As Marriage Changes, Should Joint Filing Go The Way of Ozzie And Harriet?

By :: June 11th, 2013

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?

11Comments

  1. ND  ::  4:28 pm on June 11th, 2013:

    Prof. Alstott’s paper is interesting.

    We already provide substantial funded and unfunded subsidies to sole breadwinners and stay-at-home parents through the tax and benefits code. We do this through the income tax, in the economic fiction of joint earnings by married couples, and we do it in Social Security (with the 150% or more benefit to sole breadwinners) and in Medicare (where only one set of taxes is collected but two sets of benefits are drawn).

    One suggestion I would make is that it is important to distinguish between (a) patriarchal relationships (sole breadwinner/stay-at-home parent) and (b) egalitarian relationships (2-earner/2-parent). The latter subsidizes the former in our current federal tax and benefits system; singles also subsidize (a). Also, because there is no capital/property-earner tax to support the progressive benefits in Social Security, this problem gets compounded.

    I agree that we need to get rid of the fiction of joint earnings. I would frame the problem as one of getting rid of externalities of family structure choices. If you choose patriarchal marriage, you should pay higher taxes to show that you draw 2 sets of benefits in Social Security, Medicare.

    I think a case can also be made that patriarchal parental relationships impose costs on children, in their development, in the high risk of divorce and costs of family breakdown, that then get borne by the child and/or externalized to other families and/or pushed forward in the form of excessive government debt. Internalizing these costs to the family structure choice, rather than letting people avoid them, would really help the U.S. in many ways.

    Our current method of taxing and benefitting patriarchal marriage/relationships vis-a-vis egalitarian (2-earner/2-parent) marriage/relationships is a classic “moral hazard” problem.

  2. ND  ::  5:34 pm on June 11th, 2013:

    Of course, I am oversimplifying things by stating the choice as 2-earner/2-parent v. nonparent earner/nonearner parent. There is also intermediate ground, of 2-earner/1-parent, for example. There are externalities to this choice which can also be internalized, for example, by adding a “use-it-or-lose it” FMLA paid benefit on birth/adoption of a child. People who have children who then chose not to function as parents would forfeit their benefit, which would increase the money going to those who do use it.

  3. ND  ::  5:37 pm on June 11th, 2013:

    But, again, if parental leave benefits are going to be progressive (you get more paid benefit the lower your income and taxes you pay), there needs to be a capital/property-earner tax to support it or this will backfire into more problems.

  4. AMTbuff  ::  6:36 pm on June 11th, 2013:

    Alstott underestimates the difficulty of conformance with the reality of community property laws. In those states it’s a fact that each spouse owns half the earnings of the other spouse. Absent a change in state law, income splitting is accurate no matter what federal law says.

    I give credit to Alstott for squarely addressing the community issue. Most authors who advocate single filing sweep this issue under the rug.

    I believe that individual filing would require a formal constitutional amendment allowing the federal government to disregard state laws on who owns whose earnings. Given how far the country has gone toward central government, it might be time for another amendment abolishing state governments as no longer worth their cost.

  5. Vivian Darkbloom  ::  2:59 am on June 12th, 2013:

    “I believe that individual filing would require a formal constitutional amendment allowing the federal government to disregard state laws on who owns whose earnings.”

    Which constitutional provision would prohibit the federal government from amending the Code to disregard community property laws for purposes of taxing earnings? Substantive due process? It appears to me that the federal government could do so, at least as regards income from employment and self-employment. Taxing investment income is a much more difficult practical problem but that is one that is already faced today with persons who have close enough personal relationships to shift income from one to the other, subject only to the constraints of the gift tax (not currently an issue for married couples who do not live in community property states).

    Poe v. Seaborn, 282 U.S. 101 (1930) held that the federal government should respect state community property law; however, the decision was based on the wording of the Code and not on any constitutional provision.

  6. Leslie  ::  1:24 pm on June 12th, 2013:

    What “fanciful” musings on perpetuating bigotry.

    DOMA falls at the end of the month and some people want to guarantee gay couples will never get equal benefits.

  7. Secondary Sources: House Prices, Joint Tax Filing, Yield Curve – Real Time Economics – WSJ  ::  3:24 pm on June 12th, 2013:

    […] –Joint Tax Filinh: Howard Gleckman wonders whether joint tax filing’s time has passed. “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.” […]

  8. Dan  ::  1:42 am on June 14th, 2013:

    Such a controversial and touchy topic, but one that must be discussed no matter how uncomfortable it is. I see both sides of the argument and share some of the feelings and opinions with both sides. I guess that’s fine since I have no say, so I’ll just sit back and see how it plays out like everyone else :-)

  9. Rethinking The DOMA Tax Debate | WEAKONOMICS  ::  9:54 am on June 14th, 2013:

    […] As Marriage Changes, Should Joint Filing Go The Way of Ozzie And Harriet? (Tax […]

  10. Michael Bindner  ::  11:58 pm on June 25th, 2013:

    The federal tax issue in the case regarding DOMA was about inheritance taxes, not income taxes. Indeed, tax reform should prevent most families from even having to file income taxes at all, with a small rate for those above what would be a very high threshold and a large rate for those making half a million dollars a year. The main issue in DOMA, of course, is not taxation at all but human dignity and a law that is clearly at odds with Article IV of the Constitution which mandates reciprocity of state actions (including marriage). It also violates the equal protection rights of gay people to get married (although that issue may be dealt with in the Proposition 8 case – either tomorrow or as it is nationalized by state by state lawsuits citing the Perry findings).

  11. Katie  ::  6:54 pm on August 22nd, 2014:

    Joint filing is detrimental for women in financially controlling marriages. In many households tax filing is now done through software, and the party who takes charge is the male. The husband has all the information of the wives earnings. He prepares the tax as joint, he can digitally sign for both, and can direct the refund to his bank. The IRS does not insist on getting the bank information of both spouses. Refund grabbing by the husband is common, in this manner in non-community states. In community states income belongs to the couple and is held jointly, so filing jointly can make sense.