Obama's Higher Taxes Hit Working Wives
Amanda’s thinking of getting married. Why would President Obama, who won 56% of the women’s vote and supposedly ended pay discrimination by signing the Lily Ledbetter Fair Pay Act, want to make it more difficult?
Amanda is marrying Henry, who owns an electrical supply store and has taxable income of $160,000. Amanda’s taxable income as a nurse is $50,000. Unmarried, he is in the 28% bracket and she is in the 25% bracket. When they get married, they will be taxed at 33%—rising to 36% in 2011 if Mr. Obama’s proposed tax hikes take effect.
By raising taxes on upper-income Americans, Mr. Obama would worsen our tax system's marriage penalty on two-earner married couples, and Amanda and Henry would pay even more tax married than single.
In Mr. Obama’s new budget for 2010, he outlined plans to allow the top two tax rates to rise from 33% to 36% and from 35% to 39.6% in 2011. In addition, taxpayers in these brackets would not receive the full value of their itemized deductions, further exacerbating the fiscal disadvantages of marriage for some couples.
Taxes would rise for singles with taxable income over $172,000 and married couples over $209,000. Even if Amanda and Henry weren’t immediately affected by higher rates, those rates might well hit them when they earn more.
Unless, of course, Amanda and Henry decide to have children, and Amanda left the workforce to care for them. Say that Amanda’s taxable income rose to $60,000, so she and Henry had a combined income of $220,000, placing them in Mr. Obama’s new 36% bracket. But with Amanda at home looking after the children, their federal tax rate would be 28%.
And federal taxes aren’t the whole story. State taxes would take another 9% of Henry and Amanda’s income in states such as Oregon, Vermont and Iowa; Medicare takes another 1.45%; and Social Security taxes add another 6.2% up to $107,000.
Our tax system shouldn’t make it harder for women to work. The penalty falls most heavily on married women who have invested in education, hoping to shatter glass ceilings and compete with men for managerial jobs, and the Obama plan would exacerbate the penalty.
When mothers take jobs, earnings are reduced by taxes paid at their husbands’ higher rates, in addition to costs for childcare and her transportation. This discourages married women not just from working, but also from striving for promotions, from pursuing upwardly-mobile careers.
Mothers are more affected by the marriage penalty than other women because they are more likely to move out of the labor force to look after newborn children and toddlers, and then to return to work when their children are in school.
It doesn’t have to be this way. Men and women could be taxed on their income separately, as is the case in Britain. Since 1990, British married couples have been taxed independently, with deductions and allowances split between them.
It’s a revolutionary idea. A married woman has her own tax return, with only her income, deductions, and capital gains. She pays her own tax and has tax refunds returned to her. If she makes mistakes, she pays her own penalties.
One disadvantage is that with separate filing and taxation, spouses who are the sole household earner might pay at higher rates than they do now filing jointly. Alternatively, politicians could choose a flatter structure of taxes, so that couples don’t face higher rates upon marriage.
Yet, rather than proposing changes that help women, Mr. Obama’s new budget will make matters worse. His tax proposals would discourage the Amandas and Henrys of our country from getting married. When married, it would discourage Amanda and other educated women from working. When working, it would give Uncle Sam a bigger bite out of Amanda's future income as it rises.
Labor Department data show that as average number of earners per household rise, so do income levels. One characteristic of the highest-earning one-fifth of households is that they have an average of two earners per household. The middle fifth averages 1.4 earners per household, and the lowest-earning fifth averages half an earner per household—more part-time and unemployed workers, or retirees.
Therefore, when workers marry, more households move into the top fifth of the income distribution. When Mr. Obama tries to raise taxes on top earners then working women are disproportionately affected, even if, like Amanda, they don’t earn a lot by themselves.
For Mr. Obama to announce that he is raising taxes on those at the top end of the scale is an explicit attack on married working women, those who voted for him by a substantial majority. There has to be a better way.