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Taxing the "family" in the individual income tax.

Abstract

In this paper we examine international practices in the ways in which the individual income tax is applied to families, focusing upon country practices in OECD countries. We find that countries differ significantly in their taxation of the family, but that the dominant practice is the choice of the individual rather than the family as the unit of taxation. We also calculate the income tax consequences for "representative" taxpayers across these countries, and find that the differences in taxes between singles and married couples can often be quite large. We conclude that choosing the individual as the tax unit is likely to represent the most equitable approach to income taxation, especially given the increasing complexity of family units in modern societies.

Introduction

Nearly all countries around the world attempt to impose an individual income tax. However, in administering such a tax, each country must decide exactly what constitutes an "individual"; that is, each country must choose the "unit of taxation" in the individual income tax. Traditionally, this choice has been seen as one between the family and the individual. In the former case, the incomes of all members of a family are aggregated, and the income tax (with all of its relevant provisions) is then imposed on total family income. In the latter case, each individual is taxed only on his or her own individual income, even if he or she is a member of a family unit in which other members have taxable income.

The choice between the family and individual as the unit of taxation is not clear-cut, and involves difficult tradeoffs between competing and worthwhile goals. These goals include the desire to treat families with equal incomes equally, to treat families and individuals equally, to ensure that taxes do not change with marriage (or divorce), and to impose taxes at progressive rates. With the dramatic increase in recent years of different family "types"--cohabiting but not legally married couples, extended families, same-sex couples, unrelated individuals living together--these issues have become even more complicated.

This paper examines the choices that different countries have made in choosing the unit of taxation, or what is often referred to as "taxing the family". We focus in particular on practices in Organisation for Economic Co-operation and Development (OECD) countries. We present detailed information on the income tax systems in these countries, and we use this information to calculate the impact of taxes on different "representative" types of family units across OECD countries under income tax laws in 2002, in order to see whether we can learn from the comparative practice of taxing the family in the individual income tax. We find that countries differ significantly in their taxation of the family, but that the dominant practice is the choice of the individual rather than the family as the unit of taxation. We also find that the differences in taxes between singles and married couples can often be quite large. We conclude that choosing the individual as the tax unit is likely to represent the most equitable approach to income taxation, especially given the increasing complexity of family units in modern societies.

In the next section we discuss some general issues in choosing the unit of taxation. We then focus on United States practices as a case study and the ways in which the U.S. has made different decisions over time in its taxation of the family. In the following section we examine the different treatments in OECD countries. The final section contains some concluding remarks.

Some Principles and Goals in Taxing the Family

Countries have a variety of goals in choosing the structure of the individual income tax.

A basic goal of any tax is to achieve "equity" in taxation. Of course, defining equity is quite difficult.(1) One popular notion of equity is based upon the "ability-to-pay" principle of taxation, which states that taxpayers should pay taxes according to their ability to pay. This principle is often operationalized by introducing two additional criteria: "horizontal equity", which relates to the income tax treatment of taxpayers with equal incomes, and "vertical equity", which refers to the treatment of taxpayers with different levels of income. Consider the implications of both horizontal and vertical equity for the taxation of the family.

Horizontal equity requires that taxpayers who are equal in all relevant respects pay equal amounts of taxes. This notion may appear simple, but it is in fact deceptively simple. The difficulty lies in defining "equals". Equals can be thought of as married couples with equal family income (and identical characteristics), in which case horizontal equity requires that such families pay equal amounts of income taxes. However, suppose we define equals as any kind of household with equal income. Now things become much more complicated. A "household" can consist of a married couple, but it can also consist of a single individual, an unmarried cohabiting couple, a same-sex couple, an extended family, or even a group of unrelated individuals living together. Achieving horizontal equity requires that all of these households pay equal taxes if their incomes are equal.

If a married couple is seen as the relevant household type for defining equals, then achieving the goal of Horizontal Equity Across Households requires that married couples with equal incomes pay equal taxes. However, if a household is defined more broadly, then achieving this goal requires that any households with equal income pay the same amount of taxes. In particular, it requires what Berliant and Rothstein (2003) refer to as the additional and separate goal of Equal Payments by Singles and Couples. Of course, this goal can be broadened to apply to all household types.(2)

As for the criteria of vertical equity, this requires that taxpayers with greater ability pay greater amounts of taxes, and so relates to the rate structure of the income tax. Even so, we cannot unambiguously determine whether vertical equity implies that there should be a progressive, a proportional, or a regressive rate structure; that is, we cannot say whether marginal (or average) tax rates should rise more than proportionately, proportionately, or less than proportionately to income (Musgrave, 1959). However, it is generally felt that a progressive rate structure is best able to achieve vertical equity.(3) We refer to this as the Progressivity goal of taxation.

Still another goal in the individual income tax is Marriage Neutrality. This goal requires that a couple's combined tax liability remain unchanged with marriage, neither rising with marriage (a "marriage tax" or a "marriage penalty") nor falling with marriage (a "marriage subsidy" or a "marriage bonus"). For example, it is well documented that the U.S. individual income tax is not marriage neutral (Rosen, 1987; Feenberg and Rosen, 1995; U.S. General Accounting Office, 1996; Alm and Whittington, 1996; Congressional Budget Office, 1997; Bull, Holtzblatt, Nunns, and Rebilein, 1998; Dickert-Conlin and Houser, 1998; Whittington and Alm, 2001; Alm, Whittington, and Fletcher, 2002). As discussed in more detail later, these studies indicate the presence of a large and variable marriage penalty--and marriage bonus--whose magnitude has changed over time.

It is now well-known that no individual income tax can achieve the simultaneous goals of Horizontal Equity Across Families, Equal Payments by Singles and Couples, Progressivity, and Marriage Neutrality (Rosen, 1977; Berliant and Rothstein, 2003). To illustrate this more precisely, consider the following stylized example.

Suppose that the individual income tax consists of a constant marginal tax rate (b.sub.i] and a lump-sum guarantee ([a.sub.i]), where i = (S, M) for Single and Married individuals. Suppose also that the tax [T.sub.S] imposed on single individuals equals

[T.sub.S] = -[a.sub.S] + [b.sub.S] [Y.sub.S],

where [Y.sub.S] is the income of the single individual, while the tax [T.sub.M] on married couples equals

[T.sub.M] = -[a.sub.M] + [b.sub.M] ([Y.sub.M1] + [Y.sub.M2]),

where [Y.sub.M1] is the income of one partner and [Y.sub.M2] is the income of the other partner.

Marriage Neutrality requires that taxes do not change with marriage, which requires in turn that [a.sub.M] = [2a.sub.S] and that [b.sub.M] = [b.sub.S]. Equal Payments by Singles and Couples requires that [T.sub.S] = [T.sub.M] when [Y.sub.S] = [Y.sub.M1] + [Y.sub.M2]; this imposes the conditions that [a.sub.M] = [a.sub.S] and that [b.sub.M] = [b.sub.S]. Horizontal Equity Across Families is met as long as married couples face the same lump-sum guarantee and marginal tax rate. Meeting all of these conditions is possible only if [a.sub.S] = 0 = [a.sub.M] and if [b.sub.S] = [b.sub.M]. However, Progressivity, at least defined in terms of average tax rates that increase with income, requires that [a.sub.S] (and [a.sub.M]) be less than zero and that [b.sub.S] (and [b.sub.M]) be greater than zero; that is, it is only possible to achieve the goals of Marriage Neutrality, Equal Payments by Singles and Couples, and Horizontal Equity Across Families if we are willing to sacrifice the goal of Progressivity. Put differently, no progressive tax system can simultaneously achieve all the other goals of the individual income tax.

Choosing the features of the individual income tax therefore requires that countries must face tradeoffs in their pursuit of worthwhile goals. The next two sections discuss the different choices that countrieshave made.

The United States Practice of Taxing the Family

The individual income tax in the U.S. was established in 1913, and its treatment of the family has varied over time. In its early years, the basic unit of taxation was the individual, in which each individual was taxed on the basis of his or her income independently of marital status. Because the tax liability did not change much with marriage, the income tax largely achieved Marriage Neutrality, at the same time as marginal tax rates that increased with income generated Progressivity. However, after World War II a growing number of states instituted community property laws, which allowed married couples to divide their income equally and file separate tax returns; residents of common law states were not able to shift income between spouses in this way. As a result, average (and marginal) tax rates were lower for couples living in community property states (particularly for those couples with a single earner) than for those residing in common law states. In response to this geographical inequity, the Revenue Act of 1948 changed the unit of taxation from the individual to the family. With the adoption of income splitting for married couples, all couples were now allowed to aggregate and to divide in half their income for federal tax purposes. This change meant that couples with equal incomes paid equal taxes; that is, the income tax became consistent with the goal of Horizontal Equity Across Families. However, because of the progressive tax rates in the income tax, the change also meant that a couple's joint tax liability could fall when they married, so that the income tax was no longer characterized by Marriage Neutrality. In particular, due to the progressive nature of the individual income tax, a couple's joint tax liability fell with marriage. The federal government was effectively subsidizing marriage.

This marriage bonus grew over the next two decades. By the late 1960s, Rosen (1987) calculated that it was possible for single person's income tax burden to be as much as 40 percent greater than that of married couple with identical earnings. Public pressure to remedy this disparity let to the adoption of the Tax Reform Act of 1969, which established a new, separate tax schedule for single individuals that insured that single persons would incur a maximum tax liability of 120 percent of a married couple with equal income. However, a side effect of the Tax Reform Act of 1969 was the creation, for the first time, of a widespread and significant marriage penalty for many married couples, even though a potential marriage subsidy still existed for some couples; that is, the 1969 law effectively increased the tax liability of some married files relative to single filers, thereby creating the marriage penalty, especially for couples with similar earnings.

Since then, various tax and demographic changes have markedly affected the potential for a marriage penalty or subsidy, as well as the magnitude of each (Alm and Whittington, 1996; Congressional Budget Office, 1997). For example, the Economic Recovery Tax Act of 1981 introduced a secondary earner deduction in an attempt to minimize the increased tax liability felt by married couples. Although this deduction was eliminated as part of the Tax Reform Act of 1986, other changes in 1986 (e.g., an increase in the standard deduction for married couples relative to single persons, a reduction in marginal tax rates) lowered marginal and average tax rate differences between married and single taxpayers. Increases in tax rates in the 1990s tended to increase the marriage penalty on many married couples. More recently, the Economic Growth and Recovery Act of 2001 addressed the marriage penalty by increasing the standard deduction for married couples and the width of the new 10 percent bracket, as well as the 15 percent tax bracket, to twice that of singles. The Jobs Growth and Tax Reconciliation Act of 2003 enacted those provisions immediately for 2003 and 2004. Should these provisions remain in the law, they would substantially reduce penalties and increase bonuses for married couples. In the longer run, the size of the marriage penalty will be heavily influenced by the alternative minimum tax (AMT), as more families fall into the AMT.

The reason for the lack of marriage neutrality under current law is simple to explain. Married couples effectively split their income on tax returns. If two people marry and one of them has zero income, income splitting means that the individual with some income moves into a lower marginal tax bracket as a result of the marriage, so that the marriage reduces the combined tax burdens of the two partners. Conversely, when people with similar earnings marry, their combined income pushes the couple into higher tax brackets than they face as singles, and they pay correspondingly higher taxes with marriage.(4) Of course, the magnitude of the tax/subsidy depends upon an array of tax features, such as exemptions, deductions, and rate schedules, as well as the incomes and other characteristics of the partners.(5) Note, however, that the marriage tax/subsidy is not a statutory item in the tax code. Rather, it is a side effect of the current structure of the individual income tax, one that emerges because of the combination of progressive marginal tax rates and the family as the unit of taxation.

To illustrate marriage penalties and bonuses more precisely, consider the following hypothetical couples. Assume that in 2001 two people each have an annual income of $30,000. Assume also that each uses one personal exemption of $2,900 and that each takes the standard deduction of $4,550. Each has an income tax liability of $3,383, and their combined tax liabilities as singles total $6,766. If they were to marry and use the standard deduction for married couples filing jointly ($7,600) and two personal exemptions, then their married tax liability would be $7,172. This hypothetical couple would pay $406 more in federal income taxes as a married couple than they would as two single individuals. This difference in tax liability ($406) is the so-called marriage penalty (or marriage tax), and demonstrates that the income tax is not marriage neutral.

It is also easy to construct examples in which combined taxes fall with marriage. If one person in this couple had most or, especially, all of the family income, then the couple would experience a reduced income tax liability--a marriage bonus or subsidy--as a result of marriage. For example, a single individual with income of $60,000 would have a tax liability of $11,198. If this individual was to marry someone with no income (and no income tax liability), then their taxes as a married couple would decline from $11,198 to $7,172, giving them a marriage subsidy of $4,026.

Note that this example also illustrates the unequal treatment of individuals and couples. An individual with income of $60,000 pays taxes of $11,198; a married couple with the same income pays taxes of only $7,172. A single individual therefore pays $4,026 more in taxes than a married couple with equal income, a difference (the so-called "singles tax") that is necessarily equal in magnitude but of opposite sign to the marriage subsidy (Alm, Whittington, and Fletcher, 2002).

In general, the existence and magnitude of the marriage penalty depends on the distribution of income across the two partners because its calculation requires comparing taxes as single versus taxes as married. Dual income couples are most likely to incur a marriage penalty, especially if their incomes are similar and large. Single-earner couples are likely to gain a tax subsidy through marriage due to income splitting.

The magnitude of the marriage tax/subsidy in the U.S. can be quite large. For example, Alm and Whittington (1996) estimate that there is on average a marriage tax whose magnitude since 1969 has risen, fallen, and more recently risen, and in the last several years has averaged roughly $400 (in real 1997 dollars). However, this overall average conceals a great deal of variation. The percentage of families that pay a penalty has risen since 1969, to nearly 60 percent in recent years; for these families the real average penalty has generally exceeded $1000 for most of the last twenty years. On the other hand, for those families that receive a subsidy the average subsidy over this period has also typically exceeded $1,000, and the percentage of families receiving a subsidy has fallen over time to less than 30 percent. Feenberg and Rosen (1995) generate similar estimates, while calculations by the Congressional Budget Office (1997) suggest that a higher percentage of families receives a subsidy (51 percent) and a lower percentage pays a penalty (42 percent). Dickert-Conlin and Houser (1998) demonstrate that lower-income individuals are especially likely to face a marriage penalty, due to the interaction of transfers with the individual income tax. As noted earlier, recent changes in the income tax laws, especially the Economic and Growth Recovery Act of 2001 and the Jobs Growth and Tax Reconciliation Act of 2003, have reduced but not eliminated the marriage penalty/bonus. In the longer run, the emergence of the AMT seems likely to contribute significantly to the marriage penalty/bonus.

As emphasized earlier, no progressive tax system can simultaneously ensure that couples with equal income pay equal taxes, that families and individuals with equal incomes pay equal taxes, and that a couple's joint tax liability does not change with marriage (Rosen, 1977). Whether by implicit or explicit choice, the U.S. has elected to focus more on the goal of equal treatment of married couples, with its designation of the family as the unit of taxation. By necessity, then, the U.S. has elected to allow individuals and families to be treated differently, and also to allow taxes to change with marriage. Other countries have made very different choices, as we discuss next.

International Practices in Taxing the Family

The Organisation of Economic Co-operation and Development (OECD) is comprised of 32 member countries. These countries have many common characteristics, but their income tax structure is not one of these. We have collected detailed information on the individual income tax systems for nearly all of these countries from a variety of sources, and Tables 1, 2, 3, and 4 summarize some of the main features of the individual income tax in these countries.(6) Although income taxation at the central government level is present in all of these countries, the structure of the income tax exhibits significant heterogeneity. We then use this detailed tax information to calculate the change in income tax liability with marriage for "representative" taxpayers in these countries. These calculations are presented in Tables 5 and 6.

It should be noted that our discussion and our calculations are based on the income tax treatment of earned, or wage, income only; that is, we assume that income of the taxpayers consists only of wage income. The treatment of investment income introduces significant complications. For example, in most countries some shifting of capital gains or business income is permitted, although often such shifting appears to be to the disadvantage of the couple because the transfer of such income is permitted only when it is transferred to the spouse with the higher taxable income.

The Basic Structure of the Individual Income Tax

All OECD countries impose a progressive income tax. However, these income systems differ in several dimensions.

One source of heterogeneity is the degree of progressivity across countries, as shown by different levels of marginal tax rates (MTRs) in the tax code. Another source of heterogeneity is fiscal federalism in the assignment of income taxes. Countries that allow sub-national levels of government to impose a significant tax on incomes tend to have lower national income tax rates, in large part because of the sharing of the tax base across levels of government. For example, in Norway the highest marginal tax rate on income at the central government level is only 13.5 percent, while provincial governments impose even higher individual income taxes, often around 14.5 percent. In Finland, municipal income tax rates vary between 15.5 and 20 percent, and the highest national marginal tax rate on income is 35.5 percent. In contrast, neither Germany nor France employs income taxes at sub-national levels, and the highest marginal tax rates on income at the national level in these countries are 48.50 and 49.58 percent, respectively.(7) Austria and Belgium, the nations with the highest upper income marginal tax rates (50 percent in each case), also exhibit this tendency. Austria has no provisions for any income taxes at the sub-national level, and Belgium permits its municipalities to levy a small surcharge on the national income tax, between 0 and 8.5 percent.

Even aside from the level of marginal tax rates, the marginal tax rate structure itself exhibits significant variation (Tables 1 and 2). In several countries the tax code is relatively complex with a large number of marginal tax rate brackets, while other countries implement a much simpler system. Perhaps the most complex marginal tax rate structure is employed in Germany. Although the German rate structure has three formally defined non-zero marginal tax rate brackets, only the highest marginal tax rate bracket has a fixed single rate. The first two brackets implement non-fixed increasing rates with considerable variation.(8) The largest number of marginal tax brackets is present in Luxemburg, where all non-zero rate brackets except for the highest bracket are increased by increments of only EUR 1,650. Iceland, Ireland, Norway, and Sweden employ the simplest structure of marginal tax rates, with only two non-zero marginal tax rate brackets.

It should be noted that our calculations incorporate the tax features of only the national income tax. The existence of sub-national income taxes will clearly affect the magnitude of the total national-sub-national marriage penalty/bonus. For example, in the U.S. 43 states impose an individual income tax, with marginal tax rates that vary quite considerably; only Alaska, Florida, Nevada, Texas, Washington, and Wyoming are the exceptions. Unfortunately, it is not possible to include the income tax systems of sub-national governments in our analysis.

In addition to differences in the marginal tax rate structure, the basic personal exemptions/credits exhibit dramatic variation as well. Table 1 indicates the tax treatment of a single taxpayer with earned income only. The personal exemptions can take a variety of different forms: a deduction, an allowance, a personal tax credit, and/or a tax-exempt portion of income (e.g., a zero marginal tax rate bracket). All countries except New Zealand provide some form of tax exemption to their taxpayers, most commonly in the form of a personal allowance or an earned income tax exemption. In many instances more than one provision is available to the taxpayer.

Table 1 provides a summary of exemptions available to a single non-disabled taxpayer with no dependents and earned income only; several other provisions are present for taxpayers who have children and who are disabled.

Table 2 provides similar information for married taxpayers. More precisely, Table 2 summarizes significant differences in deductions, credits, and the marginal tax rate structure for those countries where these differ based on the marital status of the taxpayer. If the country does not differentiate in a provision between married and single taxpayers, then this is indicated by the phrase "No difference between married and single taxpayers". For example, the U.S. tax code contains different provisions for standard deductions for married versus single taxpayers and also has a different MTR structure that depends upon marital status, but the code does not contain any personal tax credits that depend on the filing status.

The Treatment of Married Couples

There is clearly much heterogeneity in the marginal tax rate structure, the personal exemptions, and other tax deductions/credits that apply to taxpayers, whether single or married. This heterogeneity extends to the tax treatment of married couples as well. Table 3 lists the filing status permitted for married couples in OECD countries, and Table 4 lists some special provisions that apply mainly to single-earner couples.

Of perhaps most importance, in most OECD countries the individual is the unit of taxation, and joint filing for couples is not permitted (Table 3). Joint filing is required in only seven countries (Belgium, France, Greece, Luxemburg, Portugal, Switzerland, and the United States), while six countries allow couples to select the filing status (Germany, Iceland, Ireland, Norway, Poland, and Spain). In addition, there has been since 1970 a decided trend in OECD countries away from joint taxation and toward the individual as the unit of taxation. Since 1970 seven countries have moved to individual income taxation (Austria, Denmark, Finland, Italy, the Netherlands, Sweden, and the United Kingdom). There are now a total of 17 OECD countries that use only the individual as the unit of taxation, and, as noted, another six countries in which the taxpayer can choose between single or joint taxation. It is important to note that not every country that permits or requires joint filing allows joint assessment (e.g., income splitting between the spouses). For instance, Greece, Norway, and Spain all have provisions for joint filing, but income splitting does not apply; this means that joint filing is not meaningfully different than single filing, except when joint filing allows a couple to use different personal exemptions, a potentially important difference that will be discussed later. Income splitting is present in some form in only nine of the 32 OECD countries. In most countries that allow income splitting, the income of the spouses is simply aggregated, so that the tax system does not differentiate between households with equal combined incomes based on how the income is distributed within the couple. However, there are exceptions to this as well. For example, Belgium allows only limited income splitting, which applies only to those couples in which there is a significant differential between the spouses' incomes.

Income splitting in the presence of a progressive tax rate structure creates a tax benefit to couples when spouses earn different incomes, as evidenced quite clearly by the U.S. experience. Furthermore, the tax benefit is a function of the difference in those incomes and the marginal tax rate structure. For instance, Luxemburg has narrowly defined marginal tax rate brackets, and a relatively small differential can translate into a significant tax saving for a married couple versus two single taxpayers with similar incomes, as long as each spouse does not fall into the highest income bracket. In contrast, in Iceland and Ireland a much larger difference in incomes may have no impact on tax liability due to the marginal tax rate structure.

As indicated in Table 4, many OECD countries also have special tax provisions that apply to single-earner couples, in an attempt to provide some form of tax relief to these couples. The most common provision is some form of credit, deduction, allowance, or rebate (e.g., Australia, Austria, Canada, the Czech Republic, Denmark, Iceland, Italy, Japan, the Republic of Korea, and the Slovak Republic). Another popular provision is income splitting, used in Belgium, France, Germany, Ireland, Luxemburg, Poland, Portugal, and the U.S. These provisions are also discussed later.

In combination, these provisions often generate tax liabilities that differ by marital status. Tables 5a to 5d present our calculations on the effects on income tax liabilities across households with different income levels and different allocations of incomes between spouses. The effects reported in columns III, V, VII, and IX of these tables represent the difference between the combined tax liability of two individuals if they file as singles versus their tax liability if they marry; that is, the effects represent the tax benefit (or cost) of marriage. A positive number indicates that singles pay more in taxes than married couples (e.g., a marriage bonus), while a negative (and italicized) number indicates the presence of a marriage penalty because taxes rise with marriage. Columns IV, VI, VIII, and X convert this difference into the fraction of the total income tax liability of the (married) household. No values can be entered in the percent columns when the family tax liability is zero. For convenience, Table 5e gives the average earnings for each country in 2002 local currencies.

For simplicity, we divide households along two dimensions: the income level and the allocation (or the split) of that income between the spouses. We select four levels of aggregate household incomes, structured as a percentage of the average earnings in the country during 2002 calendar year; note that column II reports the average wage for each country as given on the OECD website. We choose four different levels of income, in order to assess the impact of the income tax at different points in the distribution of income: 50, 100, 200, and 400 percent of average earnings in the country. We also select four different types of households for the allocation of these income levels between the spouses: households where each spouse earns an equal amount (we refer to these as Type I households), households where 62.5 percent of all household income is earned by one spouse (Type II), households where one spouse earns 75 percent of the combined income of the couple (Type III), and households where all of the income is earned by one spouse (Type IV).

The income tax treatment of Type I households, in which there is an equal split of household income between the members, is perhaps the most interesting aspect of the differential treatment by the tax system. In countries where joint income assessment is not permitted and where there are no differences in personal exemptions due to marital status, Type I (and even Type II and Type III) households should not observe any benefits or penalties due to their marital status. This is largely evident from Tables 5a through 5d. In most instances where the provisions for joint assessment exist, the marginal tax rate brackets faced by a single taxpayer are simply doubled for married couples (e.g., Luxemburg); equivalently, the combined income of the couple is divided by two, and then the single taxpayer rate structure is applied (e.g., Portugal). Under these circumstances the tax rate structure remains marriage-neutral for households of Type I. However, in some countries Type I households derive a marriage bonus/penalty from their marital status. One example of this practice is Switzerland, where the tax rate structure for married taxpayers is different from single taxpayers both in the size of the brackets and in the numbers of brackets and their rates. For single Swiss taxpayers there are ten non-zero marginal tax rate brackets and a zero rate bracket with a threshold level of income of CHF 12,700; married taxpayers face thirteen non-zero marginal tax rate brackets and a zero-rate bracket cut-off level set to CHF 24,800, slightly less than twice the level of the single taxpayer. The marginal tax rates are identical for the top bracket, but the sizes of the brackets for married taxpayers are not based on the tax brackets for single taxpayers.

Joint assessment is not the only provision that exists for married couples. Differences in personal exemptions and credits based on marital status can also create a marriage bonus/penalty for Type I households. This is evident in the tax codes of a number of countries. For example, in Belgium the size of the basic personal allowance is reduced for married taxpayers to EUR 4,610 relative to EUR 5,570 for single taxpayers. In Portugal the size of the tax credit is increased for a married taxpayer to EUR 356.60, from EUR 213.96 for single taxpayers. In Korea married female taxpayers in two-earner couples are granted an additional personal deduction of W 500,000. Couples in Switzerland with two earners get an additional allowance of CHFG 7,000 applied to the spouse with the lower income. The United Kingdom has one of the most well defined marriage benefits, although the size of the benefit is relatively small. U.K. taxpayers are granted a married couple allowance that is dependent on the age of the taxpayers, with taxpayers older than 74 deriving the largest allowance. The size of the allowance for couples with both spouses aged under 65 is * 2,110. The allowance is then converted into a tax credit at a 10 percent rate, and it can be allocated between the spouses based on their own selection, with the possibility that only one spouse derives the entire credit, thereby making the provision completely independent of the distribution of income within the couple. It appears that such treatments are very limited. Instead, we tend to find in most OECD countries that the income tax treatment of couples with equal incomes is largely marriage neutral (subject to the exceptions that we have discussed).

Type II and Type III households derive income tax benefits in all countries where joint assessment/income splitting is permitted. The one exception is Belgium, where only limited income splitting is permitted and where the reduced personal allowance for married couples creates a marriage penalty for married taxpayers.

Another practice that is present in several countries is the transfer of unused personal exemptions between the spouses. This practice in a way mimics income splitting because it allows the couple to combine their personal exemptions. Examples of this practice include Denmark, where the unused portion of the personal deduction can be transferred to the spouse, and Iceland, where up to 95 percent of the unused personal credit can be applied to the tax return of the spouse.

In some instances the threshold on only some of the marginal tax rate brackets is increased for married taxpayers. For example, Norway increases the threshold for the lowest MTR bracket from NOK 340,700 to NOK 364,000.

As noted earlier, all OECD countries employ a progressive income tax structure at the central government level.(9) Due to progressivity, the benefits of income splitting generally exist for those households with significant variation in incomes. However, when spousal earnings place each spouse into the highest income bracket, these benefits of income splitting disappear. This is evident when one examines the effects on Type II households across Tables 5a to 5d. Households with combined earnings equal to 50 percent of the national average wage derive benefits of marriage in seven of the OECD countries, while households with combined earnings of 400 percent of the national average wage derive benefits in only six of the countries. The size of the benefit when measured as a percentage of total tax liability of the couple also declines with the income level of the couple, as is evident from the tables.

The effects of income splitting increase with the difference in incomes between the spouses, as shown by the differences between Type II and Type III households. To further illustrate this point we examine in more detail two very different approaches to income splitting: Belgium and the United States.

The Special Cases of Belgium and the United States

Tables 6a and 6b calculate the effects on taxes for Belgium and the U.S for different households based on the income distribution within the household. As in Table 5, a positive number indicates a marriage bonus, and a negative (and italicized) number indicates a marriage penalty. Both countries impose a marriage penalty through several avenues. One is via personal allowances. In the U.S., a standard deduction for a married couple is $7,950, which is only 84 percent of double the single taxpayer's deduction of $4,750. This provision puts an effective penalty on taxpayers who chose to get married, as their decision to marry reduces their combined standard deduction by $1,550. In Belgium married taxpayers receive a combined deduction of EUR 9,220, which is about 83 percent of double the single taxpayer's deduction of EUR 5,570. However, the U.S. tax code requires aggregation of income of married couples, while the Belgian code permits limited transfer only if the earnings of one of the spouses do not exceed 30 percent of the earnings of the other spouse.

In the case of the U.S., there is also a different structure of marginal tax rate brackets that creates a marriage penalty: the size of the brackets for married couples is less than double the brackets of the single taxpayer. In addition to the reduction of the standard deduction, newlyweds will find themselves facing a different marginal tax rate structure with higher effective marginal tax rates. Although the marginal rates themselves remain the same, the sizes of the brackets are not the same for married versus single taxpayers, with the exception of the lowest and highest brackets. A single taxpayer moves into the third marginal tax rate bracket at the income level of $28,400, while a married couple filing jointly advances into the third bracket at the income level of only $47,450, only about 1.67 times (and not double) the level of the single taxpayer's threshold. Consequently, a couple that marries will experience an increase in marginal tax rates, as they advance more quickly into higher marginal brackets. It is interesting that the upper marginal tax rate bracket starts at the same income level of $311,950 for single taxpayers and married couples filing jointly.

As seen from Table 6a, the Belgian tax code provides a marriage bonus only to those couples where a significant income differential between the spouses exists, and effectively penalizes households where the spouses earn similar incomes. In contrast, the U.S. code (Table 6b) allows couples with much smaller variation in incomes to derive benefits from marriage. Interestingly, due to the structure of the marginal rate brackets in the U.S., households with different levels of combined taxable incomes experience marriage tax penalties at different levels of income distribution within the household.

Belgium imposes a penalty on married couples by reducing the size of the couple's personal deduction relative to that for single taxpayers. The Belgian tax code provides some relief to couples where one of the spouses earns less than 30 percent of the income of the other spouse, but this relief has no impact on households where both spouses earn equal or near-equal incomes. The tax impact of marriage on a couple where each spouse earns taxable income of the national average wage (or EUR 31,173) is an increase in tax liability upon marriage of EUR 864.00, or 4.85 percent of the total tax liability of the married couple.

One-earner Married Couples

Type IV households consist of couples where only one spouse earns all of the income in the household. In most OECD countries, these households face some special tax provisions that are aimed at reducing income tax liabilities. As noted earlier, Table 4 gives a summary of these provisions by country.

Income splitting/joint assessment is one of these provisions, but even in many of the countries with no provisions for joint assessment of income some provisions for a dependent spouse are often available. These provisions typically take the form either of an additional personal deduction based on family circumstances or of a tax credit. In most instances where these provisions exist, they allow the dependent spouse to earn up to a certain level of income for full tax benefits, and are then reduced as the earned income of the dependent spouse begins to increase. For example, Australia, Austria, Canada, Iceland, and Italy all use tax credits that permit a certain level of earned income by the dependent spouse; Iceland also allows spouses to transfer 95 percent of the unused portion of the personal credit. Countries that offer deductions to couples with one income earner also allow some income to be earned by the dependent spouse before removing the tax benefit.

Some limited splitting of income is practiced in Belgium, where households in which one spouse earns less than 30 percent of the income of the other spouse are allowed to transfer taxable income from the spouse with the higher income as long as that transfer does not exceed the after-transfer income of the lower income spouse.

Interestingly, some countries put effective tax penalties on households with single earners. For example, the Swiss tax code contains a second-earner provision in the form of an allowance that is applied to the spouses with the lower income. Korea provides a deduction to women wage earners in married couples, which tends to have the same effect as a second-earner provision.

Summary

Finland, Greece, Hungary, Mexico, the Netherlands, New Zealand, Spain, Sweden, and Turkey all have a marriage neutral tax structure. Spain permits joint filing, but not income splitting. In contrast, two countries (Belgium and the U.S.) often impose a marriage tax penalty on married couples, at least when the incomes of the spouses are largely similar. The marriage penalty largely arises due to the reduction in married tax exemptions (e.g., the standard deduction) relative to those of single filers, as well as to features in the tax rate structure of singles versus married taxpayers.

In general, the dominant practice of individual income taxation in OECD countries is to choose the individual rather than the family as the unit of taxation, and thereby to tax individuals on their own income even if they are married. As a result, the individual income tax is largely marriage neutral in these countries. This practice of taxing the individual is one that has tended to emerge in the last 30 years or so in these countries. Even so, there remains much diversity in how OECD countries choose to tax the family.

Conclusions

What do we want an individual income tax to achieve?

It is certainly possible to eliminate (or to reduce) the marriage tax, and thereby make the income tax marriage neutral. And there are certainly good reasons for doing so. The existence of the marriage penalty (or the marriage bonus) introduces large, variable, and capricious inequities due to unequal tax treatment of taxpayers based solely on their marital status. Even aside from these inequities, there is increasing evidence that the marriage penalty/bonus distorts decisions in an array of dimensions.(10) More fundamentally, the marriage penalty may weaken the family as a basic societal institution, thereby leading to a range of social problems.

However, the marriage penalty/bonus exists in any (progressive) income tax largely because of the decision to make the family the unit of taxation, and this decision is typically made because the goal of Horizontal Equity Across Families is put at the center of the income tax. Nevertheless, there are other goals of an income tax, such as Equal Payments by Singles and Couples and Marriage Neutrality. Further, there is today an enormous, and increasing, diversity of family structures in most all OECD countries. Fifty years ago, the "traditional family" was typically a single-earner household with a stay-at-home spouse. Now, many individuals choose to live alone. Also, two-earner families are the norm, non-marital cohabitation among opposite and same-sex couples is common, extended families are increasing in numbers, and there are widespread instances of unrelated individuals living together. These newer types of households are, by many definitions, a "family." However, they are treated very differently, and often much less favorably, than the traditional households once envisioned as the norm by the tax codes in many countries. A single individual can also be seen as a type of family, and singles are typically penalized, often quite heavily, by the income tax.

It may well be, as many argue, that the importance of the traditional family unit still justifies its favorable tax treatment. This is clearly the avenue that the U.S. has chosen, and it seems unlikely that this choice will change anytime soon; the desire to base transfers on some measure of family (and not individual) income also points to keeping the family the unit of taxation in the U.S. However, it may also be time to recognize that a diverse society can no longer treat one family structure so differently than others. Elimination of the family as the unit of taxation, and restoration of the individual as the unit, would eliminate the marriage tax/subsidy (and also eliminate the singles tax). It would also re-establish the principle of horizontal equity, broadly defined to apply to individuals and not to families or to couples. Many OECD countries have chosen to follow this route, making the individual the unit of taxation.

Still, it must be recognized that making the individual the unit of taxation is not without problems. An important justification for the use of the family as the unit of taxation is the notion that families with equal family income should pay equal taxes. There is no question that making the individual the unit of taxation would violate this goal of Horizontal Equity Across Families (and it would also violate Equal Payments by Singles and Couples). There are also significant administrative and compliance issues from individual taxation. How are itemized deductions split between partners? How is unearned (or capital) income split between partners? Who claims the tax benefits from children? How do the tax enforcement agencies verify the legitimacy of these declarations? What are the compliance costs of individual filing? Many other such issues naturally arise, and, as shown by our discussion of OECD country practices, the ways in which these issues are resolved vary greatly across countries.

There are no easy choices here. As emphasized throughout, no tax system can achieve simultaneously the goals of Progressivity, Marriage Neutrality, Horizontal Equity Across Families, and Equal Payments by Singles and Couples. More broadly, tax (and transfer) systems reflect an uneasy compromise between these and many other goals, such as raising revenue, minimizing marriage (and other) disincentives, helping low-income individuals and families, reducing administrative and compliance costs, supporting the family as a social institution, and the like. It is inevitable that these goals are often conflicting. Taxing the family requires facing these difficult tradeoffs directly.

References

Alm, James, Stacy Dickert-Conlin, and Leslie A. Whittington. 1999. "The Marriage Tax." The Journal of Economic Perspectives. 13 (3): pp. 193-204.

Alm, James and Leslie A. Whittington. 1996. "The Rise and Fall and Rise ... of the Marriage Tax." National Tax Journal. 49 (4): pp. 571-589.

Alm, James and Leslie A. Whittington. 1997. "Income Taxes and the Timing of Marital Decisions." Journal of Public Economics. 64 (2): pp. 219-240.

Alm, James and Leslie A. Whittington. 1999. "For Love or Money? The Impact of Income Taxes on Marriage." Economica. 66 (3): pp. 297-316.

Alm, James and Leslie A. Whittington. 2003. "Shacking Up or Shelling Out: Income Taxes, Marriage, and Cohabitation." Review of Economics of the Household. 1 (3): pp. 169-186.

Alm, James, Leslie A. Whittington, and Jason Fletcher. 2002. "Is There a 'Singles Tax'? The Relative Income Tax Treatment of Single Households." Public Budgeting & Finance. 22 (2): pp. 69-86.

Berliant, Marcus and Paul Rothstein. 2003. "Possibility, Impossibility, and History in the Origins of the Marriage Tax." National Tax Journal. 56 (2): pp. 303-317.

Blum, Walter J. and Harry Kalvin, Jr. 1953. The Uneasy Case for Progressive Taxation. Chicago, IL: The University of Chicago Press.

Bittker, Boris I. 1975. "Federal Income Taxation and the Family." Stanford Law Review. 27 (4): 1388-1463.

Bull, Nicholas, Janet Holtzblatt, James R. Nunns, and Robert Rebilein. 1998. "Assessing Marriage Penalties and Bonuses." U.S. Department of the Treasury Working Paper. Washington, D.C.: Office of Tax Analysis.

Congressional Budget Office. 1997. For Better or For Worse: Marriage and the Federal Income Tax. Washington, D.C.: Congress of the United States.

Congressional Budget Office. 1998. Estimates of Federal Tax Liabilities for Individuals and Families by Income Category and Family Type, 1995 and 1999. Washington, D.C.: Congress of the United States.

Dickert-Conlin, Stacy. 1999. "Taxes and Transfers: Their Effect on the Decision to End a Marriage." Journal of Public Economics. 73 (2): pp. 217-240.

Dickert-Conlin, Stacy and Scott Houser. 1998. "Taxes and Transfers: A New Look at the Marriage Penalty." National Tax Journal. 51 (2): pp. 175-217.

Feenberg, Daniel R. and Harvey S. Rosen. 1995. "Recent Developments in the Marriage Tax." National Tax Journal. 48 (4): pp. 91-101.

Fisher, Franklin M. 1987. "Household Equivalence Scales and Interpersonal Comparisons." The Review of Economic Studies. 54 (4): pp. 519-524.

Garner, Thesia A., Kathleen Short, Stephanie Shipp, Charles Nelson, and Geoffrey Paulin. 1998. "Experimental Poverty Measurement for the 1990s." Monthly Labor Review. 121 (3): pp. 39-68.

International Bureau of Fiscal Documentation. 2003. European Tax Handbook 2003. Amsterdam, the Netherlands: International Bureau of Fiscal Documentation.

Musgrave, Richard A. 1959. The Theory of Public Finance. New York, NY: McGraw-Hill Book Company.

Musgrave, Richard A. 1976. "ET, OT, and SBT." Journal of Public Economics. 6 (1): pp. 3-16.

Rosen, Harvey S. 1977. "Is It Time to Abandon Joint Filing?" National Tax Journal. 30 (4): pp. 423-428.

Rosen, Harvey S. 1987. "The Marriage Tax Is Down But Not Out." National Tax Journal. 40 (4): 567-575.

Sjoquist, David L. and Mary Beth Walker. 1995. "The Marriage Tax and the Rate and Timing of Marriage." National Tax Journal. 48 (4): pp. 547-558.

Steuerle, C. Eugene. 1999. "Valuing Marital Commitment: The Radical Restructuring of our Tax and Transfer Systems." The Responsive Community. 9 (2): 35-45.

U.S. General Accounting Office. 1996. Income Tax Treatment of Married and Single Individuals. GAO/GGD-96-175. Washington, D.C.

Whittington, Leslie A. and James Alm. 1997. "'Till Death or Taxes Do Us Part: The Effect of Income Taxes on Divorce." Journal of Human Resources. 32 (2): pp. 388-412.

Whittington, Leslie A. and James Alm. 2001. "Tax Reductions, Tax Changes, and the Marriage Penalty." National Tax Journal. 54 (3): pp. 455-472.

Whittington, Leslie A. and James Alm. 2003. "The Effects of Public Policy on Marital Status in the United States." In Marriage and the Economy--Theory and Evidence from Advanced Industrial Societies,

Shoshana Grossbard-Shechtman, ed. New York, NY: Cambridge University Press, pp. 75-101.

Notes

(1.) See Musgrave (1959, 1976) for classic analyses and discussions of the meaning of equity in taxation.

(2.) Of course, households with equal income may not be true equals, given that the households may differ in family size, in family composition, and in other demographic characteristics. Household equivalence scales are an attempt to adjust household income for such differences. For example, see Alm, Whittington, and Fletcher (2002) for an application of equivalence scales to the calculation of the marriage penalty/bonus. However, the identification of the appropriate household equivalence scale is difficult and controversial. See Fisher (1987), Garner et al. (1998), and the Congressional Budget Office (1998) for further discussion.

(3.) See Blum and Kalvin (1953) for a contrary view.

(4.) Separate filing for married couples does not typically give a tax advantage to the couple. Internal Revenue Service statistics show that in recent years over 95 percent of married couples file jointly.

(5.) There are numerous implicit penalties and subsidies imposed by government programs, only some of which are related to income taxation. The U.S. General Accounting Office (1996) identifies 1049 federal laws that involve marital status in some way. See Steuerle (1999) and Alm, Dickert-Conlin, and Whittington (1999) for detailed recent discussions of the tax treatment of the family in the U.S. See Bittker (1975) for an earlier but still relevant discussion.

(6.) We obtain country specific tax structure information from a variety of sources, including from the country's own tax collection agency's website, from the European Tax Handbook 2003 (2003), and from Individual Taxes 2003-2004: Worldwide Summaries, published by Pricewaterhouse Coopers. We relied most heavily upon the European Tax Handbook 2003 (2003) in instances where there were discrepancies in the details of the income tax.

(7.) Germany does allow business income taxation at the municipal level.

(8.) For instance, a single taxpayer with taxable income between EUR 9,252 and EUR 55,007 will be subject to a marginal tax rate that varies between 23.02 and 48.5 percent, depending on the income of the taxpayer.

(9.) An exception is Switzerland, where the highest income tax bracket actually has a lower marginal tax rate than the preceding bracket.

(10.) For example, see Sjoquist and Walker (1996), Alm and Whittington (1997, 1999, 2003), Dickert-Conlin (1999), and Whittington and Alm (1997) for empirical evidence on marital decisions. For a more general survey of much of this literature, see Whittington and Alm (2003).

Biographical Sketches

James Alm is Professor and Chair of the Department of Economics in the Andrew Young School of Policy Studies at Georgia State University, Campus Box 3992, Atlanta, Georgia 30302-3992 (Phone--404 651 0420; Email--jalm@gsu.edu). His research focuses on public economics, where he has examined the responses of individuals and firms to taxation in such areas as the tax treatment of the family, tax compliance, tax reform, the line item veto, social security, housing, indexation, and tax and expenditure limitations. He has also worked extensively on fiscal and decentralization reforms overseas, including projects in Bangladesh, Indonesia, Jamaica, Grenada, Turkey, Egypt, Hungary, China, the Philippines, the Russian Federation, Uganda, Nigeria, and India. He is currently Editor of Public Finance Review and an Associate Editor of Economic Inquiry and Review of Economics of the Household.

Mikhail I. Melnik is an Assistant Professor of Economics at Nicholls State University, 103 White Hall, P. O. Box 2035, Thibodaux, Louisiana 70310 (Phone--985 448 4223; Email--mikhail.melnik@nicholls.edu). He has a masters degree in Economics from Boston University and a doctorate in Economics from Georgia State University. His current research examines the economics of the internet and the taxation of the family.

James Alm

and

Mikhail I. Melnik

Department of Economics

Andrew Young School of Policy Studies

Georgia State University
Table 1. Basic Personal Exemptions and Marginal Tax Rate
Structure--Single Taxpayers (1)

                     Value of US$      Personal Tax Exemptions and
                          in                    Deductions
                    Local Currency
COUNTRY            31 December 2002     Deductions          Credits

       I                  II                 III                IV
AUSTRALIA          A$ 1.707
AUSTRIA            EUR 1.0446              132 (2)           1232 (3)
BELGIUM            EUR 1.0446             5,570 (4)
CANADA             CAN$ 1.5796                                 1241
CZECH REPUBLIC     CZK 30.141               38,040
DENMARK            DKK 7.0822             35,600 (5)
FINLAND            EUR 1.0446
FRANCE             EUR 1.0446                (6)               (7)
GERMANY            EUR 1.0446             1,044 (8)
GREECE             EUR 1.0446
HUNGARY            HUF 225.03                                  (9)
ICELAND            ISK 81.2220                               312,024
IRELAND (10)       EUR 1.0446                                 1,520
ITALY (11)         EUR 1.0446             3,000 (12)         235 (13)
JAPAN              YUN 121.23            380,000 (14)          (15)
KOREA, REPUBLIC    W 1,200.4              1,000,000
LUXEMBURG          EUR 1.0446              600 (16)
MEXICO             PS 10.3125                (17)              (18)
NETHERLANDS        EUR 1.0446                               1,766 (19)
NEW ZEALAND        NZ$ 1.90114
NORWAY (21)        NOK 6.9657                (22)
POLAND             PLZ 4.0512            530.08 (23)
PORTUGAL           EUR 1.0446                                 213.96
SLOVAK REPUBLIC    SKK 40.036               38,760
SPAIN              EUR 1.0446             3,400 (24)
SWEDEN             SEK 8.4700          11,400 - 25,900
SWITZERLAND        CHF 1.38210               (25)
TURKEY             TL 1,634,501          540,000,000
UNITED KINGDOM     * 0.63                   4,615
UNITED STATES      --                     4,750 (26)

                   Marginal Tax Rate (MTR) Structure

                     Upper Income      First non-zero MTR Bracket
                      Level for
                       zero-MTR            Income
COUNTRY                Bracket             Range            MTR

       I                  V                  VI             VII
AUSTRALIA               6,000          6,000 - 20,000        17
AUSTRIA                 3,640          3,640 - 7,270         21
BELGIUM                                   0 - 6,480          25
CANADA                                   0 - 32,182          16
CZECH REPUBLIC                          0 - 109,200          15
DENMARK                                 0 - 198,000           5.5
FINLAND                11,600        11,600 - 14,400         12.5
FRANCE                  4,191          4,191 - 8,242          7.05
GERMANY                 7,235          7,236 - 9,251      19.96 - 23.02
GREECE                 10,000        10,000 - 13,400         15
HUNGARY                                 0 - 650,000          20
ICELAND                                0 - 3,980,000         25.75
IRELAND (10)                             0 - 28,000          20
ITALY (11)                               0 - 15,000          23
JAPAN                                  0 - 3,300,000         10
KOREA, REPUBLIC                        0 - 10,000,000         9
LUXEMBURG               9,750          9,750 - 11,400         8
MEXICO                                  0 - 5,211.78          3
NETHERLANDS                              0 - 15,883         1.7 (20)
NEW ZEALAND                              0 - 38,000        19.5
NORWAY (21)           340,700        340,700 - 872,000     13.5
POLAND                                   0 - 37,024        19
PORTUGAL                                0 - 4,182.12       12
SLOVAK REPUBLIC                          0 - 90,000        10
SPAIN                                    0 - 4,000         15
SWEDEN                284,300        284,300 - 430,000     20
SWITZERLAND            12,800        12,800 - 27,800        0.77
TURKEY                                 0 - 5 billion       15
UNITED KINGDOM                           0 - 1,920         10
UNITED STATES                             0 - 6000         10

                   Marginal Tax Rate (MTR) Structure
                                                            Number of
                   Highest Income Bracket                    Non-zero
                       Staring                                 MTR
                        Income                               Bracket
COUNTRY                 Level                MTR                s

       I                 VIII                 IX                X
AUSTRALIA               60,000                47                4
AUSTRIA                 50,870                50                4
BELGIUM                 29,740                50                5
CANADA                 104,647                29                4
CZECH REPUBLIC         331,200                32                4
DENMARK                295,300                26.5              3
FINLAND                 55,200                35.5              5
FRANCE                  47,131                49.58             6
GERMANY                 55,007                48.5              3
GREECE                  23,400                40                3
HUNGARY              1,350,000                40                3
ICELAND              3,980,000                32.75             2
IRELAND (10)            28,000                42                2
ITALY (11)              70,000                45                5
JAPAN               18,000,000                37                4
KOREA, REPUBLIC     80,000,000                36                4
LUXEMBURG               34,500                38               16
MEXICO                 636,170                35                8
NETHERLANDS             49,464                52                4
NEW ZEALAND             60,001                39                3
NORWAY (21)            872,000                19.5              2
POLAND                  74,048                40                3
PORTUGAL                52,277                40                6
SLOVAK REPUBLIC        564,000                38                5
SPAIN                   45,000                45                5
SWEDEN                 430,000                25                2
SWITZERLAND            664,300                11.5             10
TURKEY               120 billion              40                6
UNITED KINGDOM          29,900                40                3
UNITED STATES          311,950                38.6              6

(1) All monetary values are entered in local currencies.

(2) This is the standard deduction for expenses associated with income.

(3) This includes the basic credit at its maximum value of EUR 887
available to all taxpayers with incomes less than EUR 35,421, the
employment tax credit of EUR 54 available to all taxpayers with earned
income, and EUR 291, the traffic tax credit, also available to
taxpayers with earned incomes. The basic credit is based on a number of
different factors including the income and personal circumstances of
the taxpayer, and is reduced to zero if the total taxable income
exceeds EUR 35,421.

(4) In addition to this personal exemption, the taxpayer is entitled to
a lump-sum deduction for expenses incurred in earning income; the
deduction is based on the income level of the taxpayer, and is capped
at EUR 3,000. It is important to note that the personal exemption is
computed based on the lowest marginal tax rate brackets, and the result
is deducted from the tax liability, while the deduction is applied to
the gross income before the computation of the tax.

(5) Usually the allowance is converted to a tax credit at the lowest
marginal tax rate of 5.5 percent.

(6) Two personal deductions are available to French taxpayers, the
basic deduction and the supplementary deduction. The basic deduction
is the higher of the two amounts: actual substantiated expenses
associated with employment or lump sum of 10 percent of the income net
of social security contributions. The minimum balance for the basic
deduction is UR 370. In addition, the taxpayer can claim a
supplementary deduction of 20 percent on the first EUR 113,900 of the
income net of social security contributions and the basic deduction.

(7) In addition to this deduction, French households are eligible to an
employment bonus tax credit, which is available to low income
households. The credit is computed as 4.4 percent of annual employment
(or self-employment) income.

(8) Employees are entitled to deduct any expenses incurred in earning
income; if those expenses do not exceed EUR 1,044, a lump sum
deduction of EUR 1,044 may be claimed.

(9) An employment credit is available to all taxpayers with employment
income, and is based on the salary of the taxpayer. Taxpayers with
income levels of up to HUF 1.35 million are allowed a credit of 18
percent of their earnings with the limit of HUF 108,000. The credit is
reduced by 18 percent of income in excess of HUF 1.35 million for
taxpayers with incomes in excess of HUF 1.35 million, and is not
available to taxpayers with incomes in excess of HUF 1.95 million.

(10) Low-income taxpayers are exempt from income taxes. In 2002, the
taxpayers with incomes less than EUR 5,210 (double for married couples
filing jointly) were exempt from income taxes.

(11) Italy has implemented a number of changes to its tax code
effective starting with the 2003 tax year. All values reported in
our tables are based on the new formulation of the tax code.

(12) The deduction depends on the type of income earned. The standard
deduction is of EUR 3,000. The deduction is increased to EUR 7,500 for
employment income, to EUR 4,500 for professional income. Note that
taxpayers with incomes in excess of EUR 26,000 are not eligible for any
of the above listed deductions.

(13) This credit applies only to employment income. The credit is a
function of the level of income, and decreases as the income level
increases. The maximum level of the credit is EUR 235. The employment
credit scheme was changed in 2003. Prior to 1 January 2003, the credit
was a function of income, and ranged between EUR 51.65 and EUR
1,146.53. No employment credit is granted if the taxpayer's income
exceeds EUR 52,000. An income tax credit of up to EUR 126 is available
to taxpayers earning professional income.

(14) In addition to the personal allowance of Y 380,000 for national
tax purposes, the taxpayer who derives employment income can also
deduct a standard deduction (earned income relief) depending on the
income level (increasing with income level). Currently the earned
income relief starts at Y 650,000.

(15) Each taxpayer is eligible for a credit equal to 20 percent of
the income tax liability; the credit is capped at Y 250,000.

(16) In addition to the allowance of EUR 600 available to all
employees, employees are granted a deduction of EUR 540 aimed at
compensating employees for expenses associated with earning income.
Employees are also allowed to claim a deduction for commute costs;
the deduction is based on the distance traveled between home and work,
and the minimum deduction is set at EUR 396 per year for the first 4
km.

(17) Employees are allowed to deduct an amount based on the minimum
wage, for a number of different reasons. For instance, employees are
allowed to deduct an amount equal to 30 days minimum wages if they
receive a year-end bonus. Mexico employs no standard deductions or
deductions based on business expenses associated with employment
income.

(18) A salary employment credit is allowed, and can be up to PS
1,157/month. In addition, a low-income credit is available, and is
based on the income of the taxpayer, with the maximum limit on the
credit of PS 36,654.96/year.

(19) In addition, an employee can claim a credit (the employment
rebate) of up to EUR 1,104.

(20) Note that the national social security tax rate for the first two
income tax rate brackets consists of 31.2 percent, making the total
marginal tax rate of the combined social security and income tax 32.9
percent for the first bracket.

(21) We report in our tables statistics about the national income tax
on gross income (toppskatt til staten). In addition, the income tax
system of Norway includes the municipal and national income taxes,
imposed at a flat rate of 28 percent (versus 10.35 percent for the
national income tax). It is important to note that the combined
municipal and national income tax is marriage neutral.

(22) A minimum allowance of 2 percent of the base, with a minimum of
NOK 4,000 and a maximum of NOK 45,700, can be deducted.

(23) In addition to the personal allowance, employees are also allowed
to claim a standard deduction of PLZ 1,199.52 against their employment
income.

(24) In addition to the personal allowance, taxpayers deriving
employment income are also eligible for an employment allowance that
ranges between EUR 2,400 and EUR 3,500 depending on the income level
of the taxpayer.

(25) Employers are also allowed to deduct expenses associated with
generating income; the minimum deduction is of CHF 1,900.

(26) In addition to the standard deduction of $4,750, each taxpayer
(regardless of filing status) is granted a personal allowance of
$3,050.

Table 2. Basic Personal Exemptions and Marginal Tax Rate
Structure--Married Taxpayers (1)

COUNTRY                  Deductions                   Credits
I                            II                         III

BELGIUM            EUR 4610 for each spouse   No difference between
                                                married and single
                                                     taxpayers.

DENMARK            No difference between        If a spouse cannot
                     married and single          fully utilize the
                         taxpayers.            personal tax credit
                                                (based on personal
                                               allowance), then the
                                              remainder is transferred
                                                to the other spouse.

FRANCE               Standard business        No difference between
                       deductions are               married and
                          doubled.               single taxpayers.

GERMANY            No difference between      No difference between
                         married and                married and
                      single taxpayers.          single taxpayers.

ICELAND            No difference between      No difference between
                         married and                married and
                      single taxpayers.          single taxpayers.

IRELAND            No difference between        A personal credit
                     married and single         available to single
                         taxpayers.            taxpayers is doubled
                                                for married couples
                                                  filing jointly.

KOREA, REPUBLIC       The tax code is         No difference between
                     characterized by a             married and
                   large number of available     single taxpayers.
                      deductions. Some
                      deductions apply
                    only to married
                           couples.

LUXEMBURG           The single taxpayer       No difference between
                    deduction is doubled            married and
                     for married couples.        single taxpayers.

NORWAY             No difference between      No difference between
                         married and                married and
                      single taxpayers.          single taxpayers.

POLAND             No difference between      No difference between
                         married and                married and
                      single taxpayers.          single taxpayers.

PORTUGAL           No difference between       The individual's tax
                         married and            credit is increased
                      single taxpayers.       to 356.6 for each spouse.

SWITZERLAND         7000 applies to the       No difference between
                       spouse with the              married and
                       lowest income.            single taxpayers.

UNITED KINGDOM     No difference between        * 210--the credit
                     married and single       increases to * 546 if
                          taxpayers.          one of the spouses is
                                               65  or older, and to
                                              * 553 if older than 74.

UNITED STATES      The standard deduction     No difference between
                     for married couples            married and
                      filing jointly is          single taxpayers.
                          $7,950.4

COUNTRY                   Marginal Tax Rate Structure
I                                   IV

BELGIUM           No difference between married and single taxpayers.

DENMARK             If a spouse's income level is below DKK
                   198,000 (the threshold for the 6 percent
                tax rate addition), then the shortfall amount
                    can be transferred to the other spouse.

FRANCE           The tax rate structure is based on family
                circumstances, and different rates apply to
                     single and married taxpayers. (2)

GERMANY         Income splitting is permitted, in which case the
                   sizes of all tax brackets are double those
                        of the single taxpayer, with the
                     marginal tax rates remaining the same.

ICELAND       There is a two-rate structure. The threshold level
                    for the second MTR bracket begins at
                      ISK 3,980,000 for singles, and
                 the threshold is doubled for married couples.

IRELAND        There are two MTR brackets. Single taxpayers move
                     into the higher bracket at EUR 28,000,
                        while married couples move at
                         EUR 37,000--EUR 56,000. (3)

KOREA, REPUBLIC      No difference between married and single
                                taxpayers.

LUXEMBURG           For married couples filing jointly the rates are
                       simply double those of a single taxpayer.

NORWAY              The upper band for the lowest MTR bracket is
                                increased to 364,000.

POLAND           Joint filing with income splitting is permitted, in
                      which case the aggregate income is equally
                               divided and the single
                         taxpayer rate structure applies.

PORTUGAL           No difference between married and single taxpayers.

SWITZERLAND          The band for the first MTR bracket is raised to
                             24,900. In addition, a different
                                 MTR schedule is applied.

UNITED KINGDOM        No difference between married and single
                                        taxpayers.

UNITED STATES        The size of the first two MTR brackets for married
                             couples is double that of a single
                            taxpayer; the third and fourth MTR
                      brackets for married couples have sizes that
                       are less than double those of single taxpayers.

(1) This table is constructed only for those countries where income
splitting is permitted or where differences in basic tax exemptions
between single and married individuals exist. Australia, Austria,
Canada, the Czech Republic, Finland, Greece, Hungary, Italy, Japan,
Mexico, the Netherlands, New Zealand, the Slovak Republic, Spain,
Sweden, and Turkey do not have differences based upon filing status,
so these countries are omitted from the table.

(2) In addition, the tax benefits based on family circumstances are
limited for households with high income levels.

(3) Single-earner couples advance into the second marginal tax bracket
at an income level of EUR 37,000, but couples where both spouses earn
income are subject to a threshold that is equal to EUR 37,000 plus the
lower of EUR 19,000 or the lower of the two incomes.

(4) In addition, married couples are also allowed two personal
allowances, of $3,050 each.

Table 3. Filing Status and Income Treatment of Married Couples (1)

COUNTRY                Filing          Income
                       Status?       Splitting?

I                        II              III

AUSTRALIA              Single            No
AUSTRIA                Single            No
BELGIUM (2)             Joint           Yes (3)
CANADA                 Single            No
CZECH REPUBLIC         Single            No
DENMARK                Single            No
FINLAND                Single            No
FRANCE                  Joint           Yes
GERMANY             Single/Joint        Yes
GREECE                  Joint            No
HUNGARY                Single            No
ICELAND (4)         Single/Joint        Yes
IRELAND             Single/Joint        Yes
ITALY                  Single            No
JAPAN                  Single            No
KOREA, REPUBLIC        Single            No
LUXEMBURG               Joint           Yes
MEXICO                 Single            No
NETHERLANDS            Single            No
NEW ZEALAND            Single            No
NORWAY              Single/Joint         No
POLAND              Single/Joint        Yes
PORTUGAL                Joint           Yes
SLOVAK REPUBLIC        Single            No
SPAIN               Single/Joint         No
SWEDEN                 Single            No
SWITZERLAND (5)         Joint            No
TURKEY                 Single            No
UNITED KINGDOM         Single            No
UNITED STATES         Joint (6)         Yes

(1) We assume throughout that there are no children or other
dependents present in the household. We allow for single-income
couples, but we assume that the dependant spouse is not disabled

(2) Joint filing by married couples is required; married
taxpayers are taxed separately on their earned income, but income
generated by other sources is aggregated and added to the spouse
with the highest income.

(3) Limited splitting of income is permitted; if the income of the
spouse with the lowest income is less than 30 percent of that of
the other spouse, the spouse with the highest income can transfer
up to 30 percent of his income to the spouse with the lowest income.
The transferred income cannot exceed EUR 8,030.

(4) In the event that the couple selects to proceed with a joint
assessment, all personal allowances and tax brackets of a single
taxpayer are exactly doubled.

(5) At the current time, the tax treatment of married couples
is being debated in Switzerland.

(6) Married taxpayers in the U.S. may file a joint or a separate tax
return. However, the separate return has one-half of the total standard
deduction of a joint return, and the marginal rate brackets are set at
one-half the increments of a joint return, so that there is typically no
tax benefit to filing separately.

Table 4. Treatment of Single-earner Couples (1)

                         Single Earner Household Provisions

COUNTRY                Type of Provision                 Size

AUSTRALIA (2)                Rebate                    A$ 1,489
AUSTRIA                      Credit                     EUR 364
BELGIUM (3)        Income Splitting up to 30%             --
CANADA                       Credit                   CAN$ 1,054
CZECH REPUBLIC             Deduction                  CZK 21,720
DENMARK                    Allowance                  DKK 35,600
FRANCE                  Income Splitting                  --
GERMANY                 Income Splitting                  --
ICELAND                    Credit (5)            Less than ISK 296,423
IRELAND                 Income Splitting                  --
ITALY                        Credit              EUR 42,223 -- 546,189
JAPAN                      Allowance                 Y 380,000 (6)
KOREA, REPUBLIC            Deduction                  W 1,000,000
LUXEMBURG               Income Splitting                  --
NORWAY (7)                     --                         --
POLAND                  Income Splitting                  --
PORTUGAL                Income Splitting                  --
SLOVAK REPUBLIC            Allowance                  SKK 12,000
SWITZERLAND          Different MTR Schedule               --
UNITED STATES         Income Splitting (8)                --

                   Single Earner Household Provisions

                        Cutoff Level of
COUNTRY                    Dependant
                        Spouse's Income

AUSTRALIA (2)               A$ 6,237
AUSTRIA                    EUR 2,200
BELGIUM (3)           30% of Spouse Income
CANADA                     CAN$ 7,756
CZECH REPUBLIC             CZK 38,040
DENMARK                   DKK 35,600 4
FRANCE                         --
GERMANY                        --
ICELAND                        --
IRELAND                        --
ITALY                     EUR 2,840.51
JAPAN
KOREA, REPUBLIC           W 1,000,000
LUXEMBURG                      --
NORWAY (7)                     --
POLAND                         --
PORTUGAL                       --
SLOVAK REPUBLIC            SKK 38,760
SWITZERLAND                    --
UNITED STATES                  --

(1) This table is constructed only for those countries that have special
provisions for single-earner couples. Finland, Greece, Hungary, Mexico,
the Netherlands, New Zealand, Spain, Sweden, Turkey, and the United
Kingdom do not have provisions for single-earner couples, so these
countries are omitted from the table.

(2) In addition, in the event the income of the dependent spouse is
under A$ 10,800, the other spouse can make a contribution of up to A$
3,000 to the retirement savings account of the dependent spouse. The
transfer amount is subject to abatement, and is cut off completely at
the income level of A$ 13,799.

(3) See Table 3.

(4) The personal allowance can be claimed as tax credit at the lowest
tax bracket rate (5.5 percent), which is frequently done in practice.
In addition to the transfer of the personal allowance, the unused part
is added to the threshold amount of the spouse if the income of a
married person does not exceed DKK 198,000 (or the threshold for the
6 percent tax rate).

(5) If the personal credit of ISK 312,024 is not fully utilized by a
married taxpayer, 95 percent of the remainder of the credit can be
transferred to the spouse. Single taxpayers with income levels exceeding
ISK 3,980,000 pay an additional tax of 7 percent on the excess amount,
and this threshold amount is doubled for married couples.

(6) Taxpayers whose incomes do not exceed Y 10,000,000 are also eligible
for a deduction of up to Y 380,000. The deduction is a function of the
income level of the taxpayer, and is reduced as the income level
increases.

(7) Taxpayers with supported dependents (including cohabitants) are also
granted an allowance for their national and municipal income tax
purposes of NOK 5,000. Norway employs a fixed combined national and
municipal income tax rate of 28 percent, so that a spouse with a
dependent spouse will have her tax liabilities reduced by up to NOK
1400 when it comes to national and municipal income taxes. Also, see
Table 3.

(8) Couples are also allowed to claim a personal exemption of $3,050 for
each spouse regardless of the employment status and income level of
each spouse.

Table 5a. Change in Income Tax Liability with Marriage--50
Percent of Average Earnings (1)

                         Type I                  Type II
                        (25, 25)                (31.25, 18.75)

                               % Total                 % Total
                                 Tax                     Tax
                     Net       Liabilit      Net       Liabilit
COUNTRY             Amount        y         Amount        y

       I             III         IV          V           VI
AUSTRALIA             0                      0
AUSTRIA               0                      0
BELGIUM            -480        -523       -256          -28
CANADA                0                      0
CZECH REPUBLIC        0                      0
DENMARK               0                      0
FINLAND               0                      0
FRANCE                0                     60
GERMANY               0                      0
GREECE                0                      0
HUNGARY               0                      0
ICELAND               0                      0
IRELAND               0                     63
ITALY                 0                      0
JAPAN                 0                      0
KOREA, REPUBLIC       0                      0
LUXEMBURG             0                      0
MEXICO                0                      0
NETHERLANDS           0                      0
NEW ZEALAND           0                      0
NORWAY                0                      0
POLAND                0                      0
PORTUGAL             68                     98
SLOVAK
REPUBLIC              0                    927
SPAIN                 0                      0
SWEDEN                0                      0
SWITZERLAND          21                     41
TURKEY                0                      0
UNITED KINGDOM       62                    154
UNITED STATES      -155        -76          21           11

                     Type III              Type IV
                   (37.5, 12.5)            (50, 0)
                               % Total                 % Total
                                 Tax                     Tax
                     Net       Liabilit      Net       Liabilit
COUNTRY             Amount        y         Amount        y

       I             VII         VIII         IX          X
AUSTRALIA            120          7        1,489         84
AUSTRIA                0                     364         62
BELGIUM             -236        -17          642.58      43
CANADA               399         59        1,054        133
CZECH REPUBLIC     1,052         15        3,258         50
DENMARK                0                   1,958         44
FINLAND                0                       0
FRANCE               121                     256
GERMANY                0                       0
GREECE                 0                       0
HUNGARY                0                       0
ICELAND                0                       0
IRELAND              380                   1,013
ITALY                  0                     546        26
JAPAN                  0                  60,800       450
KOREA, REPUBLIC        0                       0
LUXEMBURG             31                     548
MEXICO                 0                       0
NETHERLANDS            0                       0
NEW ZEALAND            0                       0
NORWAY                 0                       0
POLAND               155         17          101          4.56
PORTUGAL             161                     286
SLOVAK
REPUBLIC           1,200         36        1,200         46
SPAIN                  0                       0
SWEDEN                 0                       0
SWITZERLAND           72                      83        157
TURKEY                 0                       0
UNITED KINGDOM       210        123          210         29
UNITED STATES        223        109          740        362

Table 5b. Change in Income Tax Liability with Marriage--100
Percent of Average Earnings (1)

                        Type I                   Type II
                       (50, 50)                (62.5, 37.5)

                                % Total                 % Total
COUNTRY              Net          Tax         Net         Tax
                    Amount     Liability     Amount     Liability

I                      III          IV           V           VI

AUSTRALIA                0                        0
AUSTRIA                  0                        0
BELGIUM               -576          -12        -624         -12
CANADA                   0                        0
CZECH REPUBLIC           0                        0
DENMARK                  0                        0
FINLAND                  0                        0
FRANCE                   0                      198          38
GERMANY                  0                        0
GREECE                   0                        0
HUNGARY                  0                        0
ICELAND                  0                   54,545
IRELAND                  0                        0
ITALY                    0                        0
JAPAN                    0                        0
KOREA, REPUBLIC          0                        0
LUXEMBURG                0                      191          20
MEXICO                   0                        0
NETHERLANDS              0                        0
NEW ZEALAND              0                        0
NORWAY                   0                        0
POLAND                   0                        0
PORTUGAL               285          100         306         107
SLOVAK
REPUBLIC                 0                        0
SPAIN                    0                        0
SWEDEN                   0                        0
SWITZERLAND            220          414         178         132
TURKEY                   0                        0
UNITED KINGDOM         210           13         210          13
UNITED STATES         -233          -11        -146          -7

                         Type III                 Type IV
                        (75, 25)                 (100, 0)

                                % Total                 % Total
COUNTRY              Net          Tax         Net         Tax
                    Amount     Liability     Amount     Liability

I                      VII         VIII          IX          X

AUSTRALIA                0                     1,489        17
AUSTRIA                  0                       364         8
BELGIUM               -672          -11        2,054       312
CANADA                   0                     1,054        25
CZECH REPUBLIC           0                     4,344        18
DENMARK                  0                     8,396        58
FINLAND                  0                         0
FRANCE                 471           91        1,367       263
GERMANY                  0                         0
GREECE                   0                         0
HUNGARY                  0                         0
ICELAND            127,859                   274,486
IRELAND                254           13        1,520        75
ITALY                    0                       497         9
JAPAN                    0                    60,800        44
KOREA, REPUBLIC          0                    90,000        21
LUXEMBURG              913          109        2,945       285
MEXICO                   0                         0
NETHERLANDS              0                         0
NEW ZEALAND              0                         0
NORWAY                   0                         0
POLAND                   0                       101         2
PORTUGAL               327          114          782       274
SLOVAK
REPUBLIC                 0                     2,400        21
SPAIN                    0                         0
SWEDEN                   0                         0
SWITZERLAND            231          101          258        39
TURKEY                   0                         0
UNITED KINGDOM         210           10          210         7
UNITED STATES           55            3        1,238        58

Table 5c. Change in Income Tax Liability with Marriage--200
Percent of Average Earnings (1)

                        Type I                  Type II
                      (100, 100)               (125, 75)

                               % Total                  % Total
                    Net         Tax          Net         Tax
COUNTRY            Amount      Liability    Amount      Liability

I                    III         IV           V           VI
AUSTRALIA               0                      0
AUSTRIA                 0                      0
BELGIUM              -864         -5        -912          -5
CANADA                  0                      0
CZECH REPUBLIC          0                      0
DENMARK                 0                      0
FINLAND                 0                      0
FRANCE                  0                    253           7
GERMANY                 0                      0
GREECE                  0                      0
HUNGARY                 0                      0
ICELAND                 0                      0
IRELAND                 0                    806          11
ITALY                   0                      0           0
JAPAN                   0                      0
KOREA, REPUBLIC    45,000           5     45,000           5
LUXEMBURG               0                    699           9
MEXICO                  0                      0
NETHERLANDS             0                      0
NEW ZEALAND             0                      0
NORWAY                  0                      0
POLAND                  0                      0
PORTUGAL              285          15        293          16
SLOVAK
REPUBLIC                0                      0
SPAIN                   0                      0
SWEDEN                  0                      0
SWITZERLAND           466           34       921          66
TURKEY                  0                      0
UNITED KINGDOM        210            4       210           4
UNITED STATES        -578           -8       -93          -1

                       Type III                 Type IV
                      (150, 50)                (200, 0)

                              % Total                  % Total
                  Net         Tax          Net         Tax
COUNTRY           Amount      Liability    Amount      Liability

I                    VII         VIII         IX          X
AUSTRALIA               0                     1,489        5
AUSTRIA                 0                       364        2
BELGIUM              -768          -4         3,535       18
CANADA                  0                     1,054        8
CZECH REPUBLIC          0                     6,950       10
DENMARK             4,857           8        13,838       16
FINLAND                 0                         0
FRANCE                683          18         3,459       92
GERMANY                 0                         0
GREECE                  0                         0
HUNGARY                 0                         0
ICELAND            17,831           3       336,702       60
IRELAND                 0                     3,500       35
ITALY                   0                       497        3
JAPAN                   0                   109,440       18
KOREA, REPUBLIC    45,000           5       180,000        5
LUXEMBURG           2,367          31         7,969      103
MEXICO                  0                         0
NETHERLANDS             0                         0
NEW ZEALAND             0                         0
NORWAY              3,146          32         3,146      101
POLAND                  0                     1,027       11
PORTUGAL              462          24         1,312       71
SLOVAK
REPUBLIC                0                     3,360        7
SPAIN                   0                         0
SWEDEN                  0                         0
SWITZERLAND         1,043          51         1,399       32
TURKEY                  0                         0
UNITED KINGDOM        250           3           210        3
UNITED STATES         872          12         4,274       59

Table 5d. Change in Income Tax Liability with Marriage--400
Percent of Average Earnings (1)

                                 Type I                 Type II
                               (200, 200)              (250, 150)

                                       % Total                 % Total
COUNTRY                     Net          Tax         Net         Tax
                           Amount      Liability    Amount    Liability
I                          III           IV          V           VI

AUSTRALIA                   0                       0
AUSTRIA                     0                       0
BELGIUM                  -960          -2        -960           -2
CANADA                      0                       0
CZECH REPUBLIC              0                       0
DENMARK                     0                       0
FINLAND                     0                       0
FRANCE                      0                      63            1
GERMANY                     0                       0
GREECE                      0                       0
HUNGARY                     0                       0
ICELAND                     0                  39,441            2
IRELAND                     0                       0
ITALY                       0                       0
JAPAN                       0                       0
KOREA, REPUBLIC        90,000          11      90,000           11
LUXEMBURG                   0                       0
MEXICO                      0                       0
NETHERLANDS                 0                       0
NEW ZEALAND                 0                       0
NORWAY                      0                       0
POLAND                      0                       0
PORTUGAL                  285           5       6,053           10
SLOVAK
REPUBLIC                    0                       0
SPAIN                       0                       0
SWEDEN                      0                       0
SWITZERLAND             3,469          42       2,127           21
TURKEY                      0                       0
UNITED KINGDOM            210           1         210            1
UNITED STATES          -1,542          -6      -1,426           -6

                             Table III                 Type IV
                             (300, 100)                (400, 0)

                                   % Total                 % Total
COUNTRY                  Net          Tax         Net         Tax
                       Amount      Liability    Amount     Liability
I                       VII          VIII         IX           X

AUSTRALIA                   0                   1,489          2
AUSTRIA                     0                     364          1
BELGIUM                  -912          -2       3,535          7
CANADA                      0                   1,054          3
CZECH REPUBLIC              0                   6,950          3
DENMARK                     0                  13,838          6
FINLAND                     0                       0
FRANCE                  1,223           8       7,149         49
GERMANY                     0                       0
GREECE                      0                       0
HUNGARY                     0                       0
ICELAND               119,160           7     575,023         32
IRELAND                     0                   3,500         11
ITALY                       0                     422          1
JAPAN                       0                 108,300          4
KOREA, REPUBLIC        90,000           9     270,000          2
LUXEMBURG               5,631          18       7,870         25
MEXICO                      0                       0
NETHERLANDS                 0                       0
NEW ZEALAND                 0                       0
NORWAY                      0                   3,146          2
POLAND                  1,505           7       7,463         36
PORTUGAL                1,021          17       2,784         46
SLOVAK
REPUBLIC                    0                   4,560          3
SPAIN                       0                       0
SWEDEN                      0                       0
SWITZERLAND             1,378          10       1,039          5
TURKEY                      0                       0
UNITED KINGDOM            210           1         210          1
UNITED STATES            -462          -2       5,836         24

Table 5e. Average Earnings in 2002

COUNTRY            Average Earnings in 2002
                       (local currency)

AUSTRALIA                   45851
AUSTRIA                     23963
BELGIUM                     31173
CANADA                      38568
CZECH REPUBLIC              206042
DENMARK                     305306
FINLAND                     29126
FRANCE                      21884
GERMANY                     33226
GREECE                      11575
HUNGARY                    1056835
ICELAND                    2277709
IRELAND                     25330
ITALY                       21466
JAPAN                      4254270
KOREA, REPUBLIC            21653892
LUXEMBURG                   31363
MEXICO                      58812
NETHERLANDS                 30919
NEW ZEALAND                 39411
NORWAY                      291900
POLAND                      25396
PORTUGAL                     8325
SLOVAK REPUBLIC             153696
SPAIN                       16219
SWEDEN                      241766
SWITZERLAND                 64231
TURKEY                    9938274440
UNITED KINGDOM              19708
UNITED STATES               32188

(1) The effects in Columns III, V, VII, and IX of Tables 5a to 5d
represent the difference between the combined tax liability of two
individuals if they file as single versus their tax liability if
they marry. A positive number indicates a marriage bonus; a
negative (and italicized) number indicates a marriage penalty.
No values can be entered in the percent columns when the family
tax liability is zero.

Table 6a. Marriage Penalty/Bonus in Belgium (1)

Fraction of the        Couples with Combined
Couple's Total        Income Equal to 50% of
 Income Earned           Average Earnings
 by the Spouse
with the Lower                       % of Tax
    Income         Amount (2)     Liability (3)

      0 (4)        642.58            42.86
      0.05         445.90            30.34
      0.1          250.77            17.38
      0.15          80.41             5.68
      0.2          -77.70            -5.59
      0.25 (5)    -235.82           -17.32
      0.3         -240.00           -20.32
      0.35 (6)    -240.00           -24.10
      0.4         -344.04           -37.61
      0.45        -480.00           -52.77
      0.5 (7)     -480.00           -52.77

Fraction of the        Couples with Combined
Couple's Total       Income Equal to 100% of
 Income Earned          Average Earnings
 by the Spouse
with the Lower                     % of Tax
    Income         Amount (2)     Liability (3)

      0 (4)       2,054.76            31.99
      0.05        1,500.30            23.82
      0.1           945.84            15.33
      0.15          382.14             6.31
      0.2          -254.15            -4.23
      0.25 (5)     -672.00           -11.27
      0.3          -658.88           -11.69
      0.35 (6)     -624.00           -11.62
      0.4          -624.00           -12.15
      0.45         -671.19           -13.53
      0.5 (7)      -576.00           -11.85

Fraction of
 the Couple's     Couples with Combined Income
 Total Income      equal to 200% of Average
  Earned by               Earnings
  the Spouse
with the Lower                         % of Tax
    Income          Amount (2)       Liability (3)

    0 (4)          3,535.00           17.82
    0.05           3,535.00           19.34
    0.1            3,535.00           21.14
    0.15             544.91            2.90
    0.2             -198.33           -1.06
    0.25 (5)        -768.00           -4.12
    0.3             -864.00           -4.73
    0.35 (6)        -898.88           -4.99
    0.4             -894.32           -5.01
    0.45            -864.00           -4.85
    0.5 (7)         -864.00           -4.85

 Fraction of
 the Couple's     Couples with Combined Income
 Total Income       equal to 400% of Average
  Earned by                 Earnings
  the Spouse
with the Lower                       % of Tax
    Income          Amount (2)     Liability (3)

    0 (4)            3,535.00           6.93
    0.05             3,535.00           7.38
    0.1              4,846.06          10.82
    0.15             5,691.07          13.33
    0.2               -674.90          -1.39
    0.25 (5)          -912.00          -1.89
    0.3               -942.33          -1.96
    0.35 (6)          -960.00          -2.00
    0.4               -960.00          -2.01
    0.45              -960.00          -2.01
    0.5 (7)           -960.00          -2.01

(1) The average income for Belgium in 2002 was EUR 31,173.

(2) This is computed as the difference in tax liabilities
of the couple filing as singles versus as married. A positive
number indicates a marriage bonus; a negative (and italicized)
number indicates a marriage penalty.

(3) This is computed as percentage of the combined income tax
liabilities of the couple if they file as married taxpayers.

(4) This earnings distribution corresponds to a Type IV household
(e.g., a 0-100 percent distribution).

(5) This earnings distribution corresponds to a Type III
household (e.g., a 25-75 percent distribution).

(6) This earnings distribution approximates a Type II
household (e.g., a 37.5-62.5 percent distribution)

(7) This earnings distribution corresponds to a Type I
household (e.g., a 50-50 percent distribution).

Table 6b. Marriage Penalty/Bonus in the United States (1)

Fraction of the         Couples with Combined
Couple's Total          Income Equal to 50% of
Income Earned             Average Earnings
by the Spouse
with the Lower                       % of Tax
Income                Amount (2)     Liability (3)

0 (4)                    739.70          361.89
0.05                     619.00          302.84
0.1                      498.29          243.78
0.15                     383.59          187.67
0.2                      303.12          148.30
0.25 (5)                 222.65          108.93
0.3                      142.18           69.56
0.35 (6)                  61.71           30.19
0.4                      -18.76           -9.18
0.45                     -99.23          -48.55
0.5 (7)                 -155.00          -75.83

Fraction of the        Couples with Combined
Couple's Total        Income Equal to 100% of
Income Earned             Average Earnings
by the Spouse
with the Lower                        % of Tax
Income               Amount (2)     Liability (3)

0 (4)                  1,237.50           58.35
0.05                     996.09           46.97
0.1                      754.68           35.59
0.15                     513.27           24.20
0.2                      271.86           12.82
0.25 (5)                  55.15            2.60
0.3                      -25.32           -1.19
0.35 (6)                -105.79           -4.99
0.4                     -186.26           -8.78
0.45                    -232.50          -10.96
0.5 (7)                 -232.50          -10.96

Fraction of the          Couples with Combined
Couple's Total         Income Equal to 200% of
Income Earned            Average Earnings
by the Spouse
with the Lower                        % of Tax
Income                Amount (2)     Liability (3)

0 (4)                  4,273.50           58.59
0.05                   3,404.42           46.67
0.1                    2,535.35           34.76
0.15                   1,851.91           25.39
0.2                    1,304.72           17.89
0.25 (5)                 872.22           11.96
0.3                      485.96            6.66
0.35 (6)                  99.71            1.37
0.4                     -286.55           -3.93
0.45                    -577.62           -7.92
0.5 (7)                 -577.62           -7.92

Fraction of the         Couples with Combined
Couple's Total         Income Equal to 400% of
Income Earned              Average Earnings
by the Spouse
with the Lower                       % of Tax
Income               Amount (2)     Liability (3)

0 (4)                  5,836.50           23.65
0.05                   3,905.22           15.83
0.1                    2,481.46           10.06
0.15                   1,469.58            5.96
0.2                     503.939            2.04
0.25 (5)               -461.701           -1.87
0.3                    -1136.27           -4.60
0.35 (6)               -1329.40           -5.39
0.4                    -1522.52           -6.17
0.45                   -1542.06           -6.25
0.5 (7)                -1542.06           -6.25

(1) The average income for the United States in 2002 was $32,188.

(2) This is computed as the difference in tax liabilities
of the couple filing as singles versus as married. A positive
number indicates a marriage bonus; a negative (and italicized)
number indicates a marriage penalty.

(3) This is computed as percentage of the combined income tax
liabilities of the couple if they file as married taxpayers.

(4) This earnings distribution corresponds to a Type IV household
(e.g., a 0-100 percent distribution).

(5) This earnings distribution corresponds to a Type III household
(e.g., a 25-75 percent distribution).

(6) This earnings distribution approximates a Type II household
(e.g., a 37.5-62.5 percent distribution).

(7) This earnings distribution corresponds to a Type I household
(e.g., a 50-50 percent distribution).
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Author:Alm, James; Melnik, Mikhail I.
Publication:Public Finance and Management
Geographic Code:8AUST
Date:Jan 1, 2005
Words:15165
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