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Irreconcilable Differences?

The Conflict Between Marriage Promotion Initiatives for Cohabiting Couples with Children and Marriage Penalties in Tax and Transfer Programs

Gregory Acs, Elaine Maag

Published: April 26, 2005
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No. B-66 in Series, "New Federalism: National Survey of America's Families"

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report is available in its entirety in the Portable Document Format (PDF).

Encouraging and strengthening marriage continues to move up the nation's social policy agenda—and for good reason. Research consistently shows that married adults are emotionally and physically healthier and economically more secure than unmarried adults (Waite and Gallagher 2000) and that children living with their married parents fare better than children in any other living arrangement on a host of indicators and outcomes (McLanahan and Sandefur 1994).1 The federal government's commitment to promoting healthy marriages can be seen in the Bush administration's proposal to spend $1.5 billion over five years on marriage promotion and enhancement initiatives.2 These initiatives include efforts to strengthen the relationships of currently married couples and to help unwed couples make informed decisions about marriage.

Efforts to encourage and enhance marriage among cohabiting couples with children may be helped or hindered by financial incentives and disincentives embedded in U.S. tax and transfer programs. Indeed, many analysts have pointed out that the taxes couples pay may vary widely depending on their marital status (Feenberg and Rosen 1995; Rosen 1987). For some couples, especially those made up of two low-income workers, their tax bills would be considerably higher if they were married than if they simply lived together. This phenomenon is referred to as the "marriage penalty." While "marriage penalties" have received more attention in the press and halls of Congress, the structure of the tax code also creates significant "marriage bonuses" for other couples. In particular, unmarried partners with very different earning levels may pay less tax if they were to marry.

Research on the prevalence of marriage penalties and bonuses is mixed. Previous studies have analyzed the effect of marriage on tax liability by analyzing prototypical households (Carasso and Steuerle 2002; Lav and Berube 1998) or by dividing currently married households (Dickert-Conlin and Houser 1998; Feenberg and Rosen 1995; Whittington and Alm 1997). These studies find large penalties for some couples and large bonuses for others. But studies based on prototypical households or currently married couples do not provide much insight about the tax consequences of marriage for unwed couples.

This brief focuses on low-income cohabiting couples with children. By cohabiting, these couples have already made some commitment to one another. These couples and their children could both benefit from marriage. This analysis uses nationally representative data on cohabiting couples with children from the 2002 round of the National Survey of America's Families (NSAF) to assess the marriage penalties or bonuses facing these couples. In addition to examining the consequences of current (2003) federal tax laws, this brief assesses the incentives that will be in place in 2008 as the final marriage-related provisions of 2001's tax reform phase in.3 Finally, the brief incorporates potential changes in transfer income received through welfare (specifically, Temporary Assistance for Needy Families, or TANF) in assessing marriage penalties and bonuses for low-income cohabiting couples with children.4

Notes from this section

1. Some apparent advantages of marriage can be attributed to the different characteristics of married and unmarried individuals and families—i.e., "selection effects." Nevertheless, even when pre-existing differences are taken into account, research generally finds persistent benefits to marriage.

2. Robert Pear and David D. Kirkpatrick, "Bush Plans $1.5 Billion Drive for Promotion of Marriage," New York Times, January 14, 2004.

3. Several marriage penalty relief provisions from the 2001 law went into effect earlier than initially legislated with the passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). These provisions are modeled, consistent with JGTRRA.

4. Dickert-Conlin and Houser (1998) analyze the interaction between taxes and welfare (AFDC) for married couples with children and find that the tax system mitigates some marriage penalties inherent in the transfer system.


The authors thank Jennifer Holland for her research assistance and Linda Giannarelli, Paul Johnson, Joyce Morton, and Laura Wheaton for their advice using TRIM3. In addition, we would like to thank Olivia Golden, Kim Rueben, Matthew Stagner, Eugene Steuerle, and Sheila Zedlewski for their thoughtful comments.

Note: This report is available in its entirety in the Portable Document Format (PDF).