $14,930
Amount joint tax differs from        -$4                   -
 tax as singles                                      $11,926
Marriage penalty or bonus          Bonus               Bonus
----------------------------------------------------------------------
Source:  GAO analysis of IRC section 1244. 

As shown in table III.1, couple A's tax liability is nearly the same
whether the couple files jointly or as single individuals.  In each
case, both spouses could deduct the full amount of their individual
section 1244 losses.  Couple B, on the other hand, received an
$11,926 tax bonus by filing jointly because the husband's entire loss
(which is twice that allowed a single person) can be applied to
offset his wife's income. 

Table III.2 describes nine tax provisions that fully adjust for joint
and single income. 



                                   Table III.2
                     
                       1995 Income Tax Provisions With Full
                      Adjustment for Joint and Single Income

                            Treatment of
Code                        married           Basis for
section   Description       taxpayers         penalty           Basis for bonus
--------  ----------------  ----------------  ----------------  ----------------
1.        Taxpayer is       Each married      None              Exemption amount
Section   allowed to        taxpayer is                         for one spouse
151:      deduct $2,500 as  allowed same                        with little or
Allowanc  "personal         exemption amount                    no income can be
e of      exemption."       as a single                         used to offset
Deductio  Personal          taxpayer; each                      larger income of
n for     exemption also    spouse is                           other spouse.
Personal  allowed for       allowed to
Exemptio  spouse and all    deduct $2,500.
ns        dependents.
(persona
l
exemptio
ns)

2.        Taxpayer can      Married           To take full      Married
Section   deduct certain    taxpayers and     advantage of      taxpayers can
165:      nonbusiness       single taxpayers  possible          file separately
Losses    losses: casualty  are treated the   marriage bonus    to reduce AGI
(casualt  losses, to the    same--married     related to        levels; can also
y and     extent that each  taxpayers can     casualty loss,    pool gains and
gambling  loss is over      file separately   spouses must      losses.
losses)   $100 and the net  to reduce AGI     file separate
          casualty loss     levels. Married   returns.
          exceeds 10        taxpayers are     Separate returns
          percent of AGI;   subject to same   would, in many
          and gambling      limits whether    instances,
          losses, up to     filing jointly    reduce or
          amount of         or separately.    eliminate other
          gambling wins.                      tax benefits
                                              available to the
                                              taxpayer.

3.        In cases where    Married           To take full      Married
Section   casualty or       taxpayers and     advantage of      taxpayers can
172: Net  theft losses      single taxpayers  possible          file separately
Operatin  exceed total      are treated the   marriage bonus,   to reduce AGI
g Loss    income, the       same--married     spouses must      levels; can also
          taxpayer may      taxpayers can     file separate     pool gains and
          have a "net       file separately   returns.          losses.
          operating loss."  to reduce income  Separate returns
          In this case,     level. Married    would, in many
          the taxpayer can  taxpayers are     instances,
          deduct amount     subject to same   reduce or
          against taxes in  limits whether    eliminate other
          either prior or   filing jointly    tax benefits
          future years.     or separately.    available to the
                                              taxpayer.

4.        Taxpayer can      Married           To take full      Married
Section   deduct medical    taxpayers and     advantage of      taxpayers can
213:      expenses to the   single taxpayers  possible          file separately
Medical,  extent that the   are treated the   marriage bonus,   to reduce AGI
Dental,   expenses exceed   same--married     spouses must      levels; one
Etc.,     7.5 percent of    taxpayers can     file separate     spouse can also
Expenses  AGI. Taxpayer     file separately   returns.          deduct expenses
(medical  can also deduct   to reduce income  Separate returns  paid for medical
expenses  medical expenses  level. Married    would, in many    costs of other
)         for spouse and    taxpayers are     instances,        spouse.
          dependents.       subject to same   reduce or
                            limits whether    eliminate other
                            filing jointly    tax benefits
                            or separately.    available to the
                                              taxpayer.

5.        If taxpayer is    IRA deduction     None              "Special IRA"
Section   not covered by    for two married                     allows a larger
219:      an employer       taxpayers                           IRA deduction to
Retireme  pension plan,     calculated                          married taxpayer
nt        taxpayer can      exactly same as                     whose spouse has
Savings   deduct up to      single                              very little or
(IRA      $2,000 per year,  taxpayers.                          no income.
with no   limited to        However, if one
employer  amount of earned  spouse's income
plan and  income.           is less than
special                     $250, other
IRA)                        spouse can
                            deduct up to
                            $2,250 for both.

6.        Taxpayer who      Married           None              None
Section   sells old home    taxpayers
1034:     and buys new      allocate the
Rollover  home costing at   rollover of gain
of Gain   least as much as  on sale of a
on Sale   the old home      residence,
of        must roll over    without regard
Principa  gain on sale by   to who owned the
l         applying the      old home or who
Residenc  amount of the     bought the new
e         gain to reduce    home, if both
(residen  the basis of the  meet certain
ce        new home. The     requirements.
rollover  tax basis of the
)         new home is
          reduced by the
          gain. Can only
          be used once
          every 2 years.

7.        Taxpayer can      For married       None              One married
Section   deduct loss from  couples, the                        taxpayer can
1244:     sale or exchange  deduction limit                     deduct up to
Losses    of certain small  is twice that                       twice as much as
in Small  business stocks   allowed single                      single taxpayer.
Business  against ordinary  taxpayers--
Stock     income, limited   $100,000 if
          to $50,000 per    married filing
          year.             jointly.

8.        Every taxpayer    Married           None              None
Section   with self-        taxpayers
6017:     employment        calculate self-
Self-     income over $400  employment tax
Employme  must file a       exactly as if
nt Tax    return and        they were two
Returns   report on self-   single
(self-    employment tax.   taxpayers--tax
employme                    is computed on
nt tax)                     separate
                            earnings of each
                            spouse. The
                            amount reported
                            on the joint
                            return is the
                            sum of the two
                            taxes.

9.        Every taxpayer    Married           None              None
Section   may designate     taxpayers
6096:     that $3 be paid   treated as if
Designat  to the            they are two
ion by    Presidential      single
Individu  Election          taxpayers--each
als       Campaign Fund.    spouse may
(preside                    designate $3 to
ntial                       campaign fund.
campaign
)
--------------------------------------------------------------------------------
Source:  GAO's analysis of IRC provisions. 


MARRIAGE PENALTIES AND BONUSES
ASSOCIATED WITH INCOME TAX
PROVISIONS THAT TREAT MARRIED
TAXPAYERS AS SPECIAL UNIT
========================================================== Appendix IV

Table IV.1 describes the operations of 26 IRC sections that treat
married taxpayers as unique units.  For the most part, these sections
relate to special situations between spouses--for example, loans or
sales between husband and wife. 

The purpose of many of these provisions was to regulate sham
transactions in commercial ventures.  For example, IRC section 1092
taxes "straddles"-- business investments in which the taxpayer buys
two interests in property, each of which offsets the other.  Under
the current tax law, the investor cannot recognize the loss in one
interest without realizing the gain in the offsetting investment.  To
identify a straddle position, any property purchased by a wife that
offsets property previously purchased by her husband is considered to
be owned by the husband.  Under certain circumstances, this provision
could create a tax penalty, where, for instance, both husband and
wife are independent investors.  In that case, the married couple
might incur a greater tax liability than a similarly situated
unmarried couple. 



                                    Table IV.1
                     
                       1995 Income Tax Provisions Treating
                        Married Taxpayers as Special Unit

                            Treatment of
Code                        married           Basis for
section   Description       taxpayers         penalty           Basis for bonus
--------  ----------------  ----------------  ----------------  ----------------
1.        Child under 14    If married        Even if child's   None
Section   will be taxed at  parents file      custodial parent
1(g):     parent's highest  separately,       files
Certain   marginal rate.    child is taxed    separately, the
Unearned                    at the rate of    child's unearned
Income                      the parent with   income is taxed
of Minor                    the highest       based on the
Children                    income.           rate of the
Taxed as                                      parent with the
if                                            highest income.
Parent's
Income
(kiddies
tax)

2.        Tax credit for    Certain           If husband and    None
Section   investment in     partnerships      wife are in a
42: Low-  low-income        with 35 or more   partnership
Income    housing project.  partners are      dealing with
Housing   Credit must be    treated as one    low-income
Credit    recaptured if     taxpayer for the  housing unit,
          project fails to  purpose of        they will not be
          meet program      recapture unless  considered
          requirements.     partnership       independent
                            elects not to be  investors for
                            so treated; a     purpose of
                            husband and wife  determining
                            are considered    whether
                            one partner of    partnership is
                            such a            to be treated as
                            partnership.      one unit for
                                              purpose of
                                              recapture.

3.        A married         Where married     If unmarried,     None
Section   individual        taxpayers file    two taxpayers
63(c)(6)  filing a          separately, both  could determine
:         separate return   spouses must      individually
Certain   is not eligible   either itemize    whether to
Individu  for a standard    their deductions  itemize or use
als Not   deduction if      or elect to take  the standard
Eligible  spouse itemizes   the standard      deduction.
for       deductions.       deduction.
Standard
Deductio
n
(electio
n to
itemize)

4.        A taxpayer need   The spouse of a   Two taxpayers,    None
Section   not include any   "highly           who are neither
125:      amount in income  compensated"      married to each
Cafeteri  solely because,   employee may      other nor is one
a Plans   as an employee,   have to include   a dependent of
          the taxpayer may  income            the other, would
          choose among      attributable to   not be affected
          different         a choice of       by this
          compensation      benefits if he    provision.
          benefits, unless  or she is also a
          the taxpayer can  participant in
          be considered a   the compensation
          "highly           plan.
          compensated"
          employee.

5.        Where a holder    If the bond       Two unrelated     None
Section   of a private      holder's spouse   taxpayers who
147(a):   activity bond is  is a              are not married
Substant  a "substantial    "substantial      to each other
ial User  user" of the      user" of the      would each be
Requirem  local facilities  facilities        able to use
ent of    financed by the   financed by the   private activity
Certain   bond, the bond    bond, the bond    facility without
Private   is not eligible   is not qualified  affecting the
Activity  for tax-exempt    for tax-exempt    tax status of
Bonds     status. Any       status.           the other.
(private  interest earned
activity  from the bond
user)     must be included
          in income.

6.        Private activity  Any prior         Two unrelated     None
Section   bond is not       ownership of a    taxpayers who
147(c)(2  qualified for     farm, or receipt  are not married
):        tax-exempt        of financing, by  to each other
Limitati  status if 25      the first-time    would not be
on of     percent of the    farmer's spouse   affected by this
Use of    proceeds are to   will be imputed   provision and
Certain   be used to buy    to the farmer.    neither would be
Private   land except if                      bound by the
Activity  land purchase is                    prior history of
Bonds     for the use of a                    the other.
for Land  "first-time
Acquisit  farmer." First-
ion       time farmer must
(private  have never
activity  previously owned
first-    a farm and must
time      not have
farmer)   received over
          $250,000 in
          financing.

7.        Self-employed     Taxpayer can      None              If unmarried,
Section   taxpayer can      deduct costs of                     taxpayer cannot
162(l)(1  deduct up to 30   health insurance                    deduct costs of
):        percent of        for spouse and                      medical
Special   health insurance  dependents.                         insurance of
Rules     costs.                                                another person
for                                                             who is not a
Health                                                          dependent.
Insuranc
e Cost
of Self-
Employed
Individu
als
(self-
employed
health
insuranc
e)

8.        Taxpayer can      Taxpayer bound    Two unrelated     None
Section   elect to deduct   by deduction      taxpayers who
263A(e)(  costs of certain  elected by        are not married
2):       plants used on    spouse.           to each other
Exceptio  farm.                               would not be
n to                                          affected by this
Capitali                                      provision, and
zation                                        neither would be
Requirem                                      bound by the
ents for                                      prior deductions
Farming                                       elected by the
Business                                      other.
es (farm
deductio
n)

9.        No deduction is   Married           Two unrelated     None
Section   allowed for loss  taxpayers cannot  taxpayers who
267:      from sale or      deduct losses     are not married
Losses,   exchange of       from              to each other
Expenses  property between  transactions      can deduct
and       "related          between spouses.  losses from a
Interest  parties."                           sale of property
with      Related parties                     between them.
Respect   includes spouse.
to
Transact
ions
between
Related
Parties
(related
party
losses)

10.       For purposes of   Ownership of      Two unrelated     None
Section   certain           stock by the      taxpayers who
318:      corporate         taxpayer's        are not married
Construc  distributions     spouse will be    to each other
tive      and adjustments,  imputed to the    would not be
Ownershi  the taxpayer      taxpayer.         affected by this
p of      will be                             provision, and
Stock     considered to                       ownership of
(corpora  own stock owned                     stock by one
te        by members of                       would not be
ownershi  the taxpayer's                      attributed to
p in      family.                             the other.
distribu
tions);
also
sections
302, 304

11.       Gain from the     Ownership of      Two unrelated     None
Section   sale, exchange,   stock by the      taxpayers who
341:      or distribution   taxpayer's        are not married
Collapsi  of a collapsible  spouse will be    to each other
ble       corporation is    imputed to the    would not be
Corporat  ordinary income.  taxpayer.         affected by this
ions                                          provision, and
                                              ownership of
                                              stock by one
                                              would not be
                                              attributed to
                                              the other.

12.       Stock options or  For the purpose   Two unrelated     None
Section   employee stock    of the            taxpayers who
424(d):   purchase plans    limitation on     are not married
Attribut  provided to       the tax-free      to each other
ion of    employee are not  provision,        would not be
Stock     immediately       ownership of      affected by this
Ownershi  taxable to the    stock by the      provision, and
p         employee unless   taxpayer's        ownership of
(employe  the employee      spouse will be    stock by one
e stock   owns certain      imputed to the    would not be
options)  amount of the     taxpayer.         attributed to
; also    company's stock.                    the other.
sections
422, 423

13.       An additional     For the purposes  Two unrelated     None
Section   tax will be       of the number of  taxpayers who
544:      imposed on        shareholders,     are not married
Stock     certain           ownership of      to each other
Ownershi  undistributed     stock by the      would not be
p in      income in a       taxpayer's        affected by this
Personal  personal holding  spouse will be    provision, and
Holding   company. To be a  imputed to the    ownership of
Companie  "personal         taxpayer.         stock by one
s         holding company"                    would not be
(persona  there must be                       attributed to
l         five or fewer                       the other.
holding   shareholders and
companie  60 percent of
s); also  the company's
sections  income must be
542, 543  specified types
          of income.

14.       Independent       The oil and gas   Two unrelated     None
Section   producers and     holdings of the   taxpayers who
613(A)(c  royalty owners    taxpayer, the     are not married
):        are allowed to    taxpayer's        to each other
Exemptio  use the           spouse, and       would not be
n of      percentage        other members of  affected by this
Percenta  depletion method  the taxpayer's    provision, and
ge        to account for    family are        holdings of one
Depletio  dwindling oil     treated as if     would not be
n         and gas           held by one       attributed to
Limitati  reserves.         taxpayer.         the other.
on for    However,
Independ  percentage
ent       depletion is
Producer  limited to a
s and     production of
Royalty   1,000 barrels
Owners    per day.
of Oil
and Gas
Wells
(percent
age
depletio
n)

15.       Trust income      A grantor/        Two unrelated     None
Section   will be income    taxpayer's        taxpayers who
672:      to the grantor    spouse is         are not married
Related   to the extent     presumed to be a  to each other
or        that the grantor  "subordinate      would not be
Subordin  has power to      party" to the     affected by this
ate       control the use   grantor, and not  provision, and
Party to  of the trust      an independent    one taxpayer
Grantor   assets. If power  trustee for       could act as
of Trust  over the trust    control of the    independent
(trust    is exercised by   trust assets.     trustee for the
income);  an independent    The grantor is    other.
also      trustee, the      also treated as
sections  grantor will not  holding any
674,      be treated as     power or
675, 677  the owner.        interest of the
                            grantor's
                            spouse.

16.       An interest in    Taxpayer/         Sale of           None
Section   partnership       seller's family   partnership
704(e):   purchased by one  includes spouse,  interest between
Partner'  member of a       ancestors, and    two unrelated
s         family from       lineal            taxpayers not
Distribu  another is        descendants.      married to each
tive      treated as a                        other would not
Share of  gift from the                       be considered a
Family    seller and the                      gift.
Partners  fair market
hip       value of the
(family   purchased
partners  interest will be
hip)      considered
          donated capital.

17.       A taxpayer        The housing       None              If unmarried,
Section   living abroad     expenses                            taxpayer could
911:      can elect to      excluded from                       not include
Citizens  exclude from      gross income                        housing expenses
or        gross income a    include those                       of another
Resident  certain amount    paid or incurred                    person into
s of the  related to the    for the                             housing cost
U.S.      costs of foreign  taxpayer's                          exclusion.
Living    housing.          spouse and
Abroad                      dependents.
(foreign
housing
allowanc
e)

18.       A taxpayer with   To the extent     Between an        None
Section   offsetting        that the          unmarried
1092:     investment        taxpayer's        couple, the
Straddle  positions         spouse holds an   assets of one
s         ("straddles")     investment        taxpayer would
          cannot recognize  position that     not be
          loss on these     offsets that of   attributed to
          investments       the taxpayer,     the other.
          until the gain    the spouse's
          is realized.      investment
                            position will be
                            attributed to
                            the taxpayer.

19.       Tax treatment of  For purposes of   If a couple is    None
Section   gain or loss      gain and loss on  not married to
1233:     from short sale   short sales,      each other, the
Gains     of property       investments of    assets of one
and       depends upon      either spouse     taxpayer will
Losses    whether the       are attributed    not be
from      property used to  to the other      attributed to
Short     close the sale    spouse.           the other.
Sales     was a capital
(short    asset.
sales)

20.       Sale or exchange  Any transfer of   If taxpayers      None
Section   of a patent is    a patent between  unmarried to
1235:     considered sale   husband and wife  each other
Sale or   of a long-term    will not be       engage in sale
Exchange  capital asset,    considered sale   of patent, the
of        unless transfer   of a long-term    sale will be
Patents   is between        capital asset.    considered that
(patents  related parties.                    of a long-term
)                                             capital asset.

21.       Gain from sale    Gains on sale     Two unrelated     None
Section   of depreciable    between husband   taxpayers who
1239:     property between  and wife of       are not married
Gain      related parties   depreciable       to each other
from      is considered     property is       can treat gains
Sale of   ordinary income.  treated as        on sale of
Deprecia                    ordinary income.  property between
ble                                           them as capital
Property                                      gains.
between
Certain
Related
Taxpayer
s
(related
party
gains)

22.       Gain or loss      The interest of   Two taxpayers     None
Section   from contracts    a spouse who      who are not
1256(e):  deemed section    actively          married to each
Mark to   1256 contracts    participates in   other would not
Market    shall be treated  management will   be affected by
Not to    as 40 percent     not be treated    this provision.
Apply to  short-term gain   as held by a
Hedging   or loss and 60    limited partner
Transact  percent long-     or limited
ions      term gain or      entrepreneur.
(hedging  loss.
transact
ions)

23..      Discount on       In considering    None              Married persons
Section   issuance of       the personal                        can make loans
1272:     certain bond or   loan exception,                     between one
Current   other debt        husband and wife                    another without
Inclusio  instrument must   are treated as                      tax
n in      be included in    one person.                         consequences.
Income    income as it
of        accrues (it is
Original  considered a
Issue     form of
Discount  interest).
(origina  However, this
l income  will not apply
discount  if it is a loan
)         between two
          people, neither
          in business to
          make loans, and
          the loan is less
          than $10,000.

24.       To qualify as an  For the purposes  None              If both spouses
Section   "S" corporation,  of counting                         own S
1361: S   a business        shareholders,                       corporation,
Corporat  cannot have more  husband and wife                    only one will
ion       than 35           are treated as                      count toward
Defined   shareholders.     one person.                         limit on number
                                                                of S corporation
                                                                owners.

25.       Taxpayer has      For the purpose   Two unrelated     None
Section   certain limits    of determining    taxpayers who
1563:     on multiple tax   whether entity    are not married
Controll  benefits if       is controlled     to each other
ed Group  associated with   group             would not be
Corporat  certain           corporation,      affected by this
ion       controlled        spouse's stock    provision, and
          corporations.     holdings are      assets of one
                            attributed to     would not be
                            the taxpayer.     attributed to
                                              the other.

26.       If below-market   Husband and wife  None              Married persons
Section   interest rate on  are treated as                      can make loans
7872:     loan, IRS can     one person.                         between one
Treatmen  impute interest                                       another without
t of      income to the                                         tax
Loans     lender and                                            consequences.
with      interest expense
Below-    to the borrower.
Market
Interest
Rates
(below-
market
loans)
--------------------------------------------------------------------------------
Source:  GAO's analysis of IRC provisions. 


NUMBER OF TAXPAYERS FILING UNDER
CERTAIN PROVISIONS CITED IN THIS
REPORT
=========================================================== Appendix V

We compiled, from data in IRS' 1992 Individual Public Use Tax File
for Statistics of Income, table V.1 showing the number of taxpayers
who filed under various provisions described elsewhere in this
report.  The provisions included in this table are only those
provisions for which such information is available in IRS' public tax
file.\10 In addition to the number of taxpayers filing under each
provision, by filing status, we have also included (in the last
column) a cross-reference to the table where the provision has been
described in this report. 



                                    Table V.1
                     
                       Numbers of Taxpayers Filing in 1992
                     Under Specific Provisions Cited in This
                                Report (Millions)

In
co
me
ta
x                                                                    Cross-
pr                                              Single       Single  reference
ov                   Married      Married    taxpayers    taxpayers  to table
is                 taxpayers    taxpayers       filing    filing as  where
io          All       filing       filing  individuall      head of  provision
n     taxpayers      jointly   separately            y    household  described
--  -----------  -----------  -----------  -----------  -----------  -----------
Se       113.60        48.02         2.46        48.58        14.45  Table I.2
 c                                                                    (1)
 t
 i
 o
 n
 1
 :
 f
 i
 l
 i
 n
 g
 s
 t
 a
 t
 u
 s
 o
 f
 t
 a
 x
 p
 a
 y
 e
 r
 s
Se       104.31        48.02         2.44        39.30        14.54  Table III.2
 c                                                                    (1)
 t
 i
 o
 n
 1
 5
 1
 :
 p
 e
 r
 s
 o
 n
 a
 l
 e
 x
 e
 m
 p
 t
 i
 o
 n
Se        80.07        25.15         1.53        40.92        12.47  Table I.2
 c                                                                    (5)
 t
 i
 o
 n
 6
 3
 :
 s
 t
 a
 n
 d
 a
 r
 d
 d
 e
 d
 u
 c
 t
 i
 o
 n
Se        26.98        20.00         0.62         4.65         1.71  Table II.2
 c                                                                    (7)
 t
 i
 o
 n
 1
 6
 3
 (
 h
 )
 (
 3
 )
 :
 h
 o
 m
 e
 m
 o
 r
 t
 g
 a
 g
 e
 i
 n
 t
 e
 r
 e
 s
 t
 d
 e
 d
 u
 c
 t
 i
 o
 n
Se        23.31        10.02         0.40         9.40         3.50  Table III.2
 c                                                                    (9)
 t
 i
 o
 n
 6
 0
 9
 6
 :
 p
 r
 e
 s
 i
 d
 e
 n
 t
 i
 a
 l
 c
 a
 m
 p
 a
 i
 g
 n
Se        14.10         4.93          not         0.36         8.81  Table II.2
 c                             applicable                             (2)
 t
 i
 o
 n
 3
 2
 :
 e
 a
 r
 n
 e
 d
 i
 n
 c
 o
 m
 e
 c
 r
 e
 d
 i
 t
Se        12.78         7.47         0.15         4.80         0.35  Table II.2
 c                                                                    (15)
 t
 i
 o
 n
 6
 6
 5
 4
 :
 e
 s
 t
 i
 m
 a
 t
 e
 d
 t
 a
 x
 p
 a
 y
 m
 e
 n
 t
 s
Se        12.24         8.42         0.22         2.94         0.66  Table III.2
 c                                                                    (8)
 t
 i
 o
 n
 6
 0
 1
 7
 :
 s
 e
 l
 f
 -
 e
 m
 p
 l
 o
 y
 m
 e
 n
 t
 t
 a
 x
Se        10.78         6.35         0.12         3.98         0.34  Table I.2
 c                                                                    (6)
 t
 i
 o
 n
 8
 6
 :
 s
 o
 c
 i
 a
 l
 s
 e
 c
 u
 r
 i
 t
 y
 b
 e
 n
 e
 f
 i
 t
 s
Se         6.40         4.32         0.06         0.06         1.96  Table II.2
 c                                                                    (1 and 6)
 t
 i
 o
 n
 2
 1
 :
 c
 h
 i
 l
 d
 -
 c
 a
 r
 e
 c
 r
 e
 d
 i
 t
 (
 p
 l
 u
 s
 s
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 c
 t
 i
 o
 n
 1
 2
 9
 d
 e
 p
 e
 n
 d
 e
 n
 t
 c
 a
 r
 e
 )
Se         5.51         3.50         0.11          1.5         0.39  Table III.2
 c                                                                    (4)
 t
 i
 o
 n
 2
 1
 3
 :
 m
 e
 d
 i
 c
 a
 l
 e
 x
 p
 e
 n
 s
 e
 s
Se     (a) 4.44     (a) 2.80     (a) 0.06     (a) 1.41     (a) 0.17  Table II.2
 c     (b) 2.08     (b) 1.39     (b) none     (b) 0.62     (b) 0.07   (14)
 t
 i
 o
 n
 1
 2
 1
 1
 :
 n
 e
 t
 c
 a
 p
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 t
 a
 l
 l
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 (
 a
 )
 t
 o
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 l
 (
 b
 )
 w
 i
 t
 h
 l
 o
 s
 s
 e
 s
 >
 $
 3
 ,
 0
 0
 0
Se         3.66         2.59         0.05         0.87         0.14  Table II.2
 c                                                                    (11)
 t
 i
 o
 n
 4
 6
 9
 :
 p
 a
 s
 s
 i
 v
 e
 l
 o
 s
 s
 l
 i
 m
 i
 t
 s
Se         3.34         2.92         0.04         0.31         0.07  Table II.2
 c                                                                    (4)
 t
 i
 o
 n
 6
 8
 :
 l
 i
 m
 i
 t
 a
 t
 i
 o
 n
 o
 n
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 t
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 m
 i
 z
 e
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 d
 e
 d
 u
 c
 t
 i
 o
 n
Se         1.68         1.26         0.06         0.31         0.04  Table I.2
 c                                                                    (8)
 t
 i
 o
 n
 1
 5
 1
 (
 d
 )
 (
 3
 )
 :
 r
 e
 d
 u
 c
 t
 i
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 n
 o
 f
 p
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 r
 s
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 n
 a
 l
 e
 x
 e
 m
 p
 t
 i
 o
 n
Se         0.29         0.19         0.02         0.07         0.01  Table I.2
 c                                                                    (4)
 t
 i
 o
 n
 5
 5
 :
 a
 l
 t
 e
 r
 n
 a
 t
 i
 v
 e
 m
 i
 n
 i
 m
 u
 m
 t
 a
 x
Se         0.25         0.21        <0.01         0.04        <0.01  Table I.2
 c                                                                    (3)
 t
 i
 o
 n
 3
 8
 :
 g
 e
 n
 e
 r
 a
 l
 b
 u
 s
 i
 n
 e
 s
 s
 c
 r
 e
 d
 i
 t
Se         0.24         0.06         none         0.16         0.02  Table I.2
 c                                                                    (2)
 t
 i
 o
 n
 2
 2
 :
 e
 l
 d
 e
 r
 l
 y
 t
 a
 x
 c
 r
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 d
 i
 t
Se         0.14         0.11        <0.01         0.02        <0.01  Table IV.1
 c                                                                    (2)
 t
 i
 o
 n
 4
 2
 :
 l
 o
 w
 -
 i
 n
 c
 o
 m
 e
 h
 o
 u
 s
 i
 n
 g
 c
 r
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 d
 i
 t
Se         0.12         0.08        <0.01         0.02         0.01  Table III.2
 c                                                                    (2)
 t
 i
 o
 n
 1
 6
 5
 :
 n
 e
 t
 c
 a
 s
 u
 a
 l
 t
 y
 l
 o
 s
 s
Se         0.01         0.01        <0.01        <0.01        <0.01  Table III.2
 c                                                                    (3)
 t
 i
 o
 n
 1
 7
 2
 :
 p
 e
 r
 s
 o
 n
 a
 l
 n
 e
 t
 o
 p
 e
 r
 a
 t
 i
 n
 g
 l
 o
 s
 s
--------------------------------------------------------------------------------
Source:  GAO analysis of IRS data. 


--------------------
\10 For many provisions listed in this report, information on how
many taxpayers filed under the provision was not available in IRS'
public file.  For some provisions, such as section 135 on interest on
U.S.  savings bonds used for education, information is reported by
the taxpayer but not available in IRS' public file.  For other
provisions, such as section 267 on related party losses, the taxpayer
does not report any information on the application of the provision. 


SUMMARY OF MAJOR PROPOSALS TO
CHANGE CURRENT TREATMENT OF
MARRIED AND SINGLE TAXPAYERS
========================================================== Appendix VI

Over the years there have been various proposals to change the tax
treatment of married couples and single people.  These proposals
include:  (1) mandatory separate filing by married couples using the
same rate schedule as single taxpayers; (2) optional separate filing
by married couples using the same rate schedule as single taxpayers;
(3) tax deduction or credit for two- earner couples; (4) allowing
single people to use the joint rate schedule; and (5) flattening the
rate structure.  These proposals all adjust, to some extent, the
current balance among the principles of progressive tax rates, equal
taxation of families with equal incomes, and marriage neutrality.  We
describe each of these proposals below. 

(1) Mandatory separate filing by married couples using the same rate
schedule as single taxpayers.  This proposal would require all
married taxpayers to file as single individuals, with one rate
schedule for all taxpayers.  In effect, this change would reinstate
the tax system in place before 1948, and would impose different tax
burdens on families with the same income.  To address the problems of
the different tax burdens in community property and common law
states, rules would have to be set up to allocate income and
deductions.  Mandatory separate filing would eliminate the marriage
penalties and bonuses in the current rate schedule.  However, if the
allocation rules for income and deductions were different for married
and single people, new penalties and bonuses could be created. 

(2) Optional separate filing by married couples using the same rate
schedule as single taxpayers.  As an alternative to mandatory
separate filing, married couples could be allowed the option to file
either under the joint rate schedule or the single rate schedule. 
(Currently, married couples can file separately, but the amount of
taxable income at which the tax rates increase is much lower for such
couples than for single individuals.) As with the first proposal,
this would result in different tax burdens for families with the same
income and there would need to be rules for allocation of income and
deductions between spouses.  Unlike the first proposal, though, there
would be a certain revenue loss because only those married couples
with tax decreases would be likely to file as single individuals. 

(3) Tax deduction or credit for two-earner couples.  Another proposal
would continue the existing system of joint returns, but would
provide some relief to two-earner married couples through a deduction
(or credit) equal to a percentage of the earned income of the spouse
with the lesser amount of earnings.  While this proposal would not
make the system "marriage neutral," it would reduce the amount of the
marriage penalty to two-earner couples.  A tax deduction was allowed
for two-earner couples between 1982 and 1986; this deduction was
repealed by the Tax Reform Act of 1986.  As enacted, this deduction
provided lower taxes to all two-earner couples, not just those
previously subject to a marriage penalty.  Thus, although this
reduced the marriage penalty for many couples, it also created
marriage bonuses for other couples. 

(4) Single taxpayers file under the joint rate schedule.  A fourth
proposal would allow single people to use the joint rate schedule. 
In effect, this would lower the tax rates for single people.  This
proposal would not lead to a system that would be "marriage neutral"
and would, in fact, tend to increase the marriage penalty for
two-earner couples.  To be feasible, this proposal would need to be
supplemented by other relief for two- earner couples, such as the tax
deduction or credit described above. 

(5) Flattening the rate structure.  The final proposal would flatten
the rate structure for all categories of taxpayers.  By itself, this
proposal would reduce the progressivity of the tax code.  However, in
doing so, it would decrease the number of tax brackets, thereby
minimizing the effects of combining income on joint returns.  When
the Tax Reform Act of 1986 repealed the two-earner deduction, it also
flattened the rate structure to reduce the marriage penalty to
two-earner couples. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Ralph Block, Assistant Director, Tax Policy and Administration Issues
Nancy Peters, Evaluator-in-Charge
Cliff Tuck, Senior Economist

SAN FRANCISCO/SEATTLE FIELD OFFICE

Sam Scrutchins, Evaluator

*** End of document. ***