Paul L. Caron

Tuesday, November 16, 2021

Back To The Future: Marriage And Divorce Under The 2017 Tax Act

Mark W. Cochran (St. Mary's), Back to the Future: Marriage and Divorce under the 2017 Tax Act, 51 St. Mary's L.J. 1 (2019):

The Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act) significantly altered the federal tax consequences of marriage and divorce by mostly eliminating the so-called "marriage penalty" from the individual income tax rates and abolishing the deduction for alimony payments. These changes represent the latest congressional tinkering with issues that have persisted since the earliest days of the modem income tax, turning back the clock with regard to taxation for both married and divorced couples. For the first time, since the enactment of the Tax Reform Act of 1969, the rate brackets for married taxpayers filing joint returns are twice as wide as the brackets applicable to unmarried taxpayers. For the first time since 1942, alimony payments are not deductible by the payor and not includable in the recipient's gross income.6 The significance of these changes can best be appreciated by examining their historical context, and this article will undertake that examination

Under a progressive rate income tax that prioritizes couples equality the notion that married couples with equal amounts of combined income should pay the same amount of tax-a choice must be made between marriage bonuses, marriage penalties, or some combination of both. Congress settled on a middle course almost fifty years ago after two decades
of a system tilted heavily toward marriage bonuses (and singles penalties). Although this middle course might be preferable from a policy standpoint, it has proven to be politically unsustainable. Congress has been chipping away at marriage penalties and increasing marriage bonuses virtually since the penalties first appeared.

The Tax Cuts and Jobs Act of 2017 represents the latest step in a progression away from marriage penalties and toward marriage bonuses and singles penalties, at least as far as the basic rate structure is concerned. It seems Congress replaced the solicitude showed to unmarried taxpayers in 1969 with a desire to reward one-earner married couples. Two-earner couples without children are spared rate-based marriage penalties, but single taxpayers who would be eligible for Head of Household status face a potential tax penalty if they marry. As under prior law, taxpayers eligible for the Earned Income Credit will be subject to potential marriage penalties. All else being equal, it seems particularly perverse to penalize low-income single parents for marrying. 

After 2018, taxpayers who enjoy a marriage bonus will face a penalty if they divorce. Historically, this "divorce penalty" has been mitigated by the deduction for alimony payments, which facilitated the splitting of taxable income between former spouses. Given that this regime has been in place for seventy-five years and has been functioning relatively smoothly since it's major overhaul more than thirty years ago, its abrupt repeal is difficult to justify. The lack of legislative hearings on the issue is troubling, and in the absence of such hearings, it is hard to avoid the conclusion that Congress simply resolved to generate additional revenue by punishing taxpayers whose marriages end in divorce.

At the most superficial level, rewarding marriage and punishing divorce might appear to be desirable objectives, particularly if one has socially conservative leanings (although it remains curious that Heads of Household and Earned Income Credit recipients are punished for marrying). Even if one agrees with the notion of the federal government encouraging marriage and discouraging divorce, however, doing so through the tax code is problematic. Empirical studies suggest that the behavioral effect of such incentives is minimal,"' and as Professor Zelenak points out, couples who choose living arrangements that are contrary to the tax incentives suffer results that can be "grossly unfair."

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