April 11,2000

Roth Urges Relief from Marriage Tax Penalty

WASHINGTON -- Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) today urged support for a tax cut that would bring tax relief to millions of American families. Roth delivered the following statement on the floor of the Senate:

"Mr. President, I rise to discuss the centerpiece of our efforts to reduce the tax overpayment by America's families. The Marriage Tax Relief Act of 2000 delivers savings to virtually every married couple in America. And it does so within the context of fiscal discipline and preserving the Social Security surplus.

"The importance of this measure cannot be overstated. According to the most recent CBO estimates, in 1999, 43 percent of married couples -- about 22 million couples -- faced the marriage tax penalty. The average penalty was $1,480 per couple, and this was levied on individuals who are already overburdened with expenses -- the costs associated with buying homes, paying for education, raising children, and building financial security for retirement.

"It isn't fair, Mr. President. It isn't fair that when two individuals marry their combined tax liability becomes greater than if they had remained single and continued to pay taxes at their single rate. But unfortunately, this has been the case -- to one degree or another -- for more than 30 years.

"And now, Mr. President, it's time for a change!

"It's time to restore equity -- to bring balance and fairness into the tax equation for these married couples. This, of course, is not as simple as it might appear. Our tax system has tried to balance three disparate goals -- progressivity, equal treatment of married couples, and marriage neutrality. And it is impossible to achieve all three principles at the same time.

"The principle of progressivity holds that taxpayers with higher incomes should pay a higher percentage of their income in taxes. The principle of equal treatment of married couples holds that households with the same amount of income should pay the same level of tax. And the principle of marriage neutrality holds that a couple's income tax bill should not depend on their marital status. The tax code should neither provide an incentive nor a disincentive for two people to get married.

"Our policy response differs depending on how we balance these different principles. For instance, if we want to ensure that when two singles get married their total tax bill will not rise -- but we do not mind if two married couples with the same overall income level are treated differently, then we arrive at one result. However, if we want to make sure that two singles who marry do not face increased taxes -- and we want to make sure that two married couples with the same income level are treated evenly -- then we arrive at a different result.

"Last year, the Senate position in the Taxpayer Relief Act of 1999 embraced the first policy result. We focused on the difference between what two spouses would pay in taxes if they were single versus what they would pay in taxes if they were married. In order to fully address that problem, we developed a system whereby a married couple would have an option. The couple could continue to file a joint return using the existing schedule of married filing jointly. Or the couple could choose to file a joint return using the separate schedules for single taxpayers. It was straightforward, and it was universal -- we did not try to impose arbitrary income limits to cut off the relief.

"As I said last year, this approach had a lot of good things about it. Most importantly, I liked the way that it basically eliminated the marriage penalty for all taxpayers who suffered from it. It delivered relief to those in the lowest brackets as well as to those in the highest brackets. It also delivered relief to those who itemized their deductions as well as those who took the standard deduction.

"Nevertheless, I did not propose -- or support -- the separate filing plan this year. As the Chairman of the Finance Committee, I am responsible for developing tax policy in a rational manner. I am also responsible for working with members of my Committee and of the full Senate.

"After listening to my colleagues' views on marriage tax relief, I came to the conclusion that the best approach at this time is to build on the foundation that Congress has already approved. Last year, in the conference report of the Taxpayer Relief Act of 1999, the Congress adopted three components of marriage penalty relief. These include an expansion of the standard deduction for married couples filing jointly; a widening of the tax brackets; and an increase in the income phase-outs for the earned income credit. A different part of the bill also addressed the minimum tax issue. This year, the House passed a marriage penalty tax bill that included the first three components.

"And the Finance Committee bill, the Marriage Tax Relief Act of 2000, has built on this foundation. Under current law, for the year 2000, the standard deduction for a single taxpayer is $4,400. The standard deduction for a married couple filing a joint return is $7,350. That means that for couples who use a standard deduction -- and those are generally low and middle income couples -- they are losing $1,450 in extra deductions each year. At a 28% tax rate, that lost deduction translates into an extra tax liability of $406 each and every year.

"The Finance Committee bill increases the standard deduction for married couples so that it is twice the of the standard deduction for singles. And we do that immediately, for the 2001 tax year. When fully effective, this provision provides tax relief to approximately 25 million couples filing joint returns, including more than 6 million returns filed by senior citizens.

"Increasing the standard deduction also has the added benefit of simplifying the tax code. Approximately 3 million couples who currently itemize their deductions will realize the simplification benefits of using the standard deduction.

"Second, the Marriage Tax Relief Act of 2000 addresses the cause of the greatest dollar amount of the marriage tax penalty -- the structure of the rate brackets. Under current law, the 15% rate bracket for single filers ends at taxable income of $26,250. The 15% rate bracket for married couples filing jointly ends with taxable income of $43,850, which you can see is less than the sum of two times the single rate bracket. In practical terms, that means that when two individuals who each earn $30,000 get married and file a joint tax return, $8,650 of their income is taxed at the 28% rate rather than at the 15% rate that the income would have been subject to if they had remained single. The extra tax liability for that couple each year comes out to $1,125.

"The Finance Committee bill remedies that fundamental unfairness. The bill adjusts the end point of the 15% rate bracket for married couples so that it is twice the sum of the end point of the bracket for single filers. Recognizing that the rate structure hurts married couples in the higher brackets, the bill also adjusts the end points of the 28% rate bracket as well.

"When fully effective, and we make that happen a year earlier than the House, this provision will provide tax relief to approximately 21 million couples filing joint returns, including more than 4 million returns filed by senior citizens.

"Third, the Marriage Tax Relief Act of 2000 addresses the biggest source of the marriage tax penalty for low income, working families -- the earned income credit. This complicated credit is determined by using a schedule for the number of qualifying children, and then multiplying the credit rate by the taxpayer's earned income up to a certain amount. The credit is phased out above certain income levels. What that means is that two people who are each receiving the earned income credit as singles may lose all or some of their credit when they get married.

"In order to address that problem, the Finance Committee bill increases the beginning and ending points of the income levels of the phase-out of the credit for married couples filing a joint return. For a couple with two or more qualifying children, this could mean as much as $526 in extra credit. This provision would also expand the number of married couples who would be eligible for the credit. It will help over one million families.

"Finally, the Marriage Tax Relief Act of 2000 tries to make sure that families can continue to receive the family tax credits that Congress has enacted over the past several years. Each year, an increasing number of American families are finding that their family tax credits -- such as the child credit and the Hope Scholarship education credit -- are being cut back or eliminated because of the alternative minimum tax. Last year, Congress made a small down-payment on this problem, temporarily carving out these family tax credits from the minimum tax calculations. This year, we are building on that bipartisan approach, by permanently extending the preservation of the family tax credits.

"Because of this provision, millions of taxpayers will no longer face the burden of calculating the alternative minimum tax.

"In making the changes that I have just described -- whether it is the change in the rate brackets or the change in the earned income credit -- we have tried to meet an important objective. That goal, which I talked about earlier, is to treat all married couples with the same amount of income equally. It is a principle that is ignored by using a combined return with separate schedules or by using a second earner deduction. With the Senate Finance Committee bill, we do not create a new, so-called "homemaker penalty." Our bill ensures that simply because a family has only one wage earner, it is not treated any differently than a family where both spouses work. Many people have argued that tax policy should not discourage one parent from staying at home and raising the family. It is a laudable goal and one that I support.

"How much does this marriage tax penalty relief help? It helps a lot. Over forty million families will get marriage tax relief under this legislation. In my state of Delaware, over 100,000 families will benefit. Every family earning over $10,000 per year will see their tax bill fall at least one percent -- except those at high income levels. The key to this legislation is that it helps the middle class. Sixty percent of this bill's tax relief goes to those families making $100,000 or less.

"Who are these people? They're two married civil engineers, or a pharmacist who is married to a school teacher. They're the policeman and his wife who runs a small gift shop in Dover. They are the firefighter who is married to a social worker, or a librarian who is married to an accountant. These are the families who will benefit.

"And they will benefit even more, as you examine the impact this tax relief will have over time. Consider the effect if these tax savings were put away for their children's education and retirement. If a couple with two children making just $30,000 took their tax savings from this bill and put it into an education savings account like the one recently passed by the Senate, they would have $40,000 for those children's college education. Based on the stock market's historical rate of return, that's $40,000 if they did not set aside another penny! If the family was that of two elementary school teachers with two children and earning average salaries of $70,000 combined, they would have $65,000 after 18 years.

"If those two married school teachers then started to put their tax savings from this bill into a Roth IRA after 18 years, this same couple would have $224,100 when they retired 27 years later.

"By transforming these tax savings into personal savings, we see that these real tax savings translate into real opportunities for these families.

"And consider the effect on the economy. According to an analysis by the Heritage Foundation, when fully phased-in this marriage tax penalty relief legislation will result in 820,000 additional jobs. It will increase the personal savings rate by three-tenths of a percent, which in turn will lower interest rates. It also increase investment by $20 billion and gross domestic product by $54 billion. So not only do married families gain, not only do their children gain, but the entire country gains. They gain more jobs, better jobs, and higher wages because of this marriage tax relief legislation.

"Mr. President, the marriage tax relief legislation I bring to the floor today amounts to just five percent of the total budget surplus over the next five years. It amounts to just 17.6 percent of the non-Social Security surplus over the next five years. It amounts to just 42 percent of the new spending provided for in this year's budget over the next five years. Finally, it amounts to less than half of the tax cut that has been allotted to the Finance Committee for tax cuts over the next five years in this year's budget. By any comparison or estimation, this marriage tax penalty relief is fiscally responsible.

"This bill does all these things for America's working families while preserving every cent of Social Security's surplus. These tax cuts do not have to pit America's families against America's seniors. Nor does it extend a tax cut in a fiscally irresponsible manner. These tax cuts fit in this year's budget, along with the other Republican priorities that we have already passed for education, health care, and small businesses. Our priorities add up to what's good for America, and our numbers add up to what's fiscally responsible.

"It is time we divorce the marriage penalty from the tax code once and for all. I urge all my colleagues to support the Marriage Tax Relief Act of 2000."