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TAX PENALTY ON SINGLE-INCOME FAMILIES
Fraser Institute Forum, March 2004, Family Taxation: "The Leave-it-to-Beaver Tax Penalty.
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The Leave-it-to-Beaver
Tax Penalty, 2003
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Scenario 1
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Scenario 2
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James
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Joan
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Total
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James
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Joan
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Total
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| Income |
$40,000 |
$40,000 |
$80,000 |
$80,000 |
$0 |
$80,000 |
| Less personal exemption |
$7,756 |
$7,756 |
|
$7,756 |
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| Less spousal exemption |
$0 |
$0 |
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$6,586 |
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| Taxable income |
$32,244 |
$32,244 |
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$65,658 |
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| Income taxed at 16% |
$24,427 |
$24,427 |
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$17,841 |
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| Income taxed at 22% |
$7,817 |
$7,817 |
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$32,185 |
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| Income taxed at 26% |
$0 |
$0 |
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$15,632 |
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| Total tax paid |
$5,628 |
$5,628 |
$11,256 |
$14,000 |
$0 |
$14,000 |
| Leave-it-to-Beaver tax penalty |
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$2,743 |
| Note: Analysis is limited to
Federal Income Tax-Source Quick Tax calculations by the
authors |
Explanation of the Chart
Consider a hypothetical couple, James and
Joan Canada. The table displays two scenarios for James and
Joan's family income. In Scenario 1, James and Joan each earn
$40,000 and receive equal personal exemptions of $7,756. Neither
James nor Joan receives the spousal exemption, as it only
applies if a spouse earns less than $7,245. In addition, both
partners have the same portion of their incomes taxed at the
various income tax rates. James and Joan pay equal amounts
of income tax for a combined total of $11,256.
In Scenario 2, one partner (James) is the
sole breadwinner. Since Joan does not earn income, James is
eligible for a spousal exemption of $6,856 in addition to
his $7,756 personal exemption. Their combined exemption is
less that it was in Scenario 1. Further, since James is subject
to the same tax brackets as an individual would be, a greater
portion of his family income is taxed at higher rates. The
combined effect of the lower exemption and the increased amount
of income taxed at higher rates increases the income tax paid
by James and Joan. The difference: taxes paid by the dual-income
family are $2,743 less than those paid by the single-income
family. This difference has been coined "The Leave-it-to-Beaver
tax penalty."
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