Table of Contents introduction & vocabulary 2

Taxation of the Family

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  Tax Imposed
  
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    Code § 1(a). Tax imposed—Married individuals filing joint returns and surviving spouses.
    
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    Code § 1(b). Tax imposed—Heads of households.
    
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    Code § 1(c). Tax imposed—Unmarried individuals (other than surviving spouses and heads of households.
    
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    Code § 1(d). Tax imposed—Married individuals filing separate returns.
    
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    Code § 1(e). Tax imposed—Estates and trusts.
    
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    Code § 1(f). Tax imposed—Phaseout of marriage penalty in 15-percent bracket; adjustments in tax tables so that inflation will not result in tax increases.
    
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    Code § 1(g). Tax imposed—Certain unearned income of children taxed as if parent’s income.
    
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    Code § 1(i). Tax imposed—Rate reductions after 2000.
    
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  Code § 2. Definitions and special rules.
  
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  Code § 24. Child tax credit.
  
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  Code § 32. Earned income.
  
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  Code § 71(a). Alimony and separate maintenance payments—General rule.
  
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  Code § 71(b). Alimony and separate maintenance payments—Alimony or separate maintenance payments defined.
  
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  Code § 71(c). Alimony and separate maintenance payments—Payments to support children.
  
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  Code § 151. Allowance of deductions for personal exemptions.
  
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  Dependents:
  
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    Code § 152(a). Dependent defined—In general.
    
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    Code § 152(b). Dependent defined—Exceptions.
    
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    Code § 152(c). Dependent defined—Qualifying child.
    
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    Code § 152(d). Dependent defined—Qualifying relative.
    
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    Code § 152(e). Dependent defined—Special rule for divorced parents, etc.
    
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  Code § 215(a). Alimony, etc., payments—General rule.
  
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  Code § 215(b). Alimony, etc., payments—Alimony or separate maintenance payments defined.
  
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  Taxes serve 4 purposes
  
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    Measure well-being relative to each other
    
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    Redistribute based on that measure
    
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    Create incentives/penalties for socially desirable activities
    
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    Administribility
    
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  Central Problems:
  
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    Income shifting—rate arbitrage
    
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      If families are shifting income to lower tax brackets
      
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      To fix this problem:
      
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        Earned income is taxed to the person who earned it—property is taxed to the person who owns that property
        
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    § 1(g) Kiddie tax—unearned income can be shifted to kids—can make kids owner of assets  income from assets belongs to low-marginal kid—will only have to pay gift tax if it’s over a large amount (right now $1M)
    
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      to fix this problem you tax kids at their parents’ rate for income from assets
      

“income tax unfairly discriminates against working married couples”—violates equal protection clause of 14^th amendment—denied “there can be no peace in this area, only an uneasy truce”

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  If A and B married and C and D married
  
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    if we had them pay just their combined amount A and B would pay $2 and C and D would pay $3
    
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    what about implicit benefit of C not having to work? Could taxing that be fair?
    
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  Most recent estimates—42% get marriage bonuses, 51% get marriage penalties
  
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    Penalties more common for low-income people because they lose eligibility for the EITC
    
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      EITC starts phasing out around $16,000
      
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  Globally—most countries have the same rate structure for couples and singles
  
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  Joint filing tends to discourage secondary earners from working (usually women)
  
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  Why doesn’t married filing separately solve this problem?
  
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    Provisions often drafted to NOT apply to MFS
    
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    Economically, MFS is almost always a bad idea
    
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  Gay and Lesbian Couple
  
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    Federal Defense of Marriage Act—LGBTQ couples can’t file jointly
    
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    Mirrors global tax systems—everyone files individually
    
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    Could get a tax penalty for marriage  could increase collection for the government
    
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    Other costs of LGBTQ couples:
    
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      Health care is income for partners but not for spouses
      
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      Social Security
      

1. 
   The Earned Income Tax Credit currently costs about $48 billion and the Child Tax Credit about $54 billion per year. By comparison, the federal government spends about $17 billion annually on Temporary Assistance for Needy Families (welfare) and $35 billion on Food Stamps.
   
   1. 
      What effect does the EITC have on the marginal tax rate of a head of household filer with two children when the EITC is phasing in? What about when it is phasing out?
      

As it’s phasing out 21.06%  for each dollar that you earn over a cap you lose 21.06% of your earned income credit

2. 
   What effect does the Child Tax Credit have on marginal tax rates for a head of household filer with two children?
   

When it’s phasing in at $3,000 you start getting the CTC and then it phases out later

3. 
   What effect do you imagine that TANF and Food Stamps have on marginal tax rates?