Senate Begins Debate to Repeal the Marriage Tax Penalty
WASHINGTON -- Senate Finance Committee Chairman William V. Roth, Jr., (R-DE) today led the floor debate on S. 2839, the Marriage Tax Penalty Reconciliation Act, which was passed out of the Senate Finance Committee on July 5, 2000, by a vote of 10-5. Roth delivered the following statement on the floor of the Senate:
"Mr. President, a little more than 3 months ago, I stood in this chamber to introduce the Marriage Tax Relief Act of 2000. At that time, I described that bill 'as the centerpiece of our efforts to reduce the tax overpayment by America's families.' That is as it should be because families are the centerpiece of American society.
"Three months ago, I urged my colleagues to support the Marriage Tax Relief Act because it 'delivered savings to virtually every married couple in America -- and it did so within the context of fiscal discipline and preserving the Social Security surplus.' And that too, is as it should be, because if we act irresponsibly we are not giving relief to America's families, but grief to America's children.
"In the three months since I last spoke on this topic, we have discovered that American families' tax overpayment is even larger and our relief even more appropriate than we had imagined then.
"Well, Mr. President, despite the enormous benefits that the Marriage Tax Relief Act of 2000 would have brought to American families, we could never get the other side to agree to a procedure that would limit debate to relevant amendments. The Majority Leader's offer to limit debate to marriage tax issues was rejected and cloture votes failed. The Senate moved on to other business.
"But even as the Senate took up other important issues, we remained committed to delivering tax relief to America's families. We knew that the American people would not be satisfied with us shrugging our shoulders and saying that we tried. We knew that the American people would not be satisfied with us telling them that they'll have to wait for comprehensive marriage tax relief because the other side blocked our first attempt.
"And so we are back today. We have returned with 'The Marriage Tax Relief Reconciliation Act of 2000.' Substantively, this bill is the same as the one that we sought to pass a few months ago. But there is one crucial difference between now and then. Today, we are proceeding under the Budget Act's reconciliation procedure. And that means that no one is going to delay us from passing this bill. We will have an up or down vote. We will see who supports the marriage tax relief in our bill. And we will see who thinks that American families are not entitled to this relief.
"Mr. President, before I describe the specifics of our bill, I want to talk about how we got here. Our tax system has chosen to use the family as the unit for taxation. Unlike some other countries -- where all individuals are taxed separately -- here in the United States, we look to the household. In doing so, our tax system has tried to balance three disparate goals -- progressivity, equal treatment of married couples, and marriage neutrality. And, I will remind my colleagues, 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 holds that two married couples 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 only embraced the first policy result. We focused on what people refer to as the marriage tax penalty -- in other words, 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 developing the specific provision, we took aim only at one particular definition of a marriage tax relief penalty. 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, the separate filing option had a lot of good things about it. Most importantly, I liked the way that the plan 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.
"However we should also remember that last year's approach was part of a larger package of tax relief. We should all remember this point: America's families were going to receive relief from other provisions in that bill. Last year's marriage penalty provision was part of a comprehensive tax bill directed towards American families. Other pieces of the bill -- the cuts in the 15% rate bracket, the expansion of the child care credit -- provided additional benefits to American families. So, the separate filing option should not be viewed in a vacuum; instead, it must be seen as part of a comprehensive tax relief package. In any event, as we all know, none of the pieces of last year's tax cut package -- neither the marriage penalty relief nor anything else -- made it into law. Because President Clinton vetoed that bill, America's families have been denied the tax relief that they deserve.
"This year, Mr. President, I felt that we should take a different approach to marriage tax relief. As the Chairman of the Finance Committee, I am responsible for developing tax policy in a fair and 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 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, Congress adopted three components of marriage penalty relief. These included 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 that bill addressed the minimum tax issue. Earlier this year, the House passed a marriage penalty tax bill that included the first three components.
"And so the Finance Committee bill, the Marriage Tax Relief Reconciliation Act of 2000, uses these same building blocks. This is important -- not just for purposes of building and maintaining consensus -- but for policy reasons as well.
"You see, Mr. President, if we target relief only at the families that suffer a marriage penalty, we begin to violate another of the three principles that I described earlier. Since 1948, our tax system has adhered to the principle of treating all married couples with the same amount of income equally. In other words, each household that earns $80,000 -- regardless of the breakdown of that income -- would pay the same amount of tax. It does not matter whether one spouse earns all $80,000 while the other spouse works at home taking care of the children; and it does not matter whether both spouses work outside the home and earn $40,000 each. Each household with the same amount of income is treated the same for tax purposes.
"As we studied how best to solve the marriage penalty -- to ensure that the tax code does not provide a disincentive to get married -- we realized that it was extremely important to stick to this principle of equal treatment. In solving one penalty, we don't want to be creating a new penalty -- a new disincentive for America's families. We did not think that the tax code should deliver a new, so-called 'homemaker penalty' -- where a family with only one wage earner is treated worse than a family where both spouses work. This is what would happen if we used a separate filing option. 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 strongly support.
"Retention of the equal treatment principle is especially important in a tax bill such as the one we have before us. Unlike last year's tax bill, this one does not include rate cuts or enhanced family tax credits. All America's taxpaying families have contributed to the tax overpayment in Washington today. All these families, therefore, deserve to receive some of the benefits that we are seeking to return to the American people. We should not pick out some married couples over others.
"We should not be picking winners and losers from America's families in some Washington game of musical chairs. And that is what we would do if we left out those families where one spouse works maintaining a home and a family. Under the proposal offered by Democrats in the Finance Committee, over 14 million homemaker families would be left out of tax relief. In my state of Delaware, over 30,000 homemaker families would be left standing at the altar by the Democrats' proposal.
"Now let me take a few minutes and describe the provisions of our bill. First, we enlarge the standard deduction for married couples. 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, in 2001. 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 Reconciliation 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 twice the single rate bracket. In practical terms, that means that when two individuals who each earn taxable income of $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 all married couples, the bill also adjusts the end points of the 28% rate bracket as well.
"When fully effective, 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 Reconciliation 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 almost 4 million families.
"Fourth, the Marriage Tax Relief Reconciliation 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 making minimum tax calculations for the purpose of determining the family tax credits they need.
"Finally, the Committee included a provision to ensure that we complied with the Budget Act. Because we were not allowed to decrease revenues outside of the period covered by the budget resolution -- which is five years -- the bill sunsets all of the provisions in the bill after 2004. It goes without saying that I do not think it is good policy to sunset these tax benefits. They should be permanent and I expect that they will be permanent when this bill is signed into law. Accordingly, I will propose an amendment to strike the sunset. I expect all of my colleagues to join with me in supporting that amendment.
"How much does this marriage tax penalty relief help? It helps a lot. Over forty five 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 fire fighter 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, in 2004 this marriage tax penalty relief legislation will result in additional jobs. It will increase the personal savings rate by three-tenths of a percent, which in turn will lower interest rates. According to estimates done by the economists at the Heritage Foundation, the favorable economic impact of the tax relief would increase overall disposable income by $45 billion in 2004. That means that the average family of four would see an additional $670 in income -- just from the positive economic impact. 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 three percent of the total budget surplus over the next five years. It amounts to just 10 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 just one third 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 stopped playing the politics of division. We do not have to pit one type of family against another type of family or families against seniors to do what is right. It is time we divorce the marriage penalty from the tax code once and for all. For too long, Washington has been an unclaimed dependent in millions of America's families. I urge all my colleagues to support the Marriage Tax Relief Reconciliation Act of 2000."
Description of S. 2839, The Marriage Tax Relief Reconciliation Act of 2000
S. 2839 is identical to S. 2346, the Marriage Tax Relief Act of 2000, except for a modification to satisfy the budget reconciliation rules. The reconciliation bill provides total tax relief to married couples of $56 billion over the next five years.
The bill makes four changes to the tax code:
Standard Deduction: The bill increases the standard deduction for married couples filing jointly to twice the standard deduction for single taxpayers. According to the Joint Committee on Taxation, this provision provides tax relief to approximately 25 million couples filing joint returns. It is effective for taxable years after December 31, 2000.
Increased Brackets: The bill expands, over a six-year period, the 15-percent and 28-percent income tax brackets for married couples filing a joint return to twice the of the corresponding brackets for an individual filing a single return. Fully phased-in, this provision provides relief to 21 million married couples, including 3 million senior citizens.
Earned Income Credit: The bill increases the beginning and the end of the phase-out of the Earned Income Credit for couples filing a joint return. Currently, for a couple with two or more children, the EIC begins phasing out at $12,690 and is eliminated for couples earning more than $31,152. Under this bill, the new range would be $2,500 higher. The maximum increase in the EIC under this provision for an eligible couple is $526. The provision is effective for taxable years after December 31, 2000.
Preserving Family Tax Credits: The bill permanently extends the current temporary exemption from the individual Alternative Minimum Tax (AMT) for family-related tax credits, including the $500 per child tax credit, HOPE and Lifetime Learning credits, and dependent care credit. It is effective for taxable years after December 31, 2000.
A marriage penalty exists when a married couple filing a joint tax return pays higher taxes than if the same couple were not married and filed as individuals. For example, a married couple where both spouses earn $30,000 in 1999 would pay $7,655 in federal income taxes. Two individuals earning $30,000 each but filing single returns would pay only $6,892 combined. The $763 difference in tax liabilities is the marriage penalty.
According to the Congressional Budget Office, almost half of all married couples -- 22 million -- suffered from the marriage penalty last year. The average penalty paid by these couples was $1,500. In the previous example, the marriage penalty was the result of 1) a higher combined standard deduction for two workers filing as singles than for married couples and 2) income tax bracket thresholds for married couples that are less than twice the threshold for single taxpayers. S. 2839 addresses both of these factors.
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