The Flaw in Bush's Tax Plan

David Blanenhorn, New York Times, 12/6/1999

...Governor Bush's plan does less than it could for parents because it is based on a philosophy of taxing individuals, not families. As is currently the case with all other legally recognized economic partnerships, married couples should be permitted to share their income for purposes of taxation... This policy, which is called income splitting and was in fact the way couples were taxed for several decades until 1969, would lower the tax burden for all married couples, because it would maximize the amount of family income taxed at lower rates.

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Subjects: Family, Marriage

More by: David Blankenhorn

As part of his recently announced tax plan, George W. Bush is proposing to reduce the marriage penalty, in which two people pay more in taxes after they get married than they did as single adults.

Under his plan, families in which both spouses work could deduct 10 percent of the income- up to $30,000- of the lower-earning spouse. For a typical middle-class couple, that's an unusual benefit of about $300.

It sounds good, but the plan is potentially bad economics and a potential setback to the very values Governor Bush says he is trying to shore up.

First, it is a regressive benefit. In 1996, the median income for households with children under the age of 18 in which both parents worked full time was $62,000. That's $23,000 higher than the annual income of households in which the father worked and the mother was at home. So the Bush proposal ignores lower-income families while delivering a special benefit to more affluent families.

Second, since the credit applies only to families in which both spouses work, it does nothing for those in which one parent would like to leave the work force and care for the children. By shifting a greater share of the tax burden to one-earner couples with children and creating a $300 annual incentive for the second parent to enter the labor force, the Bush proposal would end up reducing the time that some parents spend with their children.

Finally, Governor Bush's plan does less than it could for parents because it is based on a philosophy of taxing individuals, not families. As is currently the case with all other legally recognized economic partnerships, married couples should be permitted to share their income for purposes of taxation. That is, if the father earns $50,000 and the mother stays at home, they earn, for tax purposes, $25,000 each.

This policy, which is called income splitting and was in fact the way couples were taxed for several decades until 1969, would lower the tax burden for all married couples, because it would maximize the amount of family income taxed at lower rates.

Some people will say that Mr. Bush's proposal is too small to worry about. After all, $300 is not much money to most couples. But a small bad idea is still a bad idea.

Economists tell us that over time, even a modest financial incentive affects behavior, especially if it is reinforced by other, similar incentives, as is true in this instance. In most cases today, the parent at home is the mother. Is creating a small new disincentive for stay-at-home motherhood what Governor Bush really wants to do?

This article originally appeared here.

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