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View Diary: Actual Fiscal Curb Deal #'s - or - Why the angst re: $400K/$450K when the CED rates are ~600% worse? (33 comments)

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  •  Marriage (10+ / 0-)

    The marriage penalty stuff is actually pretty easy to understand.

    In order to facilitate a household with unequal earnings or in which one person does not work, there is a married filing jointly tax rate.  The brackets, thresholds, standard deduction, etc. were  traditionally set at around 1 2/3 the level of filing as a single person.  This makes a lot of sense if we're trying to facilitate that sort of household; moreover, two people living together can easily end up need less money than living separately, so it makes sense if you're trying to take into account people's needs for disposable income.  There is also a method of married-filing-separately, but it has some of the same pattern and isn't eligible for some of the credits and deductions that filing jointly is, so it is/was pretty bad for most people.

    The problem is that setting up brackets this way penalizes families where both spouses are working in relatively equal jobs, since they pay more taxes than they would if they were both single.  The Bush cuts in the early 2000s did away with this "penalty" for the lower income brackets: the standard deduction is double that of singles, as are the tops of the 10 and 15 percent brackets.  Starting at the top of the 25% bracket, however, the gap narrows.  For 2013, the top of the 25% bracket for singles is about $88k, while for MFJ it's about 146k.  The top of the 28% bracket is about $50k apart, and by the time you're going to move from 33 to 39.6, you're even.  So there is still a "marriage penalty," but it doesn't apply to those with middle class incomes.  If you've got two high earning spouses, however, they still do take a hit.

    •  Thanks for the explanation (2+ / 0-)
      Recommended by:
      Lujane, Aspe4

      I figured it was something meant for the middle class like that, and thus fair to call it a neutral item.

      It is quite interesting how that goes away for the upper income brackets, though, so there's obviously a pretty huge marriage penalty for two wage earners both earning $400K.

      •  Marriage penalty worse at $200K/$250K for some (0+ / 0-)

        If rates had been raised at $200K/$250K thresholds, two wage earning spouses each earning over $125K would have flipped  into the highest bracket on the next dollar of income and that would have affected a larger number of two worker couples.  Both spouses also pay the maximum social security tax so that would be a pretty high combined tax rate.   At $400k/$450K there may still be a marriage penalty for a few couples where both have a high salary, but the social security tax is a lower percentage of overall income.

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