Many people have argued that an income tax should be "marriage neutral," that is, two people should pay the same total tax whether they are married or they are single
Suppose Amanda earns nothing, Ben earns $60,000, and Cathy and Dylan each earn $30,000 . They are all single. a. Amanda pays no tax because she has no income. If they live in a country that has a progressive income tax, which will be higher: the tax that Ben pays or the sum of the taxes Cathy and Dylan pay? b. Amanda marries Ben and Cathy marries Dylan. This country taxes married couples based on a family's total income. Show that the newlyweds Amanda and Ben will pay the same tax as Cathy and Dylan's family. c. Is the income tax in this country marriage neutral?
a. If the tax system is progressive, then the average tax rate on $60,000 is higher than the average tax rate on $30,000 . Therefore, Ben's taxes are higher than the sum of Cathy's and Dylan's taxes.
b. If the income tax in this country is based on a family's total income, then Amanda and Ben will pay the same tax as Cathy and Dylan; both families have an income of $60,000 and therefore both must pay the same in taxes.
c. The tax is not marriage neutral. Amanda and Ben paid higher taxes than Cathy and Dylan before their marriages but pay the same taxes after their marriages. Marriage must have changed the taxes for at least one of these couples. As a general proposition, it is impossible to design a tax system that (i) is progressive, (ii) bases taxes on a family's total income, and (iii) is marriage neutral.
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