Law & Public Policy Blog

Joint Filing and Tax Reform

Hope Kildea, Law & Public Policy Scholar, JD Anticipated May 2019

With the passage of the 2017 Tax Cuts and Jobs Act (TCJA), the federal legislature grappled with changes to some fundamental aspects of our tax system. Talks of eliminating deductions for charitable contributions, medical expenses, and student loan interest put into question the values reflected in our tax code. One area of our tax structure that was not addressed through the TCJA was filing status. The Internal Revenue Code recognizes five filing statuses: single, head of household, married filing jointly, married filing separately, and qualifying widow or widower. When married taxpayers file jointly, the Internal Revenue Code recognizes them as a single unit and pools their income. A taxpayer’s filing status, together with her taxable income, determines her tax liability for a given year.

A guiding principle behind our current tax structure is the idea that similarly situated taxpayers should be taxed the same way, a concept known as horizontal equity. Under the current tax system, many taxpayers experience a penalty or bonus when they get married. Spouses who earn comparable incomes are likely to experience a marriage penalty, meaning their combined income is taxed at a higher rate than their individual incomes would have been taxed if they were unmarried and filing separately. Married couples with one taxpayer earning most or all of their household income are likely to experience a marriage bonus. The spouse earning the majority of the income would have been taxed at a higher rate when filing as a single person than when she files jointly with her spouse.

This system is intended to treat married couples with the same joint income equally, regardless of how that income is distributed between spouses. As a result, married and unmarried couples with similar incomes are treated differently. The decision to create separate filing statuses for married couples reflects a choice to prioritize horizontal equity amongst married couples over equity between married and single taxpayers. Perhaps it is time to reconsider this decision.

By prioritizing equity amongst married couples, the Internal Revenue Code penalizes married couples with the least ability to pay. Married couples where one spouse earns all of the household income benefit most from joint filing, as they are most likely to experience a tax bonus after marrying. These couples also benefit from the domestic labor that a spouse who is not working outside the home is able to provide. Because these domestic services have value, they are considered imputed income for those who do not have to pay others to provide them, such as couples with two spouses working outside the home. For example, childcare is a non-deductible expense for spouses with two working parents. Married couples with one spouse who can look after their children full-time benefit from not having to pay taxes on the value of that child care, in addition to the benefits they enjoy from the marriage bonus. While on its face, joint filing seems to treat married couples equally, the Internal Revenue Code disadvantages couples with two working spouses by ignoring other factors that affect a couple’s ability to pay taxes.

Joint filing perpetuates gender inequality in households where both spouses work. By imposing a marriage penalty on couples with a second income earner and not taxing the imputed income enjoyed by couples with a single income earner, joint filing incentivizes the creation of family units with a single income-earning spouse. In heterosexual marriages, women are more likely to stay home to perform domestic labor than their male spouses. By relying on an outdated model of an ideal family unit—a heterosexual breadwinner-homemaker nuclear family—joint filing creates barriers for many women who would like to work outside the home.

Regardless of its effects, joint filing raises the question of whether a tax system should concern itself with marital status at all. “Married filing jointly” status is based on a perspective of married couples as a single unit. Although married couples have been able to include separate incomes on a single return as far back as 1913, the Internal Revenue Code did not adopt a joint filing status until 1948. At that time, the concept of marriage was limited to heterosexual couples, and women were not popularly recognized as autonomous beings with individual income earning capabilities. This perspective is now out of step with current understandings of marriage. In a time when both spouses in a marriage are seen as individual actors with income-earning abilities, is there really any reason to treat them as a single unit? While married couples may very well decide to pool their income, this decision is a personal one. Such personal decisions, such as whether to marry and how to share income, should be up to individuals and not result in tax rewards or penalties.

Under a system of mandatory individual filing, taxpayers are taxed separately, without regard to their marital status. Such a system would restore horizontal equity amongst married couples as well as between married and unmarried couples. By eliminating joint filing, couples would no longer experience a tax bonus or penalty upon marriage. Likewise, the tax liability of married couples would more accurately reflect their ability to pay. By ignoring marital status, the Internal Revenue Code could eliminate government interference in inherently personal choices, such as the decision to marry or share income with a partner. Mandatory individual filing would also promote simplicity in our tax system by eliminating the need for separate tax brackets for married couples.

Considering the role of House and Senate Republicans in the recent efforts towards tax reform, it is unsurprising that the TCJA did not consider a change to the tax code’s treatment of marital status. As an institution, marriage has historically been defined in the U.S. by conservative ideals. Changes to the government’s treatment of marriage are unlikely to come from Republican members of Congress. Rather than eliminating the tax consequences of marriage, the TCJA furthers existing disparities in the tax code’s treatment of married versus unmarried couples. By creating narrower tax brackets and eliminating the personal exemption, the TCJA promotes marriage incentives for all but the highest income earning couples.

The tax code is more than a system of collecting revenue. It is a reflection of our country’s values. Our tax system contains incentives and penalties based on our expectations of how people should act. With the passage of the TCJA, I think it’s time we asked ourselves: how should our social values shape the tax consequences of marriage? Is marriage as an institution still the cornerstone of our social and personal lives? Should we continue to treat it as such? The passage of the TCJA will not be the end of tax reform. Moving forward, our country will need to consider how our tax system values marriage.