The voices of Tax Policy Center's researchers and staff
Any day now, the Supreme Court will rule on whether same-sex married couples have the right to file joint federal tax returns. But Yale tax law professor Anne Alstott has me wondering whether the entire debate over the tax consequences of the Defense of Marriage Act is missing the point. In an upcoming paper for Yale’s Tax Law Review, she argues that it makes little sense to tie the Revenue Code so closely to formal marriage when so many people are in very different family relationships than they were even 40 years ago.
As Alstott notes, nearly half of American adults are now unmarried, 40 percent of children are born to unmarried parents, and labor force participation among married women is now very close to that of married men (thanks to the always-helpful Paul Caron at TaxProf blog for tipping me off to her paper). Ozzie and Harriet have been in reruns for half-a-century. So why even bother with the concept of joint tax filing?
Alstott borrows from Johns Hopkins University sociologist Andrew Cherlin, who calls the trend away from formal marriage “new individualism.” This, she says, “has rendered obsolete legal doctrines and policy analyses that treat formal marriage as a proxy for family life….Joint filing is no longer well-tailored to serve important social objectives.”
And, she adds, this argument applies whether one is a liberal who embraces the new individualism or a conservative who is offended by it.
Reframing the tax treatment of families in this way will help solve some problems and create some new ones. And Alstott isn’t so much arguing for a specific alternative to joint filing as urging tax wonks to consider the law in the context of social change.
While marriage may be sacred to many, there is nothing consecrated about joint filing. Only one-third of major developed countries use the mechanism. Besides, as my Tax Policy Center colleague Bob Williams has described, it doesn’t even necessarily reward marriage. For most households (typically where one spouse earns substantially more than the other) married couples enjoy a tax bonus. However, where the spouses earn roughly the same amount a couple could end up paying a penalty for tying the knot.
Congress created joint filing in 1948 in an attempt to solve a number of problems, including one where couples could game the law by artificially splitting reported income in a way that minimized their taxes.
Today’s system still struggles to resolve what lawyers and economists describe as a trilemma: The income tax cannot simultaneously maintain progressive rates, impose equal taxes on all couples earning the same amount, and be neutral between married and unmarried taxpayers. Something has to give.
But, Alstott argues, these concerns become less important if the tax code gets past the concept of marriage. In that environment, Congress could simply restore a system of individual filing for all combined with rules aimed at preventing gaming, such as sham transfers of assets from one spouse to another. With the right anti-abuse rules in place, the law need not bother distinguishing between couples who are formally married and those who are not.
Alternatively, Alstott says Congress could allow couples to file combined returns, whether they are married or not.
In response to those anxious to preserve traditional marriage, she even suggests a package of refundable tax credits to encourage early marriage, discourage divorce, or even help subsidized stay-at-home moms. But none of these require joint filing either.
Alstott goes a bit far when she says joint filing (as well as the spousal benefit in Social Security) tracks a social reality that ‘no longer exists.” After all, more than half of all adults are married and the trend line away from marriage has flattened somewhat in recent years. And who knows, perhaps like martinis, marriage will make a comeback.
But her paper makes a provocative and important argument. As we consider tax reform, we should not ignore how the Revenue Code applies in an environment of rapidly changing social norms. Isn’t that, after all, what the DOMA controversy is all about?