Conrad Plan Could Bring About ‘Marriage Bonus’ for Top Earners

By Sam Goldfarb, CQ Staff

Congressional Republicans barely acknowledged the budget resolution unveiled this week by Senate Budget Chairman Kent Conrad — but wait until the North Dakota Democrat hears from upper-income single people.

Conrad proposes a new tax bracket for married couples with $1 million or more in income and single filers making $500,000 and up. The marginal tax rate for income falling in the new bracket would be 39.6 percent, matching the top tax rate in effect before the tax cuts enacted in 2001 and 2003 under President George W. Bush.

Marital status would be important. An unmarried corporate executive with taxable income of $750,000 would have to pay 39.6 percent on $250,000 of his or her earnings. But if the same executive found a spouse who made less than $250,000, the couple’s top tax rate would be the current top rate of 35 percent.

The current top income tax bracket starts at $379,150 for both single and joint filers, although lower brackets are set up to be more generous to couples in order to decrease the incidence of “marriage penalties.”

In the past, lawmakers have responded to research that found that lower-income taxpayers often faced tax disincentives to marry and have children.

Although the marriage penalty got most of the attention, before the major tax changes in 2001 (PL 107-16) and 2003 (PL 108-27), many taxpayers at all income levels actually received a tax “bonus” for being married, according to a 1997 Congressional Budget Office report. And higher-income couples with roughly equal salaries have shared in the benefits of marriage penalty relief.

A good case could be made for restructuring the top tax bracket, said Jim Nunns, a senior fellow at the Urban-Brookings Tax Policy Center.

Setting one threshold for single filers and a number twice as high for joint filers would prevent couples from being hit with a marriage penalty if their combined income reaches the top bracket even though neither of their separate incomes would have been taxed at the top rate. But the change would create marriage bonuses for couples in which one person is responsible for most of the combined income.

However, Conrad appears to have structured his proposed new top tax bracket with politics in mind. It aims to strike a compromise between Democrats who have proposed a new top rate beginning at $500,000 in income and others who would prefer that the party get behind a “millionaire’s tax” that kicks in at $1 million. Conrad has not said how much his new tax bracket would raise.

“It sounds like a more political strategy or approach than a serious revenue raiser,” said Rob Portman, the Ohio Republican senator who served as White House budget director for Bush.

President Obama has proposed allowing current tax rates to expire at the end of 2012 for brackets above $200,000 for single filers and $250,000 for joint filers.

That would not only raise significantly more money than Conrad’s proposal, it also would be less tilted in favor of couples.

The summary of Conrad’s plan was released Tuesday.