The Government Is Sexist And Nobody Seems To Care

Out of curiosity, I surveyed five of my married friends to answer two questions: 1) Did you pay more or less in taxes after you got married, and 2) How much more or less did you pay?  The answers I got were concerning.  They all responded they paid more and by a magnitude of $3,000 to $25,000!

It’s just not true that the “marriage penalty tax” no longer exists.  The IRS just renamed it the “love me long time tax.”

I’m by no means a personal income tax expert.  All I’m doing is highlighting facts from people around me, and proposing the likely reasons as to why their taxes went up.  Our income tax system is so darn confusing, hopefully someone can shed some light on the situation!

TWO QUESTIONS TO THINK ABOUT AND UNDERSTAND

1) Why Don’t Tax Bracket Levels Double When People Marry?

The reason is because the government believes men and women are NOT equal, hence why the tax brackets for married filers do not double.  To prove my point, let’s say Johnny made $500,000 a year (35% tax bracket) and marries Susie who also makes $500,000 a year.   As a single filer with no deductions, Johnny pays an effective Federal Tax rate of 29% or $148,000 in taxes (gulp).  As a married filer, their effective tax rate jumps to over 32%, thereby paying roughly $20,000 more in taxes.  How is that fair?

Solution: Double the 35% tax threshold from $380,000 for individuals to $760,000 for couples.  That’s equality!

2) Why Can’t Both Individuals Have A Deductible Mortgage?

Furthermore, let’s say Johnny has a $1,000,000 mortgage on his condo in San Francisco, while Susie also has a $1,000,000 mortgage on her house in Palo Alto.  They both have a 6% mortgage interest rate and pay $60,000 a year in mortgage interest, saving them $25,000 in taxes ($60,000 X their marginal tax rate of 35% = $25K not taking into account phase outs).

Both Susie and Johnny save a combined $50,000 in taxes if they were single because of their mortgage interest deductions, yet if they marry, they lose $25,000! How so you ask?  The current limit for mortgage indebtedness for single and married filers is $1,000,000.   When Susie and Johnny get married, they have a combined $2 million mortgage, but they can only write off interest on half!

Solution: Raise the amount of mortgage indebedtness for interest deduction to $2,000,000 from $1,000,000 for married couples.  Equality!

CONCLUSION

The government is essentially telling Susie and Johnny that one of them doesn’t deserve to make the money they do.  Have your own place with a mortgage?  Forget about it.   The government thinks one partner will give up his or her job and house, so that the other partner will provide for everything!

The government is targeting independent women because when politicians drew up their archaic tax laws they assumed men would be the primary breadwinners.  What if the man wants to be the homemaker?  The government is telling women and men to not marry, for if we do, one should stop working or work less to take care of the kids.  Who’s to say we’re going to have kids anyway?  It would be nice to one day “love you long time” and not have to pay extra for anything!

Readers, is the reason why more people aren’t up in arms with government sexism because not many people make enough to get negatively effected?  If so, does that make government sexism right?

Why doesn’t the government recognize there are successful, highly paid women who also want to get married as well?

What is your experience with your tax liability after marriage?  Have you ever considered not getting married due to an increased tax liability?

* A good follow up article from Smartmoney arguing why it’s best for one spouse NOT to work.

Regards,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamura and subscribe to our RSS or E-mail feed.

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Geek says

    @Kevin@OutOfYourRut
    Maybe not a new one, but keeping an old one around is pretty easy. It’s not like a lot of people are going to be subject to it in a disadvantageous way, so its largely ignored.

    I can’t imagine us seeing this law disappear…

    1. You each have to earn 68k or so before this comes into effect. (or one person earns 100 and another earns the rest. Whatever).
    What % of the population earns more than 134k per household?… maybe 10%? 15?
    http://en.wikipedia.org/wiki/Household_income_in_the_United_States
    2. You have to be married in the eyes of the federal govt (I live in Washington :) no state tax)
    Thus Same Sex couples aren’t subject to it, so another 10% of the population escapes
    3. You have to earn roughly equal amounts. If one person outearns another by a LOT there’s still an advantage to getting married. Likewise households with 1 earner. How many 2-CEO households are out there?
    No idea on % here.. maybe half?

    So 90% of 10%, and then perhaps half of that.
    I don’t see this law disappearing !

  2. Mike Hunt says

    I agree with Kevin above.

    The tax law penalizes two high earners who are married. There is no sexism here, if the woman makes big bucks and the man stays at home then it’s the same result as the man making big bucks and the wife staying at home.

    I make $260K a year and the wife doesn’t work, filing married jointly is a great deal for us!

    I tell my wife that with the effort required making $260K a year, I need her support to help me back at home- it’s a good deal all around and I’d gladly switch places when she lands a similar job.

    If you can’t change the system, learn to work around it!

    -Mike

  3. DH says

    Yes, this marriage penalty for high-income earners really pisses me off and is the reason why I didn’t formally get married. We already pay a disproportional amount of the nation’s taxes. The government needs to fix this, but won’t.

  4. George says

    If my wife had a $500k annual income, then I wouldn’t bother working…

    We waited until the marriage penalty went away before getting married on Sep 11, 2001. (the date was set in advance and I’m not going to let any selfish terrorists screw up a good thing!). Normal people (rather than the upper 2% of income earners) do not need to be hit with the marriage penalty.

    I’m contemplating a strategic divorce should the marriage penalty be reinstated for us normal people. The marriage penalty just doesn’t foster a family atmosphere.

    • says

      George, but let me ask you, should married people, no matter what the income be treated THE SAME as any other married couple?

      You have to ask yourself WHY the government isn’t making 1+1 = 2, and instead 1+1=1 as in the case with the mortgage deduction. It’s important for people to be aware of the government’s action to discriminate against women and men.

  5. says

    very interesting discussion. as a CPA that charitably does tax returns for all tom, dicks and harry’s in my family, i agree that the intent is to benefit the average married couple. average is the key word here – so think average household income in the USA. moreover, the conventional thinking that one individual works as the breadwinner while the other takes care of raising kids and cleaning the bathrooms at home has carried over in modern day tax law. for higher earning families, the tax code certainly works the other way around and provides no incentive to grow financially. the same goes for a single unmarried individual.

    • says

      Why does there have to ONE breadwinner is my question? That is an outdated way of thinking by us and the government who implement these tax policies.

      Why can’t there be two equally successful, career oriented men and women? That’s equality.

      • says

        There totally can be FS, and the tax burden also moves in direct correlation with that. The code does carry over with it older wisdom, and the justification seems to be to tax entities based on total income generated much like companies. Consider a family business where the husband, wife and 3 kids all work at the family restaurant. All generate money as one entity and live under the same roof. Because of our tax laws, each pays the proportion of tax levied to them, whether they file individually or as a joint family / business.

        Going back to the original discussion – yes, the Government taxes a married couple more (assuming they are both working and making good money), just like it would tax an individual or an entity on a progressive basis. Because there are synergies/savings derived from certain activities (i.e. living under one roof, cooking on one stove vs two), the tax effect is not directly proportional. The analysis really should be to compare the savings a married couple is able to keep vs. the incremental tax burden. This, compared to what would have been the case had the couple not married will yield more concrete and objective results. One will find that the results vary greatly depending on specific individual situations, and therefore it is difficult to make a general claim one way or another regarding how the tax code impacts individuals and families.

        • says

          All I know is that if two successful people who make much more than $250,000 a year get married, they are punished by the government b/c the government considers only one can be the main breadwinner. That’s not right and yet more people aren’t up in arms about this simply b/c not many people make $250K+.

          Which also means many people don’t shoot for the stars.

  6. says

    I think the government is more desperate than sexist…..at least by a little. There are fewer and fewer people contributing and at the same time less and less traditional “nuclear” families. Meanwhile debt keeps expanding. I read the other day on CNN that 1 in 7 Americans collects food stamps. Looks like its time to revamp a lot of different things in the U.S.
    Really interesting topic, I enjoyed reading it and everyone’s topics.

  7. says

    I realize the government is made up of people that may be like you and me, but I think it is a huge leap that there is any thought behind the income tax legislation other than generating income for the government. Too many lobbyists and other vested interests have made legislation illogical at best. My approach is seeking the best tax advice and do what I can to reduce the tax bite.

  8. says

    Isn’t the government racist as well? I believe in Canada that incomes are split so marriage or common-law is an advantage, but as I haven’t been in that situation myself I’m not sure.

    Get rid of the mortgage subsidy, btw, and you’ll end that problem. ;)

  9. says

    No, I don’t think the government is sexist, if anything it goes out of its way to promote the “equality” gender-less philosophy that is the order of the day.

    However, it certainly is not pro-marriage, since it considers any relationship to be of equal merit – which I don’t agree with. But then, that is all part of the aforementioned equality philosophy that it is so enamoured of.

  10. K from OC says

    I am a high income earner with a medium for California mortgage. I am single. When I think about getting married, I have two options: (1) marrying a guy with a small income so I get more deductions (which really isn’t all that attractive to me because I would effectively be making less money) and (2) marrying a guy with an income equal to or greater than mine (which results in higher taxes and phaseouts of deductions (I’ve conducted my own independent research on this which corroborates yours). I’ve thought about the possibility of instead of getting married, entering into a partnership agreement that effectively functions like a prenup, spells out child raising duties, and determines how assets are to be divided upon dissolution. California law does not provide for common law marriage so this could be an effective solution to the problem. I, for one, won’t take that BLEEP from our government.

  11. Claire says

    Context: my husband and I are NOT high earners, and we got married a little over a year ago.
    Our first year filing taxes, we did pay slightly more in taxes than we had previously paid individually, but we’re talking just a few hundred dollars. (The two biggest sources were that he lost his health insurance deduction as an independent contractor when he married me and became “eligible” for my work’s insurance even though he never went on my insurance, and we had to both itemize when previously he had benefited from the standard).

    This year, we are going to end up paying way less than either of us did previously simply because marriage in our case has meant dramatically reduced per-person expenses, which means dramatically increased per-person retirement savings, which means lower taxes. It’s actually kind of crazy: I have never felt this rich, but I have also never paid such a low percentage of my actual income in taxes–not even when I was in grad school living on a 15K stipend. All that to say, I think this is why tax rates for married people look bad on paper: there is a real financial benefit to marriage that they are trying to reflect in the policy. I have no complaints about my taxes as a married person.

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