As I wrote in my post on Taxation, Marriage, and Children, it was not a very scientific analysis. I also didn’t add in variables like childcare expenses, state income taxes, or mortgage interest deductions.
Now, I will be the first to admit when I am wrong. But in this case, it appears my earlier hunch was right: the U.S. tax code penalizes couples for getting married and having children. One thing that I forgot to mention was the fact that people who make over $50,000 in income
become eligible for may fall under the Alternative Minimum Tax system.
The Alternative Minimum Tax was imposed in 1969 and took effect in 1970. The impetus for the creation of the AMT was the fact that 155 high-income households did not pay any federal income tax. This shocked Congress into creating an add-on tax on high-income households, equal to 10% of the sum of tax preferences in excess of $30,000 plus the taxpayer’s regular tax liability. The idea was to ‘tax the rich’.
The problem is, Congress did not think to index the incomes covered by the AMT to inflation. As a result, people who are not making a high level of income ($50,000) are now becoming subject to the tax.
And in order to ‘tax the rich’ who weren’t paying their ‘fair share’, once you fall under the AMT you cannot take any of the standard deductions. You get no personal exemptions, no exemptions for children, no deductions for childcare expenses, no deductions for student loan interest, and no deductions for mortgage interest payments. If you fall under the AMT, you will have to pay more in taxes.
The AMT, Marriage, and Children
If I would have taken the time, I could have included this in my original post. The following graphic is from the Tax Policy Center website:
Under the AMT, we now see that high-income earners are penalized for both being married, and for having children. And as the number of children increases, so does the marriage penalty. According to the Congressional Budget Office, taxpayers with large families—and specifically families with 3 or more children—are more likely to pay the AMT than smaller families. You can read the entire 10-page report here.