Tax rate truths and lies

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So, before  my children (and grandchild) woke up on the first day of Passover (the seder ends pretty late), I was reading my Washington Post and drinking my coffee.  (I had already finished the NY Times and the Wall Street Journal.)  And, then I read the piece by Catherine Rampell.  I could not let it sit unanswered- but since it was the first days of Passover, I had to wait until the intermediate days to respond.

Rampell's Washington Post Column

Her rant was typical of those who don’t bother to really examine the tax rates carefully.  I’m thrilled Catherine is getting married and I wish her well.  But, once she gets married, maybe she will recognize a few facts.

1.  Two people who cohabitate have lower costs individually than those who live separately.  Whether one rents an apartment or purchases a home, the costs for a facility that can house two amply and comfortably are rarely, if ever, twice the cost for the same abode for one.  So, the housing costs for two people who cohabitate (and, in her case, are married) are substantially less per individual than the costs involved in living singly.

This ratio continues when one considers utilities- phone, cable, internet, and fuel.  As a matter of fact, the cost savings per individual when there are two are an even greater differential than the basic housing costs.

2.  Meal costs (assuming one cooks their own meals) are not twice as costly for two as they are for one.  The differential for meals is not as steep as it is for housing, but there are savings involved in meals for two (per person) when compared to singly prepared meals.

Given these facts, it is not surprising that there is more disposable income for couples than for singles, given the same salary characteristics.   And, contrary to Ms. Rampell’s allegations, her earnings are never taxes at the same marginal rate of her (soon-to-be) spouse’s or vice versa.  Because the tax rate is not so constituted.

As can be seen in the table below, a single person making $ 30,000 has a marginal tax rate of  15% (which becomes 25% after earning $ 33500 of taxable income).  A married person, where each made the same $ 30,000 has the same marginal rate- and their rate doesn’t change until each made $ 5,000 more- which means their tax rates are lower.  Should each person be making $ 60,000, then the marginal tax rate would be 25% for an individual and married.  NO difference.  (This situation applies until one hits the top income levels.  Even there, there is little if any differential between married and single.)

Tax rates- married and single

And, it is far more likely that a house would be affordable for two making $ 60,000 than for one- and that means the mortgage is deductible.  Given that, it is more likely that the taxable income for that couple would be substantially less than the individual, since the tax applies to the net income- not the gross income- of the taxpayer.

The food stamp benefits and other means-tested benefits have absolutely nothing to do with the IRS or the US tax rates- but to the parsimony of the U.S. Congress.  Perhaps Ms. Rampell would be better off complaining that we should stop trying to destroy the safety net provided our poorer brethren than to rail about a non-existent or marginal tax situation.

 

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