This opinion piece ran in the Washington Post on Sunday, April 11, 2004.
They're the buzzwords in Washington these days: "marriage" and "family values." Of course, we're having a little disagreement over how to define them, what with President Bush's marriage initiative and the proposal for a constitutional amendment to define the institution pitted against the fight for same-sex marriages. Still, underlying these divisions is the belief among all groups that family matters. And so Congress strives, in the tax laws, to promote family values.
Lost in the conversation, meanwhile, is any mention of "singles values." But the choice to be single, whether temporary or permanent, should be accorded the same dignity as the choice to marry, shouldn't it? Including under our tax laws. You'd think that Congress, above all, would be sensitive to the interests of singles, because there are so many of them -- every year, there are more single income tax returns filed than joint ones (58 million vs. 51 million in 2001). But if you viewed single people solely by the way Congress chooses to tax most of them, you might think they were, well, almost un-American. The way they're treated isn't fair, and it should change.
You've all heard about the tax system's so-called marriage penalty, which discourages a couple with good incomes from marrying because their combined income taxes would be greater than if they remained single. Congress heard so much about it that, through legislation in 2001 and 2003, it addressed that problem for most couples by increasing their standard deduction and broadening their tax brackets. But a great injustice remains in our tax system: the "singles penalty." The annual income tax deadline arrives this week, and there's no getting around it -- most of us who are married and also have young kids are going to fare a lot better than most of those who haven't tied the knot or had any children.
Don't know anything about this? Well, you should, especially if you are among those single taxpayers who don't itemize their deductions. That's roughly 80 percent of all singles -- a total of about 48 million individuals, if you're counting. While the singles penalty is harshest on lower- and moderate-income earners, it affects all 48 million. Here's why.
Consider first our nation's official poverty thresholds. The threshold for single people last year was about $9,600; but single people who claim a standard deduction on their 2003 returns are expected to begin to pay a tax if their income exceeds a mere $9,300 -- that is, before what they earn has, by the government's own definition, lifted them out of poverty. (The $9,300 tax threshold results from the sum of the personal exemption plus the standard deduction, and the benefit of a small earned income credit.)
So many singles, with modest incomes and modest expenses, depend on the standard deduction -- a measly $4,750 in 2003 -- because it is larger than the sum of what they might itemize. (By contrast, more than half of all joint returns claim itemized deductions.) These singles include many young people and many seniors, but also nearly all people who earn not a whole lot more than the minimum wage and may work two or even three jobs. Many are renters, but Congress prohibits them from deducting any of their rent, even though it often consumes a disproportionate share of their income.
By contrast, Congress views the $19,000 poverty threshold for a working married couple with two young children and typical child care costs as woefully inadequate for purposes of setting their tax threshold. Congress believes that this couple should not begin to pay a penny of income taxes until its income exceeds $47,700, or about 21/2 times its poverty threshold. (To calculate their tax, subtract $12,200 for four personal exemptions and $9,500 for their standard deduction, which leaves $26,000 of taxable income. Taxes tentatively owed: $3,200. Then subtract their tax credits: $2,000 in child credits ($1,000 for each child) and $1,200 in child care credits ($600 for each child), for a total of $3,200. Taxes finally owed: zero.)
That certainly seems reasonable, so single people shouldn't object. But they have every right to ask Congress: Where's your compassion for us?
To understand the harshness of the tax threshold imposed on most singles, let's consider one who earns $9,600 and see what it's like for her to try to live on that amount. Well, it isn't really $9,600, because 7.65 percent is withheld for Social Security and Medicare taxes, and, thanks to Congress, she has to pay a small income tax. That leaves $8,835, or about $740 a month.
Our taxpayer -- let's call her Meg -- lives by herself in an efficiency apartment, doesn't own a car and takes the bus to work and on personal trips. In a typical American city such as Baltimore or Cleveland, she might get that apartment for $350 to $600 a month. Say her rent is $440, which leaves her with $300 to pay for everything else -- food, clothing, furniture, household and personal supplies, telephone, utilities, laundry, sales taxes, public transportation, and much more. (Heaven forbid she should actually buy a magazine or go to a movie.) Health insurance alone -- she doesn't qualify for Medicaid because she doesn't have a dependent child -- would consume much of the $300, so she goes without it and crosses her fingers. It isn't really a choice anyway: Meg runs out of money before she finishes paying her other bills.
Now consider Fran and Bill, a hypothetical married couple with two preschool children. Both work full-time and earn a combined income of $47,700. We'll assume they pay $7,000 for child care ($30 a day, five days a week), and $3,650 in Social Security and Medicare taxes. This leaves about$37,000 (still nearly twice the poverty threshold), or about $3,100 a month, to pay all other expenses. We don't have to elaborate on the details to reach an obvious conclusion: It's a lot easier, given economies of scale, for Fran and Bill to meet their family's basic living expenses on $3,100 a month than it is for Meg to cover her basic living expenses on $740 a month.
Moreover, at their income level, Fran and Bill are more likely than Meg to receive benefits at work, such as paid health insurance premiums or contributions to a retirement plan, none of which count as income on their tax return. This means that their actual income may be greater than $47,700, yet they still don't owe any income tax. Meg probably has only her $9,600 because jobs at her salary level usually offer no benefits.
If the scandal here were limited to Meg's income tax of $30 on the difference between her $9,300 tax threshold and the $9,600 poverty threshold, our outrage would be limited. But if Congress is going to recognize, as it should, that a family of four needs income far in excess of its poverty threshold before it can afford to pay an income tax, simple tax justice requires that the same principle be extended to a single person. We may debate the income level at which the change should be made, but I believe the starting point of the discussion should be no less than $1,200 to $1,500 a month ($14,400 to $18,000 a year), from which the federal government will subtract 7.65 percent for Social Security and Medicare taxes. With these new thresholds, we're talking about roughly 8 million to 11 million additional single people who would be protected from being taxed; and in their cases, the tax savings would range from a few hundred dollars to more than $1,000 a year -- amounts vitally important to them.
But I would go further. The injustice is not limited to singles who should be spared paying any tax. The initial tax threshold for all singles, including those with higher incomes, should be set so that not one of them pays a tax until their income exceeds a level we regard as necessary to meet basic living expenses. This is what Congress does for that family of four; this is what voters should insist it do for the household of one. Until that time, the great majority of singles in this country can legitimately argue that, at least for tax purposes, they are treated like second-class citizens.
Singles know this is a big election year. They also should know that, in the past, they have had a poor voting record, which no doubt goes far toward explaining their treatment under the tax laws. If singles were to let their candidates for Congress and the White House know that they are going to vote in droves this year, and that they expect to vote for candidates who promise to fix these tax injustices, I'm betting plenty of those candidates would listen up.
John Fox teaches tax policy at Mount Holyoke College in South Hadley, Mass. His most recent book is 10 Tax Questions the Candidates Don't Want You To Ask.