Taxation and Marriage: A Reappraisal

Abstract:     
An income tax cannot simultaneously maintain progressive marginal tax rates, an equal tax burden for all married couples with identical incomes ("couples equity"), and neutrality with respect to the tax burden of married vs. unmarried couples ("marriage neutrality"). Existing treatments of this "trilemma" of marriage taxation argue that marriage neutrality is a more important principle than couples equity or vice-versa and advocate abandonment of the lesser principle. The literature also treats progressivity as inviolate and outside the scope of the trilemma. This paper argues that the prior literature is flawed. The costs of violating the principles of couples equity and marriage neutrality and progressivity are not linear but convex — large violations of any principle are considerably worse than small violations of all. Instead of solving the trilemma by strict adherence to two principles and disregard of the other, the taxation of marriage should violate all of marriage neutrality, couples equity, and progressivity to a lesser degree, sharing the burden of the trilemma more broadly.

Number of Pages in PDF File: 37

Keywords: Taxation, Marriage, Marriage Penalty, Progressivity

JEL Classification: H00, H2

working papers series