When individuals prepare their taxes, they often notice that various aspects of their personal lives, such as marital status, having children, or child care choices, influence their tax obligations. The tax code addresses these factors through different policies, providing benefits like favorable tax brackets for some and credits for others. However, these complexities can make it challenging for taxpayers to determine their liabilities and difficult for the public to understand how tax benefits are distributed among different family types.
An April 2024 report from the Manhattan Institute, authored by Robert VerBruggen, attempts to clarify these complexities. VerBruggen created a computer program to simulate how various family arrangements are taxed throughout their lives, using simplified assumptions, such as living as if continuously in the year 2022. His analysis reveals that traditional households with one breadwinner and one homemaker receive particularly favorable treatment, while dual-income families with children and equal earners fare worse.
A comparison illustrates that a single individual earning the median full-time wage of roughly $55,000 a year will pay around $200,000 in lifetime income taxes. If this same person marries a non-working spouse, their tax liability decreases to $125,000, a benefit known as the “breadwinner bonus.” This occurs because tax brackets for most married couples are twice as large as those for singles. However, this advantage does not extend to single parents, who face a penalty if they marry, due to losing head-of-household status and potentially the Earned Income Tax Credit.
Overall, while the tax code offers progressive rates and benefits like the Child Tax Credit and Social Security exclusions, it tends to favor traditional and single-parent households more than dual-earning families with children. VerBruggen suggests addressing these inequities by taxing individuals separately, aligning with practices in other countries, and allowing the higher-earning spouse to use head-of-household status if applicable. This change would result in increased taxes for breadwinner couples and a reduction for dual-earning families with children, aiming to rectify current system disparities without intending to influence personal lifestyle choices.
Robert VerBruggen is affiliated with the Manhattan Institute. A version of this analysis was first published on Fortune.com on April 15, 2024. Further tax-related insights, such as Americans facing reduced tax anxieties due to higher refunds, efforts by states to eliminate grocery taxes, and the underutilization of the Earned Income Tax Credit by eligible taxpayers, can be explored for ongoing developments in tax policies.
The original story can be found on Fortune.com, and the opinions presented in their columns reflect those of the authors, not necessarily those of Fortune.
