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Women and Taxes: getting out of the 1950s and call for reform
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Taxes are on everyone’s mind this time of year. The general belief is that married couples can benefit from increase allowable deductions, however recently I’ve come across some information that shows otherwise.
I read an interesting study by Edward McCaffery by the National Center for Policy Analysis about the high disconnect between the way women participate in the economy and how we are taxed. I was surprised to learn that the major elements of the tax system were put in place in the 1930s, 1940s and 1950s, when most women, certainly most mothers, were not in the workforce.
Today 70 percent of all married women work for wages
60 percent of mothers with children under the age of 6 work for wages.
Yet, the tax laws are biased toward single-earner households in which only one spouse works and biased against two-earner households.
Cafferty states that the "marriage penalty" in the tax code is tax on two earner households. When a wife enters the labor market, even if she earns only the minimum wage, she is automatically in her husband’s tax bracket. Moreover, even if her husband has paid the maximum Social Security tax, the wife who works must begin paying from the first dollar she earns.
“Combine a 28 percent federal income tax with an 8.5 percent state and local income tax, then add a 7.65 percent Social Security (FICA) payroll tax, and the marginal tax rate of the second earner in the average household is more than 44 percent. Some married working women actually lose money by entering the labor market.
These marriage penalties hit at the top and the bottom of the income ladder. It hits those at the top particularly hard because high-income earners are in the top tax brackets. “
McCaffery found that :
If you are middle- to upper-income and married, the incentive is not to work.
If you are low-income and working, the incentive is not to marry.
He states that the following reforms should happen to bring our tax system into the 21st century:
Change the income tax law to permit each married partner to file separately and avoid unfair penalties for working wives.
Allow a second-earner exemption which would let couples deduct work-related expenses associated with two earner households when calculating income taxes.
Perhaps it is time for reform and it is time to reconnect with the american household in the 2009.
For more information: Email ZZEITOUNI@GMAIL.COM or call 866-285-9828
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