Poster #119 - The Impact of Tax Cuts and Jobs Act on Marriage Penalty and Racial Equity Across States

• In Event: Saturday Poster Luncheon

Abstract

“Marriage penalty” refers to the situation where married couples pay more income tax filing jointly than they would as single filers. This penalty is more pronounced when both spouses are employed with similar incomes, which is more common among Black households, making them disproportionately experience this.

The 2017 Tax Cuts and Jobs Act (TCJA) is a comprehensive federal tax reform, which increased the standard deductions, and reduced some personal exemptions. States differ in their conformity to this federal reform. Some adopted both the increased deductions and the exemption elimination, while others adopted only one or neither. What that means for married couples is different across states. This study asks (1) How did the marriage tax change after TCJA across states? (2) How did racial disparities in marriage tax change after TCJA?

Using individual-level data from the 2013-2019 American Community Survey, this study applies the NBER TAXSIM application to calculate the tax liabilities under joint and separate filing scenarios. A difference-in-difference approach is utilized the assess the change across states and racial groups. Further, this study also used Gelbach Decomposition for identifying the most significant characteristics contributing to marriage penalty.

Preliminary results reveal substantial variation in racial disparities in marriage tax penalties across states. States that lack state-level Earned Income Tax Credits (EITCs), use compressed income tax brackets, and offer limited support for low-income families are more likely to experience an increase in racial disparities following the TCJA. In contrast, states with policies that mitigate structural inequities, such as child and dependent care tax credits and renters’ tax relief, tend to reduce or buffer marriage penalties, particularly for minority couples. Key factors contributing to this disparity include smaller income difference between spouses, number of dependents, and differential rates of homeownership, all of which intersect with race and class in shaping tax outcomes.

While tax system is usually regarded as race-neutral, this study explores the structural inequity embedded in the public financial system and how that can reinforce inequities. While the TCJA broadly increased after-tax income for many married households, its benefits were unevenly distributed. Minority couples, especially Black dual-earner households with children and limited access to homeownership, were more likely to face increased marriage tax penalties. It also addresses a gap in research on state-level effects of TCJA and its unintended consequences.

Author

• Haiyue Jiang, University of Minnesota
  Presenting Author