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OCR Page 1 of 705/22/98
17:45
202 6220605
TAX POLICY
I
002
Senator Gramm's Marriage Penalty Proposal
Proposal
The proposal would give a deduction of $3,450 (in 1999) to married couples filing a-joint return
who have combined incomes below $50,000. The deduction would be available to all such
couples, whether or not they itemized deductions (i.e., the deduction would be "above-the-line").
Since couples in this income range are in the 15 percent bracket, the deduction is worth $518.
The deduction also reduces income for purposes of the phaseout of the Earned Income Tax
Credit (EITC), which implies that married couples with children and incomes in the phaseout
range of the EITC will get a larger credit. Those with incomes lower than the phaseout range
(roughly $12,500) are held harmless.
Pros
The provision is pretty straightforward.
It is quite progressive, since only couples with income below $50,000 would benefit.
It would extend the EITC to additional low-income working families, and increase the
EITC for many current recipients.
Cons
It costs roughly $10 billion per year. This would crowd out a considerable portion of the
proposed expenditures in the McCain tobacco bill.
The proposal has little to do with marriage penalties (other than the fact that its giving a
significant tax cut only to married taxpayers).
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For example, a one-earner childless couple with $50,000 of income already has a
marriage bonus of over $3,000; the proposal would simply increase this bonus. The
marriage penalty for a childless two-earner couple, each with $25,000 of income, is
only about $200; the proposal would more than eliminate this penalty.
Given the magnitudes of marriage penalties and bonuses for married couples with
incomes under $50,000, the proposal sharply increases (in aggregate) the marriage
bonuses these already taxpayers receive.
Preliminary calculations suggest it would cost $10.6 billion in 1999 and $9.7 billion in
2003, but then because of "round down" rules, the cost would increase. Thus, the proposal
would cost roughly $10 billion per year.
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