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Abstract:
Wealthy taxpayers have always attempted to reduce their federal income taxes. Before 1948, one popular method was to shift income between spouses so that more of a husband’s income could be reported by, and taxed to, his lower-income, and thus lower tax bracket, wife. In 1948 Congress removed married couples’ incentive to engage in this tax avoidance behavior by adding nationalized income-splitting to the joint return. This effectively gave those filing joint returns tax brackets that were twice as wide as those of single taxpayers, and, as a result, married couples with a single or primary income-earner paid relatively less income tax than their single counterparts. Today there is debate over returning to an individual-based income tax system, similar to that which operated before 1948. Evaluating that proposal, this paper first explores the development of the income-splitting joint return to evaluate the potential costs and consequences of a return to an individual system. Individual-filing incentivized avoidance behavior, reducing the progressiveness of the income tax while giving tax advantages to those who engaged in tax-planning and an increased relative tax burden to those who did not. Second, the paper considers the prospect of the Internal Revenue Service reining in a renewal of this type of tax avoidance today. Returning to a system of individual filing will increase complexity in the tax code and add incentives and opportunities for tax avoidance at a time when the IRS is already struggling under the burden of non-compliance. Finally, in case practical concerns are not persuasive enough, this paper examines how best to evaluate married couples’ ability to pay taxes on a theoretical basis. Calculations on a unitary basis, it contends, remain more accurate for comparing married taxpayers to other taxpayers and it is that comparison, between couples as opposed to within couples, which reflects relative abilities to pay. As a result of these considerations, this paper concludes that joint filing remains the best filing unit.

income tax, marriage penalty, tax avoidance

Abstract:
This manuscript examines the development of the federal income tax within the United States fiscal system from the founding of the nation through World War I. The study reveals that, although the tax had become a permanent feature of the tax system by World War I, congressional debates had focused primarily on whether there should be an income tax as opposed to how it should or would operate in practice. This paper argues that the technical aspects of this tax received surprisingly little congressional attention because when the tax was originally passed it was a marginal revenue measure. Laden with rhetorical and political value, the modern federal income tax became law without receiving serious practical scrutiny from Congress. Instead, the statute was passed because it had been made familiar by 50 years of congressional debate, almost all of it theoretical. The development of the early United States income tax reveals a path that initially marginal policies may take to prominence. When a particular revenue measure becomes closely associated with a particular political movement or policy agenda, congressional debate is likely to focus on the merits of the movement or agenda rather than on the mechanical aspects of the law itself.

Abstract:
Stephanie Hunter McMahon analyzes the governance of the U.S. Virgin Islands from 1917 through 1936 to assess the relative value of economic and social factors in territorial governance. A review of key decision-makers' financial and political concerns reveals that the U.S. accepted responsibility for the islanders' economic welfare but not their civic well-being. Recognizing the depth of the islanders' financial distress, McMahon contends that the U.S. extended political rights to the territory's inhabitants, not out of democratic obligation, but in the hope of decreasing the burden the islands placed on the federal treasury. Thus, economic considerations largely dictated legislative decisions.

Abstract:
This essay analyzes the forces that led five common law states to adopt community property regimes between 1939 and 1947. Focusing on Oklahoma, the first state to switch, this article traces these laws from initial proposals through their repeal after Congress enacted nationalized income-splitting in 1948. Earlier studies have focused on the impact of these laws, primarily on wives as secondary earners within families, and not on their development. From the various political and social forces precipitating this trend, this study explores the actual reasons states adopted these regimes and shows that an economic goal, namely reducing married couples' federal income taxes, drove state legislatures. Thus, while examining state legislative processes, this paper shows the goal of federal tax reduction led to changes in an entirely separate area of state law. This analysis also provides a new perspective on the American federal system, illustrating the complex and reciprocal relationship between state and federal laws and incentives. While initially states altered their domestic laws to give their residents a benefit under the federal tax code, using the federal system to win benefits for their residents vis-a-vis those of other states, these state-law changes ultimately induced the federal government to adopt a uniform national policy on income-splitting.