Today’s Supreme Court ruling on the federal Defense of Marriage Act (DOMA) goes beyond traditional arguments on whether or not the federal government should recognize same-sex marriage. While there are strong and differing opinions on whether the Supreme Court’s decision was the right one, it has shed light on a topic that all can agree on: The federal tax code is sorely in need of reform.
Striking down DOMA means that the federal government must recognize same-sex marriages as equal to opposite-marriages when it comes to federal tax and benefit laws that apply to spouses. Thus, same-sex married couples who come from a state that legally recognizes their marriage will be entitled to spousal benefits under Social Security and federal health care as well as tax exemptions. It sounds like a win-win situation for them.
However, the case that brought DOMA to the Supreme Court in the first place involved a same-sex couple who lived in New York and were legally married in Canada. By the time New York state legally recognized same-sex marriage, one of the spouses had died (2009), leaving the other spouse to pay a whopping $363,000 in estate taxes because she was not entitled to the federal spousal exemption. Many argue that the estate tax only hits a select few. But let’s be honest, it’s a tax on the dead who most likely paid taxes on those assets while they were living.
Another financial implication of the DOMA is the marriage penalty. It is estimated that about 120,000 same-sex couples are legally married. If they are high-earning couples with similar incomes, they will be hit with the marriage penalty that many opposite-sex couples have complained about for years. According to the House Ways and Means Committee, the average penalty paid by married couples this year is $591. On the up side, the Treasury could get an additional $71 million in revenue from newly recognized married couples.
Of course, all of these bizarre subsidies and penalties based on marital status, income, etc. could be eliminated if we simply taxed consumption. In this way, individuals would not be penalized for working and saving, nor would be they be penalized or rewarded for getting married, having children, accumulating wealth, or a host of other behaviors that the government deems worthy (or not).
In a modern society that values equality among individuals, it is a shame that our tax code does not.